Stronger regulations in place in Saudi Arabia insurance sector


These have been profitable times for the Saudi insurance sector, although bumpy ground in the economy overall has made the growth of premiums more challenging. The sector is undergoing a significant overhaul as a stronger regulatory framework is progressively implemented and enforced, and moves to consolidate the market are in progress. Meanwhile, developments in the health segment continue to look promising after a recent expansion of compulsory health insurance. Further widening to include more of the domestic population in obligatory schemes has been seen in 2017.

The sector stands to benefit indirectly from the major restructuring exercise under way across the country, with the rollout of the long-term development plan, Saudi Vision 2030, and its shorter-term strategy, the National Transformation Programme (NTP). If these initiatives achieve their goals, there will be a lift in business activity across the board as the economy diversifies and more industries are opened to private sector competition. The future will likely see quality advance further as those companies that maintain traditional good practices in pricing and underwriting flourish, and others slowly dismantle operations. The education and training of Saudi nationals will become increasingly important as employment regulations seek much higher quotas of local staff.

Facts & Figures

According to the Saudi Arabian Monetary Authority (SAMA) in its “Saudi Insurance Market Report 2016”, the insurance penetration rate in the Kingdom at the end of 2016 – when measured by the sector’s gross written premiums (GWPs) as a percentage of total GDP – was 1.54%, up slightly from 1.49% in 2015. At the same time, the insurance density – GWPs per capita – fell from SR1186 ($316) to SR1159 ($309). Between 2015 and 2016 the population grew from 30.77m to 31.78m, while GDP decreased from SR2.45trn ($653.2bn) to SR2.4trn ($639.8bn) at current prices, according to the General Authority for Statistics. As of end-2016 there were 34 publicly traded insurance companies in the market. Between them, they recorded GWPs of SR36.85bn ($9.8bn) for the year, up from SR36.49bn ($9.7bn) in 2015, an increase of 1%. This was below the trend of recent years, however, as GWPs have shown remarkable growth. The compound annual growth rate (CAGR) for 2011-15 was 18.5%, with the lower 2016 rate pulling the 2012-16 CAGR down to 15%.

Profits, meanwhile, showed much greater expansion. In 2015 total net profits stood at SR810m ($216m), while in 2016 they jumped 160% to SR2.1bn ($559.9m). This is the highest level since the sector came under the supervision of the current regulator, SAMA, after two royal decrees were issued in 2003. However, insurance companies can boost profits without signing new business, through cuts in operating expenses and enlarged investment income. Indeed, investment income for the sector overall jumped from a loss of SR9m ($2.4m) in 2015 to a gain of SR278m ($74.1m) in 2016.


The decrees of 2003 approved the Cooperative Insurance Companies Control Law, a 25-article regulation that states insurers operating in the Kingdom must be incorporated by royal decree and operate in a way “not inconsistent” with the principles of sharia law. Such firms must be public joint stock companies listed on the Tadawul, the local exchange. This means that insurers and reinsurers must also comply with the rules of the Capital Markets Authority (CMA) and the Ministry of Commerce and Industry.

Companies with foreign shareholders are subject to foreign investment laws administered by the Saudi Arabian General Investment Authority (SAGIA). According to a report by Clyde & Co titled “Insurance and reinsurance in Saudi Arabia”, these include the requirement of obtaining a foreign investment licence from SAGIA, and maintaining a maximum shareholder percentage of non-Saudi nationals of between 25% and 49%, depending on the identity of the other shareholders. Health insurance companies must comply with the rules of the Council of Cooperative Health Insurance (CCHI).

Since the insurance law was issued, SAMA has unveiled additional regulations and policies, covering everything from market codes of conduct to anti-money laundering and outsourcing. The provision that all companies must comply with the cooperative insurance model means that 10% of the net surplus of an insurer must be returned to policyholders every year. In addition, separate profit and loss accounts must be kept for policyholders and shareholders. This model, known as tawuniya in Islamic finance, is sharia compliant, but different in some respects from the takaful (Islamic insurance) model seen in many other countries. Most Saudi insurers, however, also offer takaful products, particularly in the life segment, which is known in the Kingdom as protection and savings (P&S).

