The Saudi insurance industry scored high by the end of 2016 with profits soaring high as seen by preliminary financial results despite sluggish growth in GWP.
The Saudi insurance market seems to be on the right track to post a healthy performance if the preliminary financial results for 2016 disclosed on the Saudi stock exchange, Tadawul, are any indication.
The combined before-zakat profit for the 33 operating companies in 2016 is estimated to be around SAR2.5 billion (US$666 million) against about SAR1 billion in the preceding year, an increase of over 140%.
Profits of 15 insurers have increased, while nine returned to the black after reporting losses in 2015.
Six insurers have registered losses in 2016 compared to 14 in 2015.
The regulatory pressure to adopt proper pricing strategies based on actuarial analysis has been another factor leading to such results in 2016 as well as improved profitability levels in the previous year.
What is noteworthy is the marginal growth in GWP, from SAR35.6 billion to SAR35.8 billion. Out of the 33 operators, 16 saw their GWP dropping and some by more than 60%, such as Sanad and Al Sagr.
This is indicative of a new trend – that top-line growth is not necessarily the target of most companies.
It is believed that the limited size of new projects, especially in the construction sector, has been pushing premiums down. Property premiums declined by more than 10% in the third quarter of 2016 and medical insurance saw a slower growth than in the previous years.
Market leaders
The top five providers in terms of GWP retained their positions: Tawuniya, Bupa Arabia, Medgulf, Malath and Al Rajhi, all remained in control of more than half of the market premiums and pre-zakat profits, although growth rates showed greater variance. Medgulf’s GWP in 2016 declined 20% over that in 2015, whereas Al Rajhi GWP jumped 43%.
Saudi Re, the country’s sole local reinsurer, has shown impressive growth in top line and profitability. The company’s GWP grew 22.5% to SAR985 million and profits surged to SAR18.5 million from SAR106,315 in the preceding year.
Poised for further changes
The sector may have finished the year with relatively better results, yet it is far from seeing any stability.
Despite achieving profits or reducing losses, some insurers are underperforming, highlighting the need for M&A. This means that the sector would most likely witness structural changes in the coming years.
The modest growth in GWP in 2016 need not be the benchmark for the coming years as the economy has the potential for growth.
Insurers can return to double-digit growth if the private sector gets a fillip when the economy surmounts the fiscal difficulties and stability is returned to the oil market.