Saudi Arabia’s central bank is preparing tougher rules for insurers as part of a drive to create a smaller number of stronger market players operating in the Kingdom, reported Reuters citing two people with direct knowledge of the matter.
“They (central bank officials) said half of the companies that are here today will not be here,” one of the sources said. “They want stronger companies in the market.”
A new supervisory framework will be introduced in the coming months that will force insurers to boost capital significantly as well as improve internal risk controls, said the sources, who declined to be named due to the sensitivity of the matter.
The moves are aimed at triggering consolidation in the insurance industry and forcing weaker companies to merge with stronger ones, industry analysts said.
The proposed changes were discussed during a recent meeting between officials of the Saudi Arabia Monetary Authority (SAMA) and senior insurance executives, the reports said.
SAMA did not immediately respond to a Reuters request for comment.
Current requirements are that direct insurers must have at least SAR100 million (US$26.7 million) of capital and reinsurers, at least SAR200 million. The requirements are likely to be significantly increased, the sources said.
The Saudi insurance sector has come under pressure as the economy has slipped into recession this year, with health insurance suffering in particular as expatriates have left the Kingdom and hospital costs have risen, the sources said.
That pressure has exacerbated problems stemming from the sector’s abrupt liberalisation a decade ago, when the central bank licensed some 30 insurance firms in an attempt to foster the sector and cut the economy’s reliance on oil.
Ten of the companies licensed at that time are now unprofitable. Mediterranean and Gulf Cooperative Insurance and Reinsurance Co (MedGulf), one of the most troubled, posted accumulated losses in the second quarter that surpassed 73% of its capital.
Over the last year, 11 firms have been temporarily suspended from issuing new insurance policies, some more than once. Among them was SABB Takaful, which in early October was stopped from issuing or renewing insurance or savings products.
The biggest Saudi insurance companies by assets, Company for Cooperative Insurance and Bupa Arabia for Cooperative Insurance, are not among those facing problems. M
SAR1 = US$0.27