Investment bank Arqaam Capital has named Saudi Reinsurance Company among its preferred picks in the Saudi insurance sector, maintaining a "Buy" recommendation on the national reinsurer.
Arqaam Capital has also revised the target price of Saudi Re higher to SAR11 ($2.93) per share. This target price represents an upside of 15% from the market price, which trades below the company's book value at price to book value of 0.9, a valuation that does not reflect the improved earnings visibility, according to Arqaam Capital. The investment house expects Saudi Re to post further improvement in margins and more sustainable investment yields.
Arqaam Capital announced the initiation of Saudi Re coverage in June last year, recommending a "Buy" with a target price of SAR10.30.
In a recent report, the DIFC-based investment bank said the Tadawul-listed reinsurer is on track to further improve its underwriting margins, which is in line with its previous expectations. Further, Arqaam Capital expects underwriting margin to reach 4.2% by 2023, supported by further optimisation and geographical diversification in Saudi Re’s business portfolio.
Also, Arqaam Capital pointed out that Saudi Re’s improved credit rating coupled with the retreat of some of its competitors have opened up new market share opportunities. Despite written premium slowdown by -4% CAGR in the last two years, Saudi Re outperformed peers of globally listed reinsurers with similar market cap and portfolio size, showing improved combined ratios by 5% compared to an 8% worsening for peers.
Saudi Re’s investment returns achieved a growth of 59% in the first nine months of 2019 compared to the same period in 2018. “We welcome the reinsurer’s decision to increase its share of fixed income holding to 79% in 2019 to ease volatility,” Arqaam Capital said.
Founded in 2008, Saudi Re is the only reinsurance company based in Saudi Arabia and specialises reinsurance solutions in engineering, property, marine, casualty, motor, life and health.