After a tough year, Saudi Arabia's insurance industry has bounced back strongly

Following the costly price competition of 2013, which eroded profitability across the sector, the market has responded to regulatory intervention and returned to a trajectory of sustainable growth over the course of 2014. With expansion potential emerging from both big-ticket projects and the high-volume, low-value business at the retail end of the market, 2015 is so far proving to be a positive year for insurance firms.

Rapid Development

Saudi Arabia’s insurance market is now one of the largest in the GCC, having grown to rival that of the UAE – long the insurance giant of the region. While there was a small amount of insurance activity in the Kingdom in the 1950s, it was not until the oil boom of the 1970s that the industry began to show sustained growth, as foreign insurers established themselves to provide cover for assets associated with the nation’s hydrocarbons industry.

Moving beyond this segment was a challenge for these early market participants, with the very concept of insurance being viewed as unacceptable by many of the Kingdom’s citizens. For much of Saudi Arabia’s history as a modern state the practice of insurance was deemed illegal, being seen as involving a number of acts prohibited under sharia, including riba (usury, or interest), gharar (uncertainty) and maisir (games of chance, or gambling). Only in 1977 did the Kingdom’s Council of Senior Ulema (a national body of religious scholars) declare that some forms of insurance deemed to comply with sharia would be permitted in the country. This move opened the doors for local companies to offer insurance based on the takaful model that was proving increasingly popular elsewhere in the region.

However, while the more favourable disposition of the authorities to insurance resulted in an influx of new companies to the sector, a lack of industry regulation led to concerns about its sustainability and a corresponding lack of public confidence. In response, the government charged the Saudi Arabian Monetary Agency (SAMA) with the regulation of the industry. Its first task was to develop a suitable legal framework, and its formulation in 2002 of the Law on Supervision of Cooperative Insurance Companies established a platform from which the industry could develop.

The legislation defined what is now known as the Saudi cooperative model of insurance, which, while sharia-compliant, still differs from standard takaful in some crucial aspects. For example, it does not demand a complete separation of policyholder funds and shareholder funds, nor does it compel insurers to invest only in instruments that are compatible with sharia, or demand the creation of sharia boards for individual insurance companies. The Saudi adoption of the cooperative model makes it unique in the sharia-compliant insurance sector, and the flexibility that this regulatory framework affords is, for some industry observers, a distinct competitive advantage (see analysis).

The Modern Sector

The establishment of a sound regulatory framework ushered in an era of rapid expansion. According to a recent study by Saudi Hollandi Capital, the insurance market grew at a compound annual growth rate (CAGR) of 18% per annum between 2008 and 2012. As of December 2014 there were 35 operating insurance and reinsurance companies in the domestic market, as per SAMA figures. Competition in this crowded market is intense.

However, while the large number of licensed operators suggests a high degree of market fragmentation, the sector displays significant premium concentration amongst a relatively small number of companies. An analysis of published results for the 2014 financial year carried out by Mohammed Atef, CFO of Arabian Shield, shows that just three companies accounted for more than 55% of total underwritten premiums for the year: Tawuniya (the largest player in the market by gross written premiums [GWPs]), Medgulf, and BUPA Arabia.

Looking to the wider sector, the traditional prominence of corporate business in Saudi Arabia means that brokers and agents play a larger role in the Kingdom than in other more developed markets. SAMA currently lists 80 brokers that have successfully met its licensing criteria, as well as a further 86 agencies. The expanding industry supports a growing number of actuaries, loss assessors, loss adjusters and insurance claims settlement specialists, as well as a small number of insurance advisors who consult with businesses and high-net-worth individuals over their insurance needs.


Saudi Arabia’s insurance industry has grown across most key performance indicators since the sector was formally regulated. Aggregate GWPs for the sector doubled from SR10.9bn ($2.9bn) in 2008 to SR21.2bn ($5.6bn) in 2012, according to SAMA, with the expansion of the health insurance segment accounting for the largest single share of this increase. This trajectory has been maintained to the present day: GWPs for 2014 reached SR30.5bn ($8.1bn), with health premiums maintaining their dominant role, accounting for 51.6% of total GWPs. The second-largest contributor in 2014 was motor insurance, which accounted for 26.3% of GWPs for the period, followed by property/fire (6.3%) and engineering (4.7%).

This rapid expansion, however, has come at a price. An increasingly crowded market has led to intense competition in premium pricing, which in 2013 reached a level that had a detrimental effect on the operational profit posted by many industry participants. In 2013, 20 of the sector’s 33 listed companies posted net losses for the year, including two of the industry’s “big three”. The financial results of some smaller firms revealed the most severe losses. The reduction in profitability of these individual firms was reflected in the aggregate performance of the industry: sector profitability (net result) declined from a gain of SR972m ($259m) in 2012 to a loss of SR1.43bn ($380.6m) in 2013 – a year-on-year reduction of 247%.

