Recent Study: Saudi Arabia Insurance Report Q2 2013

Key Insights And Key Risks

As of early 2013, the latest results from Saudi Arabia's listed insurance companies (in relation to 2012) highlight the weaknesses rather than the (undoubted) strengths of the sector. Although insurance is very underdeveloped by most metrics, top-line growth in premiums has been mixed. Companies have had to deal with surging claims expenses, which in some cases have been exacerbated by a deliberate policy of increasing the retention ratio. Generally, though, retention ratios remain low. Investment earnings have been mixed. Worst of all, prices and margins have been compressed by cut-throat competition. This appears to be the consequence of a desperate bid by too many companies, particularly the recent entrants to the market, to boost market shares regardless of profitability.

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Previously, we had had some confidence that non-life penetration would rise quite sharply thanks to the growing acceptance of insurance. Over the last five years, the main catalyst for the development of the sector has been the rise in (compulsory) health insurance premiums, which have had a positive impact on both segments. (As is the case with our other insurance reports, we include health insurance in the non-life segment.) However, the pace of expansion in health insurance premiums appears to be slowing.

More recently, though, it has also become obvious that life density is not growing. Moreover, there is no obvious catalyst for a substantial rise in life density - from what remains a very low level - in a country where social security (or government benevolence) for locals is extremely generous.

Saudi Arabia is unique in that the insurance companies are required to operate according to the principles of co-operative insurance. They therefore form the largest single shari'a-compliant sector in the world, and account for about half of all shari'a-compliant premiums written globally. The latest trends in the Saudi insurance sector suggest that, in the short-term at least, the growth rate of takaful worldwide may be slower than analysts and proponents had previously been anticipating.

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