Stricter Saudi insurance regulations helping stimulate a burgeoning market


In the wake of the recent oil price decline, Saudi Arabia’s insurers have operated in a challenging environment. The sector has faced stability issues since its liberalisation over a decade ago, and smaller players in the market are under increased scrutiny from a regulator keen to set the industry on a more solid footing. For the better capitalised insurers, however, the market is a young and increasingly promising one.

Insurance penetration in the Kingdom remains low, at approximately 1.7% of GDP according to Fitch credit ratings agency, and business is concentrated in the compulsory segments of motor and health cover. In some areas there have been encouraging signs of growth: data from the Saudi Arabian Monetary Authority (SAMA), the Kingdom’s central bank, shows that insurance penetration expanded at a compounded annual growth rate of 12% between 2014 and 2019.

Sector Structure

As of the first quarter of 2019 there were 32 insurance companies and one reinsurance company licensed to operate in the Saudi market. However, while the large number of licensed operators suggests a high degree of market fragmentation, the sector displays significant premium concentration among a relatively small number of companies. In 2017 the top-eight insurance companies generated 73% of gross written premium (GWP), according to SAMA. The big-three insurers in terms of GWP are Tawuniya, which claimed a market share of 23.7% in 2017, BUPA (21.8%) and Al Rahji (9%). Other prominent market participants include Medgulf (7.5%), Axa (4.2%), Walaa (3.1%) and Allianz (2.6%). In terms of gross GWP, Saudi Re, the Kingdom’s sole reinsurer, was the fourth-largest reinsurer in the MENA region in 2017, with $251.3m. The company operates in more than 40 markets across the Middle East, Africa and Asia.

Looking to the wider sector, SAMA licenses 88 brokers and 68 insurance agents, as well as a growing number of actuaries, loss assessors and adjusters, and other insurance intermediaries. Under current legislation, foreign nationals can own between 25% and 49% of a locally licensed insurance company, depending on factors like the identity of other shareholders. In addition, non-Saudi nationals are able to own up to 60% of insurance intermediaries.


SAMA is the primary regulator of the insurance sector. The regulator’s General Department of Insurance Control is mandated with ensuring fair competition between operators, stability in the market, protecting stakeholders, and encouraging the market’s growth and development. It governs the sector according to the 2003 Insurance Law and its implementing regulations. The regulator often publishes circulars to clarify points of law, and introduces new laws and regulations which address specific areas of the market. It also works in close conjunction with the Council of Cooperative Health Insurance (CCHI), which oversees the Kingdom’s health insurance system, as well as with the Capital Market Authority, which is in charge of regulating the Saudi Stock Exchange (Tadawul), where much of the industry’s investment activity is targeted.

“The insurance industry is still quite new in Saudi Arabia compared to other countries, making SAMA responsible for piloting new regulatory frameworks in uncharted territory,” Samer Kanj, CEO of Buruj Insurance, told OBG. “However, the emergence of experienced brokers in the local market is expected to sustain the sophistication and growth of the sector,” he said.

Insurers in the Kingdom are required by law to adopt a cooperative insurance model. Though Islamic in nature, the Saudi Arabian cooperative model differs from the standard takaful (Islamic insurance) model in a number of important ways. For example, under the cooperative framework, there is no requirement to segregate policyholder and shareholder funds, and cooperative insurance companies are not compelled to invest in accordance with the principles of sharia. Neither are Saudi insurance companies asked to appoint a sharia supervisory board, which the takaful model – as applied in most jurisdictions – requires. The Saudi model also offers a number of advantages to industry participants. Due to their ability to invest in a wider range of industries and instruments, insurers in Saudi are better able to formulate sophisticated investment strategies than many of their regional peers. Moreover, the fact that the policyholders fund has full access to the shareholders fund makes the cooperative model more sustainable than traditional takaful, and therefore a safer way of doing business in the eyes of many industry observers.

One of the regulator’s main concerns in recent years has been industry stability. Since the 2016 rollout of the Solvency II directive in European markets, regulators across the GCC have been assessing the implications for their domestic industries. The risk-based approach that Solvency II introduces is still rare in emerging insurance markets, where simple minimum capital requirements are the norm. In order to remain competitive with foreign insurers that have switched to a more efficient risk-based approach, regional regulators have introduced disclosure and risk-management requirements which will form a basis for the Solvency II model. In January 2018 the UAE became the first country in the region to fully implement a model based on Solvency II.


The Saudi insurance market entered 2018 on the back of a muted performance the previous year. According to credit rating agency Standard & Poor’s (S&P), the aggregate net income of the industry declined by 55% in 2017, while GWP showed a modest retrenchment. The sector’s slow performance was largely attributable to weak results posted by two companies: Tawuniya and Medgulf. Both were compelled to make larger than expected provisions against losses.