Saudi insurers must have minimum paid-up capital of SR100m ($26.7m), while reinsurers must have SR200m ($53.3m). One-fifth of annual profits must be set aside as a statutory reserve, and companies are obliged to keep a statutory deposit of 10% of paid-up capital in a local Saudi bank – a requirement that SAMA may raise to 15% if a company’s risk profile warrants it. Additionally, SAMA must give its approval for appointments to company boards, mergers and acquisitions, and transfers of shares exceeding 5%. The authority has the right to set minimum and maximum limits for cover and premiums if it so chooses. Furthermore, brokers and agents must be licensed as intermediaries by SAMA. In 2011 a specific set of regulations for insurance intermediaries was also issued. All of this places the Kingdom among the most tightly regulated insurance markets in the region, with a full armoury of laws and rules in place, and an agency within SAMA that is well structured and empowered to implement these stipulations.


The increase in profits evident in 2016 helped many companies – and the sector overall – boost shareholder equity-to-capital ratios, with the overall figure reaching 115% by the close of the year, up from 98.5% at end-2015. However, this illustrates one of the market’s significant weaknesses: many companies have an equity-to-capital ratio that is below 100%. Indeed, at the end of 2016 just 15 of the 34 companies listed had ratios above 100%. Still, four of these – Tawuniya, BUPA, Chubb and SAQR – had strong ratios above 200%. At the other end of the spectrum, the 18 companies, excluding Sanad, with ratios under 100% tapered down to just 11%, held by Sanad, which applied for voluntary liquidation in March 2017.

While the number of companies with low ratios continues to be a concern, the numbers have been improving on the whole. At the end of 2015 only 10 companies had a shareholder equity-to-capital ratio of over 100%. Thus, improving balance sheets has been a major undertaking in recent times. Rights issues helped Wataniya and Metlife in 2016, while others sought approval from SAMA and the CMA to reduce their capital in order to write off some losses. This approval was granted to Arabia and Enaya, although both firms remained under the 100% ratio at the end of 2016. Enaya’s ratio continued to deteriorate in the first quarter of 2017, but Arabia’s position recovered thanks to growing profits, cuts in operating expenses and a fall in net claims. Net claims in the overall market were up 10% to SR23.7bn ($6.3bn) in 2016, implying a loss ratio of 77%, which is an improvement over the 79% recorded in 2015, according to SAMA.

In terms of equity-to-capital ratios, the top insurers for 2016 were Tawuniya (293%), BUPA (253%), Chubb (226%), Saqr (204%), Arabian Shield (175%), Al Ahli (129%), Saico (119%), Axa (111%) and Allianz (111%). Overall, dividends remained low in 2016, with five companies – Tawuniya, Saqr, BUPA, Al Ahli and Jazira – paying out dividends based on 2015 results. Only Tawuniya and Saqr paid dividends in both 2015 and 2016.

The capitalisation top 10 is almost identical to the top 10 by GWPs, with some exceptions. The 2016 order in terms of GWPs was Tawaniya (SR8.05bn, $2.15bn), BUPA (SR7.94bn, $2.12bn), Medgulf (SR3.19bn, $850.5m), Malath (SR2.17bn, $578.5m), Al Rajhi (SR1.95bn, $519.9m), Axa (SR1.15bn, $297.3m), Walaa (SR1.02bn, $271.9m), Trade Union (SR954m, $254.3m), Allianz (SR836m, $222.9m) and UCA (SR820m, $218.6m).


Against this background, there has been considerable recent talk of mergers and acquisitions. In late May 2017 Medgulf, one of the 18 firms with ratios under 100%, was reportedly in talks with the investment banking arm of Banque Saudi Fransi on a possible sale, while in March 2017 Malath Cooperative Insurance & Reinsurance reached a preliminary agreement on studying merger possibilities with the Allied Cooperative Insurance Group. At the same time, Al Ahlia and Gulf Union Cooperative Insurance have announced that they are starting merger talks. “Consolidation will likely happen across all segments of the insurance sector through acquisitions and a lower number of mergers,” Mahmoud El Madhoun, general manager of Kingdom Brokerage, told OBG. “This will bring about a reduction of prices to final clients.”

