Almost 90% of insurers currently operating in Saudi Arabia will have to raise new capital, consolidate through mergers and acquisitions, or exit the market entirely, when the regulatory authorities raise minimum capital requirements, S&P Global Ratings says.
In its report "Stricter Capital Rules Could Accelerate Consolidation Among Gulf Islamic Insurers," published on RatingsDirect, the international rating agency notes that the Saudi Arabian Monetary Authority (SAMA) is assessing plans to increase minimum capital requirements for primary insurers to SAR500m ($133m), up from the current SAR100m. Details regarding the exact timing and amount have yet to be confirmed.
S&P Global Ratings credit analyst Emir Mujkic said, "In other markets such as the United Arab Emirates, where about 40% of takaful players do not comply with new solvency requirements adopted in January 2018, and in Kuwait, where a new law with higher capital requirements could be implemented in 2020, a significant number of companies will also need to increase their capital or consolidate."
In the report, Mr Mujkic also said, "Thanks to strong premium growth in Saudi Arabia and other GCC markets, Islamic insurers in the region recorded a 9.5% increase in gross written premiums and contributions in first-quarter 2019 following years of flat performance and declining profitability. This was joined with a 13.4% increase in profits, mainly from better investment returns."
He added, “However, despite these material improvements, we note that more than one third of insurers in the sector continue to report underwriting losses. Accumulated losses have in recent years eroded capital buffers and resulted in solvency issues and temporary, or even permanent, licence suspensions for a number of insurers, particularly in Saudi Arabia—the largest Islamic insurance market in the GCC. This also has led to a number of negative rating actions in recent years.”