The Saudi insurance industry is expected to report good underwriting profit this year and next, following the price hardening in the medical and motor lines over the last couple of years, said Moody’s.
“Price hardening in these two lines have been close to 20% in 2014 and we expect this higher pricing to be sustained in 2015,” said the rating agency in a report titled “GCC Insurance Industry: Growing Economy Will Drive Further Market Growth Over Next Two Years”.
Moody’s noted that results in 2014 show a rebound with Saudi Arabia’s 37 listed insurance companies reporting an overall combined profit of over SAR700 million (US$186.5 million) in 2014, compared to a loss of over SAR1.4 billion in 2013. Losses two years ago were caused largely by reserve strengthening, following the introduction of actuarial modelling which required reserves to be signed off by a consulting actuary.
Excluding the 2013 one-off reserve strengthening, the largest Saudi insurers show a good and consistent level of underwriting profitability, with combined ratios typically in the low 90% range. However the overall industry shows a different picture, with a poor underwriting performance driven by the high level of competition following the increase in number of insurers over the past few years.
The Saudi insurance market is highly competitive, with 24 of the existing 37 licences approved between 2008 and 2012. The top five insurers (by premiums) include three large local groups: The Company for Cooperative Insurance (Tawuniya), Malath Cooperative Insurance and Reinsurance Company, and United Cooperative Assurance, and two international groups, BUPA Arabia and MedGulf.
Excluding the top five, which write around 62% of the market’s premiums, the 2014 average premiums per insurer stand at approximately $96 million, which Moody’s believes is an indication of a considerable level of overcapacity in the industry.
“Although insurers will benefit from continued growth in the market, we expect that the number of market players may need to reduce over time, driven by the stringencies of operating in the new pricing environment enforced by the actuarial review of the reserves, coupled with the desire to improve profitability,” said the report.
SAR1 = US$0.27