The Saudi market is now considered a major reinsurance hub in the MENA region, constituting 21% of MENA GWPs (vs 16% in 2009) and 38% of GCC GWPs, with renewed growth in health, according to a report by the investment house Arqaam Capital.
Supported by government-fuelled growth and a larger population, premium growth in Saudi Arabia has outpaced the rest of the GCC region (prior to 2015) for the past five years. The medical segment is benefitting from a price hardening cycle, and with significant growth potential after the Council of Cooperative Health Insurance (CCHI) declared the start of its Saudi crackdown as of January 2019.
However, average rate/policies (ex medical) have been declining for the past two years, though they have finally begun to tighten this year, says the report. Primary insurers are compounding the problem by leveraging their ratings and capacity to increase their retention and/or write inward facultative business.
Concurrently, foreign reinsurance capital and expertise continue to flood the market and further suppress P&C rates. Nonetheless, a larger share of insured losses over the past two years have finally begun to harden the P&C market.
Higher retention of risk by primary insurers
Risk retention levels increased in the medical segment from 78% in 2008 to 96% in 2017. As a result, the bulk of reinsurance business in Saudi is driven by the P&C segment (ex motor), where retention rates are still low at 26%.
Retention in P&C has been steadily increasing, but Arqaam Capital expects this to stabilise at current levels. Primary insurers have shied away from onboarding P&C risk (ex. motor) due to its volatile nature.
Furthermore, insurers focused their capital towards the larger motor and medical segments, as they sought to stabilise their bottom line and cede away their P&C risk. While retention levels have gradually increased in the P&C segment from 20% in 2010 to 26% by 2017, Arqaam Capital expects them to normalise at current levels, due to the stronger growth expectations for both the medical and motor segments.
Primary insurers have been heavily investing to improve their underwriting metrics in the medical and motor segments, coupled with regulatory developments like the unified policy format, and actuarial pricing, which have boosted insurers' profitability.
The Saudi Arabian Monetary Authority (SAMA) has inaugurated a new valuation centre for claims in the motor segment, reducing market malpractices, while unifying the database at the motor services company Najm to improve pricing.
SAMA is expected to increase the minimum capital requirement for primary insurers by 2020 from SAR100m ($27m) to SAR500m, which would further strengthen their balance sheet.