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SAUDI ARABIA: The year 2014
may have been a good year for the Saudi insurance industry; however, fierce
competition is hindering further growth of the segment; and may even drive
the number of operators down in the world’s largest Takaful market as
players grapple with a stiffer operating environment, according to
analysts.
“The largest Saudi insurers show a good and consistent level of
underwriting profitability, with combined ratios typically in the low 90%
range. However, the overall industry shows a different picture, with a poor
underwriting performance driven by the high level of competition,” noted
Moody’s Investor Service in its latest report on the Saudi Arabian
insurance market. The rating agency also said: “We expect that the number
of market players may need to reduce over time, driven by the stringencies
of operating in the new pricing environment enforced by the actuarial
review of the reserves, coupled with the desire to improve profitability.”
Practicing a unique cooperative model, the Kingdom boasts 37 licensed
insurance and reinsurance companies and 76 brokers and 76 insurance
agencies, and has performed relatively well as an industry. Registering
US$8.1 billion in premiums last year, Saudi Arabia is not only the largest
insurance market in the GCC but also the region’s second-fastest growing
insurance market in 2014, with an eight-year compound annual growth rate of
20.3%.
Yet, despite the phenomenal growth of the industry, Saudi Arabia remains a
severely underserved and highly concentrated market. At 1.1%, the insurance
penetration level of the Kingdom is the lowest as compared to regional
peers. The industry is also highly skewed towards the medical and health
insurance segment. However, Moody’s is optimistic that the market would be
more inclusive of other products including life and non-life insurance in
the coming years buoyed by the increasing wealth of the population and
greater market awareness.
Improving economic conditions and rising awareness in addition to other
market factors including mandatory health and third-party motor coverage as
well as prudent actuarial reserve modeling have steadily boosted the Saudi
insurance segment over the past several years according to Moody’s. The
impact of these measures and conditions are evident as the Kingdom’s
insurance players lifted themselves out of the red, with a combined profit
of SAR700 million (US$186.59 million) in 2014 against a loss exceeding
SAR1.4 billion (US$373.18 million) the previous year. And the rating agency
expects the industry to continue recording good underwriting profit in 2015
and 2016, driven by the price hardening in the medical and motor lines.
So it seems that the positive effects from actuarial reserve modeling
implemented in 2013 are finally materializing. And while the Saudi
insurance industry may see a shrinking in the absolute number of players
either via consolidation or otherwise, the segment looks poised for further
enhancement in terms of product lines and profitability – exciting times
ahead.
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