Higher premiums expected in Saudi Arabia insurance sector

Saudi insurers’ total gross premiums written rose to 9 billion riyals in the first six months of 2015, compared with 15.3bn riyals in the first half of last year.

The Saudi insurance sector is set to ride out the impact of weaker oil prices with premiums predicted to increase by a quarter this year.

The decision by the kingdom’s regulatory authorities to encourage insurers to write premiums that reflect real risk instead of undercutting each other should boost profits, said Standard & Poor’s.

Almost two-thirds of insurers in the kingdom have reported positive earnings for the first half of the year.

Saudi insurers’ total gross premiums written rose to 19 billion riyals (Dh8.81bn) in the first six months of 2015, compared with 15.3bn riyals in the first half of last year.

The sector also reported net comprehensive income of 183.2 million riyals for the first half, a year-on-year increase of 61.3 per cent.

The Saudi Arabian Monetary Agency (Sama) made actuarial pricing compulsory for all insurance firms in early 2013, obliging insurers to price premiums according to clearly defined risk criteria, after extreme price competition among insurers weighed heavily on bottom lines.

“Growing demand for insurance in the near term, combined with regulatory encouragement of highly prudential “actuarial pricing” after the price war of 2012-13, means that Saudi Arabia’s insurers are showing few signs of being affected by the fall in oil prices,” said S&P, noting that the kingdom’s insurers underwrite relatively little commercial or industrial risk business.

Demand for insurance products is forecast to increase thanks to the country’s rapid population growth rate, coupled with local employers increasingly offering Saudi nationals access to the same group medical cover enjoyed by their expatriate colleagues.

The Saudi insurance sector is dominated by three companies – Bupa Arabia, Tawuniya and MedGulf Coop – which together account for 52.3 per cent of premiums.

The prevalence of a large number of insurers in the kingdom – 20 of which have a market share of less than 2 per cent – has led some to predict consolidation.

However such a trend is unlikely in the near future, according to S&P.

“Elevated share prices relative to net asset values, compounded by the sometimes ambiguous legal framework in which Saudi insurers must operate, make it extraordinarily challenging for local insurance companies to successfully complete any merger or acquisition.”

S&P said that cross-border activity by local insurers was equally unlikely, given Sama’s stated preference for insurers “to confine their activities to improving their representation and distribution across the extremely large land mass of Saudi Arabia itself”.

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