Prospects for sector profitability appeared strong at the outset of 2018, however. This was due to the introduction of additional benefits under the unified medical policy from July 1, 2018, as well as the ongoing efforts of authorities to address the issue of uninsured drivers. The industry’s aggregate net income for the first three quarters of 2018 was SR658.2m ($175.5m).

For many Saudi insurers, the year was one of housekeeping duties: a total of nine insurance companies restructured their capital in a bid to improve their solvency to comply with regulatory requirements or write-off accumulated losses. Five insurers raised their capital by a combined SR740m ($197.3m), whereas four reduced their capital by a total of SR382m ($101.8m). The largest increase came from Medgulf, which doubled its capital from SR400m ($106.6m) to SR800m ($213.3m), and Al Sagr Insurance, which issued bonus shares in order to raise its capital from SR250m ($66.7m) to SR400m ($106.6m).

Health Rules

The biggest insurance line in the Kingdom is health cover, which, according to SAMA, accounted for 52.1% of GWP in 2017. Since 2011 all private sector employees have been required by law to have private insurance. The model has since been tweaked a number of times, most recently in July 2018 when a new Cooperative Health Insurance Policy came into effect and replaced the framework that had been in place since 2014. Developed by the CCHI, the new policy introduced a number of compulsory benefits including the treatment of dental and gum disease, RSV vaccination for children and the treatment of psychological disorders. The maximum limit of the policy remains unchanged from the previous 2014 package, at about SR500,000 ($133,000). In addition to overhauling health policy, the government has introduced new electronic infrastructure for the segment, which is aimed at reducing fraud and administrative costs. The new system, launched in 2018, links the CCHI with insurance companies, claim-management companies, health service providers and pharmacies. The platform allows users to carry out functions such as verifying eligibility for medical treatment, securing approval for health insurance services, processing health insurance claims and payments, and accessing statistics and health insurance market performance indicators. The platform also includes an e-portal through which patients can review their health records, and a health practitioner portal for review authorised information.

General Cover

General Insurance accounted for 44.7% of sector GWP in 2017. Since the introduction of a compulsory third-party liability law in 2002, this segment has been dominated by motor business, which in 2017 accounted for 30% of sector premium. With 27 insurers offering coverage in the segment, competition is intense. The motor insurance arena is relatively open, however, showing only a medium degree of concentration. According to investment house Albilad Capital, the biggest claim on the motor segment in 2017 was made by Al Rajhi, capturing 23.7% of the market. Four other insurers commanded 34.7% of total premium. In recent years SAMA has made efforts to boost coverage and increase underwriting quality of the motor line. In 2017 the regulator introduced new rules that provided for the collection and exchange of motor insurance information between companies. In early 2018 SAMA signed an agreement with the General Directorate of Traffic to automatically check insurance records in cases where drivers have committed traffic violations. Should it be discovered that the driver is uninsured, the traffic system automatically adds another violation to the record of the vehicle. The move is expected to raise the level of insured vehicles to 80%, up from approximately 60% in mid-2017.

In August 2018 SAMA brought into effect an updated unified policy for compulsory vehicle insurance, which lowers the coverage age from 21 to 18. The new policy requires insurers to pay compensation directly to the bank account of the beneficiaries. While the amendments are not expected to result in major changes to policy prices, lowering the age requirement may result in higher numbers of vehicles insured throughout 2019.

Other forms of general insurance provide much smaller contributions to aggregate GWP, with property and fire (4.7% of the total in 2017), accident and liability, (2.9%) and engineering (2.6%) next in size.


The growth prospects of the Kingdom’s insurance sector are to a large extent linked to the expansion of the economy. Therefore, firming oil prices and an expansionary budget are good news for domestic insurers. In October 2018 the IMF lifted its GDP growth prediction for 2019 by 0.5% to 2.4%, further cementing the positive outlook. The sustainable expansion of the industry, however, will depend on its ability to establish itself on a solvent footing, deriving profits from sound underwriting as well as investment activity. The regulator’s ongoing reform of capital standards is central to achieving this outcome. According to Mahmoud El Madhoun, CEO of Kingdom Brokerage: “Unlike insurance companies which are majority listed on the Tadawul, smaller-scale brokerage firms are increasingly using the parallel market Nomu.” In the longer term, the government will establish contracts with insurance providers to provide services, which may result in an expansion of GWP. However, the fine detail of the contract terms and treatment packages will determine the final profit potential of the scheme, and are likely to be the focus of much debate in the industry throughout the next several years.


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The Report: Saudi Arabia 2019

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