As outlined in the insurance law, however, these mergers and acquisitions would have to receive SAMA approval before going through. Some concern in the sector centres around merging entities where both are in financial difficulty; all of the companies mentioned above have shareholder equity-to-capital ratios of under 100%, with some considerably lower, and a merger may not be the optimum way forward. “Consolidation in the market is premature,” Samer Kanj, CEO of Buruj, a local insurance company, told OBG. “Besides the fact that the Saudi market is in its infancy with much room for growth, in practical terms consolidation will be an unpredictable and risky process for the market.” Still, the year ahead will likely see further efforts to address the difficulties faced by many insurers, with merger and acquisition activity one possible outcome.

New rules from the CMA are affecting insurers that carry heavy accumulated losses. Beginning in April 2017 three ranges of accumulated losses as a percentage of total share capital were examined, all triggering action from the authority: 20-34%; 35-49%; and 50% or more. Landing in any of these bands will lead to the company being flagged on the Tadawul, and firms will be required to either change their capital or dissolve if they hit the 50% mark. Meanwhile, market share remains highly concentrated. In 2016 the largest three insurers – Tawuniya, BUPA and Medgulf – generated 52.2% of GWPs among them, up from 51.9% the year before. On the one hand, Tawuniya and BUPA controlled 21.9% and 21.6% of the market, respectively, at the end of 2016. On the other hand, the smallest 10 companies generated less than 5% of the sector’s total GWPs, down from 5.8% in 2015.


In reinsurance, the Kingdom has just one local company – Saudi Re – that is solely in that market, although several other firms have both insurance and reinsurance licences. The minimum paid-up capital to license a reinsurance firm is SR200m ($53.3m), twice that of a normal insurer’s requirement. Saudi Re had a strong 2016, with a substantial increase in its GWPs and profits. The former metric was up 22.5% from SR804.8m ($214.6m) in 2015 to SR985.5m ($262.7m) in 2016, while the latter jumped from some SR106,315 ($28,300) in 2015 to SR18.5m ($4.9m). The company has an issue with accumulated losses, however, with the board cutting capital from SR1bn ($266.6m) to SR804m ($214.4m) in May 2017 to offset them.

Lines Of Business

In 2016 health and motor were the two most significant lines of business in the Kingdom. According to SAMA, GWPs in health amounted to SR18.63bn ($5bn) while the motor segment reached SR12.16bn ($3.2bn). Others included property and fire, with SR1.8bn ($479.9m), and P&S with SR1.05bn ($279.9m). Two of these lines showed increases on 2015: motor, which rose 12.6% from SR10.8bn ($2.9bn), and P&S, which inched up 1% over SR1.04bn ($277.3m). The other two saw declines – down 1.8% from SR18.97bn ($5.1bn) in the case of health, and a 6.9% reduction from SR1.96bn ($522.5m) for property and fire.


Motor cover in the Kingdom is subject to many of the constraints that are experienced by this line of business elsewhere: low profitability and a high claims and losses ratio. In 2016, however, motor saw a clear improvement in the latter score, with a loss ratio of 82%, down from 89% in 2015. Closer control over the pricing and claims procedure is one way in which insurers can keep claims down and profitability up, as is cost control. Axa, for example, supplies just five workshops with all its repair work, a policy that means the company get discounts in return for the promise of a certain amount of work. Axa also allows claims to be registered online, via a broker or a store, enabling the insurers to follow through a claim from start to finish.

In motor, the top-three insurers by GWPs have less exposure, proportionately. For example, Tawaniya, which ranks first, had 18.8% of its GWPs in motor and 66% in health lines. Fourth-ranked Malath had the largest presence in 2016, with SR1.9bn ($506.5m) in GWPs, or 88% of its total. Around a dozen companies have a portfolio featuring more than 50% motor GWPs. Motor insurance can be a challenging business in Saudi Arabia, because although third-party liability (TPL) is compulsory, there is a relatively high level of non-compliance. The number of uninsured vehicles on the road was reported in local media to be as high as 55% at the start of 2016, with industry insiders suggesting the figure was still around 45% in early 2017. While TPL must be purchased along with a vehicle, an owner can cancel or fail to renew the coverage the following year, and will only be required to repurchase it every third year when his vehicle registration document needs renewing.