The situation prompted the regulator to post new rules that required insurers to apply actuarial pricing to their motor and medical policies – an intervention that by 2014 had put an end to the costly price war and returned the sector to profitability. In 2014 the aggregate underwriting result for the sector totalled SR651m ($173.49m), compared to a loss of more than SR1.7bn ($453.22m) in 2013. Along with the sector’s investment results, this gave the sector an aggregate net profit of SR735m ($195.88m). “SAMA’s decision to step in and enforce actuarial pricing was the right call as it saved the market from another year of massive losses,” Imad Husseini, the managing director of Saudi Brokers Company, told OBG. “However, they need to consult with the market to improve their involvement and the implementation of their regulations.”


According to data compiled by Arabian Shield, 12 companies posted a profit in both 2013 and 2014, with BUPA leading the field in terms of net profit in both years. A further nine companies returned to profit in 2014 after posting losses in 2013, with the systemically important Tawuniya, Medgulf, Al Rajhi and SAICO posting the largest gains. However, a further 12 companies failed to post profits in either year, and some of these have suffered an erosion of 50% or more of their capital. These companies are not well positioned to attract new business as a result of their inadequate solvency. Their weak balance sheets and high valuations on the exchange make them unattractive prospects for acquisition by larger players, and forced mergers or even closure by the regulator are possible outcomes. “Despite the fact that the insurance market is oversupplied, consolidation in the sector is unlikely to happen on a voluntary basis as too many listed insurance companies are overvalued,” Geoffrey Stuart Blofeld, CEO of Gulf General Cooperative Insurance Company, told OBG.

Insurance Lines

With the sector’s return to stability in 2014, attention has turned once again to potential areas of growth. Given the nascent stage of the industry, it is little surprise that compulsory lines have played the larger part in its growth to date, as well as offering the most promising routes to further expansion. In 2006 the authorities enacted the Health Insurance Law, which initially required that all expatriates working in the Kingdom acquire private insurance. The regulation was extended in early 2011 to cover all private employees, boosting the segment’s share of the sector’s aggregate GWPs. In late 2014 the Council of Cooperative Health Insurance (CCHI) announced plans to require temporary visitors – with the exception of pilgrims – and their dependents to have private health insurance, although it is not yet clear when these measures will come into force. As of early 2015 proposals to extend private insurance coverage to the rest of the Saudi population were being reviewed by the Saudi Health Council and the CCHI.


 The Kingdom’s three largest insurers, Tawunia, Medgulf and BUPA Arabia, dominate this segment, claiming around 70% of health care premiums, according to published results. Other major health underwriters include United Cooperative Assurance, Allianz Saudi Fransi Cooperative Insurance, and Malath Cooperative Insurance and Reinsurance. Motor insurance has been a significant contributor to the sector since 2002, when Saudi Arabia’s first compulsory third-party liability (TPL) law was introduced, making insurance mandatory for every person holding a driving licence issued in the Kingdom. Under a later regulation in 2007, the government announced that TPL coverage would be linked to each vehicle registered in the country, resulting in a substantial increase in business for insurance firms.

Health and motor insurance accounted for 78% of total GWPs in 2014, according to SAMA. Other categories of general insurance provide far smaller contributions to aggregate GWPs, with accident and liability (2.3% of the total in 2014) and property and fire (1.3%) being the next largest lines. Marine, energy and aviation make single-digit contributions to the combined GWPs of locally licensed insurers, as the majority of cover for these activities is secured outside the country. Life insurance, which in Saudi Arabia is referred to as protection and savings (P&S), represents only a small part of the market, contributing 3% to total GWPs in 2014. In this case cultural factors, rather than technical limitations, are the most significant impediments to growth, although life insurance is well positioned to grow as awareness of its benefits continues to rise.

Claims Processing

One helpful contributor to road safety is Najm for Insurance Services, a private firm set up in 2009 that the state has authorised to investigate accident scenes, remove damaged vehicles from roads, help drivers file claims and mediate between insurance companies, policyholders and the General Department of Traffic. “Greater information sharing among the various stakeholders allows for more effective claims filing, disbursement and tracking,” Bader Al Ali, the CEO, told OBG. “Creating greater organisation and communication is key to the success of motor insurance.”

Expanding Coverage

The prospect of more lines of insurance being made compulsory through legislation offers insurers the possibility of increasing premiums going forward. Following a deadly fuel tank explosion in Riyadh in 2012, the General Directorate of Civil Defence worked with SAMA to create a new law which compels certain businesses to secure third-party liability. Although it was published in February 2014, it has yet to be fully enforced by local authorities, and consultation between the regulator and the marketplace continues. However, as the law stands it will apply to both the public and private sectors, and will include within its scope high-risk plants and manufacturing operations, as well as businesses exposed to the public such as shopping malls, hotels, schools and restaurants. Given that many of these facilities in Saudi Arabia do currently operate without insurance cover, some industry analysts predict that the full implementation of the law could double the size of the insurance market.

