Saudi Arabia: Insurers face headwinds as drop in claims from lockdown seen as temporary
Source: Middle East Insurance Review | Nov 2020
Saudi Arabia’s insurance industry faces numerous challenges after benefiting from reduced claims in the first half of the year due to the country’s coronavirus-induced lockdown, said Moody’s Investors Service in a report.
Insurance claims dropped an estimated 9% in the first half of 2020, compared with the corresponding period a year earlier, leading to Saudi Arabia’s 31 active primary insurers to report an increase of over 1.6 times in their aggregate net income for the period.
“Future claims and lower premiums will likely erode some of the one-off gain for Saudi insurers over the remainder of the year,” said Mr Mohammed Ali Londe, an AVP at Moody’s in Dubai. “The nation’s insurance regulator has directed insurers to extend cover on motor policies for the period of the lockdown, meaning that insurers will have to cover their existing policyholders for two months for free.”
Insurers are also offering significant discounts to customers with no claims in an effort to retain motor business. Additionally, some medical procedures that were put on hold during the lockdown will likely be rescheduled, leading to more health claims during the rest of the year.
This will lead to lower written premiums or higher claims in motor and medical insurance, pushing up loss ratios in the Saudi Arabia’s largest two insurance lines.
Saudi insurers also face sluggish economic growth, exacerbated by a fall in oil prices, that will cut demand for non-compulsory insurance. This will intensify competitive pressure and weigh on prices. Interest rate cuts, combined with weaker equity markets and potential declines in real estate values, will also crimp Saudi insurers’ investment income.
In addition, Saudi insurers face a likely increase in their minimum capital requirement. This regulatory change, together with future accounting changes, will encourage consolidation, according to the report. M