The prolonged ban on female drivers, under which responsibility for driving fell on the male head of the family, unless they could afford to hire a driver, also posed challenges for the motor segment. This was often problematic in families where the father was either deceased or absent, as it left driving in the hands of inexperienced and sometimes even under-age young males. A royal order issued in September 2017, however, lifted this ban. This change may prompt a fall in the rate of vehicle accidents over time.

The Kingdom has a relatively high rate of vehicle accidents, with a large number of them fatal. In 2016 there were 533,000 road accidents, with 9031 deaths. While high, these figures show a historical decrease. An automated traffic management system, known as Saher, was introduced in 2010 and has been accompanied by a 37.8% fall in the mortality rate from traffic accidents, according to a May 2017 statement in local media by Sulaiman Al Ghannam, an investigator on the subject. Fines have also been increased by up to 10 times for first-time offenders, with subsequent offences treated even more severely. When it comes to those driving without insurance, the government is moving towards a new system under which it will be compulsory to renew vehicle insurance every year, with this linked to a central computer system tied to an annual vehicle roadworthiness test.

Other Offers

While health remains the largest segment in terms of GWPs, several other lines of business have shown promise in recent times. The property and casualty (P&C) segment was boosted when the Kingdom’s construction sector was booming, but it has shrunk along with the declining portfolio of national projects. According to Arabian Shield, in 2015 the segment accounted for 15.6% of total GWPs, while in 2016 this was 13%. Engineering insurance – making up just 2.5% of total GWPs – saw its share decline by 24.6% over the year, from SR1.2bn ($319.9m) to SR908m ($242.1m).

Major construction is still occurring in certain areas, however, such as the Riyadh Metro project. Saudi Vision 2030 and NTP blueprints also envisage major investment in construction for health and education. Up until 2030 some SR250bn ($66.65bn) of investment may be required for the health sector alone, Tawfiq Al Rabiah, the minister of health, estimated. P&C may therefore see some revival in the years ahead. All non-motor segments saw their GWPs shrink in 2016, with energy and marine the two worst performers after engineering, down 18.6% and 12.7%, respectively. Property and fire dropped 6.9%, aviation insurance decreased by 4.8%, and accident and liability was down 4%.

Labour Skills

Since 2011, when the Ministry of Labour endorsed Resolution 4040, the Kingdom has been following a policy of job localisation known as Saudiisation. Certain sectors have been given targets for the recruitment of Saudi nationals, which may be periodically increased. Newly licensed insurance companies have, up to now, been required to have a Saudiisation ratio of 30% by the end of their first year of business, with this proportion then rising annually thereafter. The most recent of these targets, issued by SAMA in February 2017, dictates that from July 2, 2017, 100% of those posts in auto insurance claims, customer services, customer complaints and many other departments must be filled by Saudi nationals. Insurers will also have to issue monthly reports to SAMA indicating their progress with this. The regulation may prove challenging to comply with. SAMA figures show that in 2016 the sector employed 10,039 people overall, up from 9682 in 2015. Of the 2016 total, 58.4% were Saudi nationals, down one percentage point on 2015. The proportion of Saudis in non-managerial positions was higher, however, rising from 62% to 64% over the two years. Yet among managers, the proportion fell from 42% to 36%. This has led to SAMA calling for insurers to boost their training and hiring of Saudis, particularly in lead positions. At the same time, more Saudis have been sent abroad in recent times to receive education in actuarial sciences. Some insurers cited that Saudi nationals often require higher pay than expatriate hires, affecting operating costs. Nonetheless, with Saudiisation an important part of government plans to tackle employment issues in an expanding domestic labour force, the year ahead will likely see much tougher enforcement of these regulations.


The market may see mergers and acquisitions, as well as liquidations, if outfits are unable to cut losses in accordance with CMA rules and market forces. Companies that have good business standing are likely to soak up the business left behind, though professionalism in pricing and underwriting will be key. Segments such as motor cover will likely continue to come under stronger regulation, benefitting all insurers. In the health segment, policy take-up is likely to be boosted, following the latest compulsory requirements.

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The Report: Saudi Arabia 2018

Insurance chapter from The Report: Saudi Arabia 2018

The Report: Saudi Arabia 2018

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