Building a backstop: The reinsurance segment is considered to be a key growth driver

In recent years the reinsurance segment in Saudi has grown substantially. The industry, which is made up of a single dedicated reinsurance company – Saudi Reinsurance – and a handful of firms that offer both insurance and reinsurance services, is considered to be a key driver of future expansion in the Kingdom’s insurance industry. This is in line with regional trends. According to the 2012 GCC Reinsurance Barometer, an annual market survey compiled by the Qatar Financial Centre Authority (QFCA), the $5bn reinsurance industry in the Gulf is expected to grow substantially over the course of the coming decade, primarily due to continuous economic expansion throughout the region. “Strong economic growth, massive investments in infrastructure and a growing population are attracting international players from many sectors to the region,” George Oommen, the CEO and general representative for the MENA region at Assicurazioni Generali, a leading Italian insurer, told the QFCA. “This creates confidence among international insurance and reinsurance companies in the prospects of operating in the GCC.”

Increasingly Integral

Indeed, despite a number of challenges, the Gulf is among the fastest expanding insurance and reinsurance markets in the world. Between 2006 and 2010 gross written premiums (GWPs) in the GCC grew nearly 5% faster than the global average, according to data from the QFCA. Similarly, the life segment has grown exponentially in recent years, from around $800m in 2006 to $1.6bn in 2009, $1.7bn in 2010 and an estimated $2.1bn in 2011. According to the Saudi Arabian Monetary Agency (SAMA), the Kingdom’s central bank and insurance regulator, the local insurance sector has expanded by a compound annual growth rate of around 10% over roughly the same period, which makes Saudi Arabia one of the region’s fastest growing insurance markets.

The expansion in the insurance and reinsurance sector in recent years is the result of a number of growth drivers. In addition to steadily increasing economic activity throughout the region, the regional primary insurance market has matured rapidly in recent years. The Gulf boasts a number of significant financial centres, which have played a major role in attracting foreign companies into the region. This, in turn, has resulted in a steadily improving business and regulatory environment, which has had a positive impact on the insurance market. In particular, risk management has improved substantially over the course of the past decade. With this in mind, insurance regulators throughout the GCC have put in place new legislation with the aim of ensuring that a sizeable percentage of total premiums remain at home. SAMA, which requires local insurers to reinsure at least 30% within Saudi and, in addition, to retain at least 30% of GWPs in-house, is considered to be a regional leader in this regard.

Saudi Re, which was founded in early 2008, posted substantial growth in 2012. The firm, the majority of which is publicly listed on the Saudi Stock Exchange, brought in GWPs of SR245.03m ($65.3m) over the course of 2012, up 54% from SR159.61m ($42.54m) during 2011. “We remained focused on our technical performance and were able to mark a turnaround from a net loss of SR54.42m ($14.5m) in 2011 to a net profit of SR8.98m ($2.4m) in 2012,” Fahad Abdulrahman Al Hesni, the managing director and CEO of Saudi Re, told press in early 2013. “The 2012 results reflect the positive performance in underwriting, investment and expense management.” As of the end of 2012 Saudi Re boasted total assets of SR1.29bn ($343.8m) and total paid-up capital of SR1bn ($266.5m), making it one of the highest capitalised reinsurers in the Middle East.


According to the QFCA report, which reflects the views of around 30 reinsurance executives throughout the GCC, the regional reinsurance market faces a number of challenges. These include excess reinsurance capacity and, consequently, low rates; a handful of regulatory issues; a lack of sophistication in terms of risk management and product offerings; and the lack of a large, qualified financial workforce. On the majority of these points the Saudi market performs well compared to its neighbours in the region, as is evidenced by Saudi Re’s recent performance. SAMA’s Insurance Supervision Department is widely considered to be one of the top insurance regulatory agencies in the region. While the reinsurance segment is addressed in the central bank’s law on Supervision of Cooperative Insurance Companies, in November 2010 the central bank passed the Regulation of Reinsurance Companies law, which serves as a regulatory framework for the segment.

The GCC’s low overall insurance penetration rate – GWPs in GCC countries accounted for less than 1.5% of GDP in 2011, according to the QAFC report – is both a challenge and an opportunity. Saudi Re, in an effort to boost primary insurance take-up, has hosted seminars and workshops on a variety of insurance-related subjects, including property and casualty coverage, actuarial modelling and commercial property underwriting. “Product sophistication remains one of the weaknesses of the GCC insurance markets,” Sami Sayegh, the head of facultative reinsurance at Saudi Re, said in the 2012 QAFC report. “There are, however, bright spots like the increase in demand for [directors and officers liability] insurance and other specialty lines.”

Primary insurance retention levels in the region are among the lowest in the world. GCC-based insurers ceded around 40% of their GWPs to reinsurance companies in 2011, according to the QAFC report. Saudi was the regional leader in insurance retention in 2011, boasting a cession rate of around 32%, down from 40% the previous year. By comparison, Oman had the highest cession rate in the GCC in the same period, at 60%, followed by Qatar, at 51%. These high cession rates can be attributed to low capacity levels at local primary firms paired with high levels of concentrated risks.

Opportunities For Expansion

Despite these issues, the reinsurance segment – both in Saudi and throughout the region – is likely poised for substantial growth in the coming years. Both GWP volumes and reinsurance exposure are expected to expand faster than the region’s overall GDP for the foreseeable future, according to the 2012 QAFC study. Around 43% of participants in the 2012 GCC Reinsurance Barometer expected profitability to improve through 2015, while 54% of participants expected total reinsurance capacity in the region to increase over the same period. Medical coverage is expected to be the fastest growing segment over the same period, followed by the construction and engineering segment.

Saudi Arabia is considered to be a regional leader in many of these areas. The medical and construction and engineering segments make up a substantial percentage of Saudi Re’s business. The expansion of health coverage in the Kingdom over the past five years also bodes well for the reinsurance industry. The engineering segment, meanwhile, was the most profitable line of business in the GCC in 2011, according to the QAFC, followed by marine cargo and liability. The region’s strengths have attracted new players. “There is a continuing influx of reinsurance capacity into the GCC markets,” said Sayegh. “This trend has accelerated following natural catastrophes in 2011, particularly in Asia.”

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The Report: Saudi Arabia 2013

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