“The decision to make public liability insurance compulsory for public places such as malls, restaurants, and schools is an excellent step. It will offer improved protection while also helping to grow the overall sector.” Ali Al Ayed, general-director of the Insurance Control Department at SAMA, told OBG.

Another major driver of future premium growth comes in the form of the Kingdom’s sizeable project pipeline. Thanks to an expansive government development strategy, more than 80 mega-projects (valued at $1bn or more) are either at the planning stage or already being implemented as of 2015. The large numbers of contractors and sub contractors engaged by these developments are subject to some compulsory insurance lines, such as health care and (in the case of foreign contractors) a new request by the Saudi Arabian General Investment Authority (SAGIA) that they obtain cover against “errors in implementation”. Most contractors also take out non-compulsory all risks insurance, employer’s liability insurance and third-party liability insurance. The premium potential arising from this activity is considerable, and the Kingdom’s largest insurers are already gearing themselves up to capitalise on it by offering project owners efficient cover options in the form of owner-controlled insurance programmes (OCIPs) and contractor-controlled insurance programmes (CCIPs, see analysis).


Saudi Arabia’s insurance market has long been dominated by brokers and agents, with direct sales playing but a modest role. However, growth in non-corporate insurance has driven more direct selling, pioneered by companies like Allianz when it entered the P&S market. As with more developed markets, the retail segment – where seeking commission on coverage for individuals is financially unrewarding for brokers – offers most potential for direct sales growth, although some expense-driven corporate lines, such as medical, are being sold directly to large clients by insurers keen to avoid paying fees to brokers and agents.

Bancassurance, another potentially useful way of increasing premiums, is already the channel of choice for the insurance arms of Saudi’s lending institutions, such as SABB Takaful. However, growth in this segment has been modest in Saudi Arabia compared to similar jurisdictions, due to a relatively conservative approach taken by the regulator. SAMA’s introduction of the Insurance Intermediaries Regulation in October 2011 brought about many changes to what had hitherto been a loosely regulated area of the industry. The most important was a requirement that insurers and banks that partner to sell insurance must set up an independent bancassurance agency, licensed by SAMA, which mediates between both companies to sell insurance independently of banking products. Banks are only permitted to establish an agency with one insurer.

Many of these relationships have already been cemented. Al Rajhi Bank has formed the Al Rajhi Company for Cooperative Insurance with the Oman Insurance Company. Saudi Hollandi Bank runs Wataniya Cooperative Insurance Company with the Saudi National Insurance Company. Riyad Bank operates Al Alalmya for Cooperative Insurance Company with Royal and Sun Alliance (RSA) Middle East. That there are more listed insurers than banks limits the options of insurers interested in developing a bancassurance channel. The industry has therefore informally lobbied to relax the bancassurance rules, and the issue is being examined by the regulator’s P&S sub-committee.


The bancassurance question is just one of many concerns SAMA is addressing. The regulator’s Insurance Supervision Department, regarded as one of the region’s best regulatory agencies, is charged with ensuring fair competition between operators, as well as encouraging sectoral development. It works in close conjunction with the CCHI, which oversees the Kingdom’s health insurance, as well as with the Capital Market Authority (CMA), which is in charge of regulating the Saudi Stock Exchange, where much of the industry’s investment activity takes place. Its recent intervention in the market to insist on actuarial pricing has proved to be its most significant recent decision, resulting in a more technically proficient industry.

As of the first quarter of 2015, the regulator has also produced draft regulations on corporate governance and is working on new guidelines for the writing of general insurance, which it hopes to publish before the end of the year. It is also preparing to invite a legal firm to review the executive regulations applying to the investment activities of insurance companies.


In 2014 insurance penetration (defined as GWPs divided by total GDP) in Saudi Arabia stood at 1.08%, according to SAMA, up from 0.9% on the year before. This compares to an average penetration rate in Europe of 7.6% in 2013, suggesting that there is considerable room for expansion. The P&S segment, in particular, is relatively undeveloped: while insurance density (defined as GWPs per capita) rose by a CAGR of 13% between 2010 and 2014, the density of the P&S segment decreased over the same period.

Although the compulsory lines in the health and motor segments remain dominant, insurers operating in the less developed segments are optimistic about the prospects for future expansion. “We have come a long way. Looking at it from the point of view of a specialised life insurance provider, we can sense the acceptance now in terms of customers having the appetite to insure their life. It is still a challenge, but when you package it with an investment or savings product as an element in the wealth management solutions which a bank provides, it works well,” Husam Malaikah, head of product distribution and customer experience at SABB Takaful, told OBG. The coming year is also likely to see the continued development of alternative distribution channels, particularly in the digital arena opened up by new e-commerce regulations in 2012. With SAMA continuing to enforce sound technical standards across the industry, this development will take place in the context of a sustainable industry on a growth trajectory.


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The Report: Saudi Arabia 2015

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