Saudi insurance sector to outperform oil



The Saudi insurance sector will grow by up to 17 per cent a year over the next five years thanks to regulation enforcement and growth in motor insurance, the Dubai-based investment bank Arqaam Capital said yesterday.

“We expect the Saudi insurance sector to be the least affected by weaker oil prices, budget cuts and the tightening liquidity as the enforcement of existing regulations will propel motor and medical premiums growth at a rate of 15-25 per cent and 14-16 per cent respectively,” wrote Jaap Meijer, the managing director and head of equity research at Arqaam Capital, in a report.

According to an Alpen Capital report released last year, the Saudi central bank has issued several new regulations regarding underwriting practices, reserving, actuarial-backed pricing and solvency requirements in the past two years, to help grow the industry.

It forecast the kingdom would overtake the UAE as the largest insurance market in the Arabian Gulf region between 2015 and 2020.

There are 35 licensed insurance and reinsurance companies operating in the kingdom, with a low penetration rate of 1.08 per cent in 2014. Gross written premiums in 2014 grew to 30.48 billion riyals (Dh29.82bn), a 20.8 per cent increase from 25.24bn riyals in 2013, according to the Saudi central bank, the Saudi Arabian Monetary Agency (Sama). This compares with a 19.2 per cent growth rate between 2013 and 2012.

According to Arqaam, Sama’s enforcement of medical and third-party liability insurance would represent half of this growth and would add 3.5 million medical policyholders and 3 million insured vehicles.

“Motor holds the most growth potential as it lags considerably behind medical in enforcement, pricing and penetration,” said Mr Meijer. “We see the segment doubling premiums by 2018 on re-pricing, cost of inflation and an additional two million insured vehicles.”

Health insurance was the largest line of business in 2014, representing 51.6 per cent of gross written premiums that year. Gross written premiums for health grew by 21.9 per cent in 2014 to 15.7bn riyals from 12.9bn riyals in 2013.

Motor insurance was the second largest line of business in 2014, representing 26.3 per cent of gross written premiums for that year. Gross written premiums for motor increased by 26.3 per cent to 8bn riyals from 6.3bn riyals a year earlier.

“But the Saudi insurance sector has still to grapple with a number of issues. A key weakness of the sector is its inadequate pricing, which means that more than half of insurers incur underwriting losses,” said Mr Meijer. “Many barely profitable insurers rely on investment income or unwinding claims to remain profitable.”

Arqaam forecast that higher interest rates would help increase earnings by 5 to 8 per cent.

Some of the top insurance companies in Saudi Arabia include The Company for Cooperative Insurance or Tawuniya; Bupa Arabia for Cooperative Insurance; and Mediterranean & Gulf Cooperative Insurance & Reinsurance (MedGulf).

While Tawuniya shares rose 58.6 per cent last year and Bupa gained 36.0 per cent, MedGulf lost 44.4 per cent after a downgrade by AM Best on concerns about “deterioration in the capital position”.

dalsaadi@thenational.ae

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