The Saudi insurance sector saw GWP growth of about 8.3% to SAR37.8bn ($10.1bn) in 2019, following two years of contraction, according to the latest market report by S&P Global Ratings. Post-zakat income jumped by 146% to SAR1bn in 2019 against SAR406m in 2018. This significant market improvement is mainly attributed to the stronger earnings at heavyweights including Bupa Arabia, Tawuniya and MedGulf.
Given that there is a relatively large number of small and loss-making insurers in the market, S&P credit analyst Emir Mujkic expects to see accelerated consolidation in the sector or market exits over the coming quarters stemming from lower oil prices and COVID-19 pressures.
The sector is expected to report strong overall underwriting results in 1H2020, said S&P, due to a sharp reduction in motor and medical claims offsetting some weaker investment returns.
However, measures taken to contain COVID-19, including travel bans and curfews; lower oil prices, leading to delays or cancellations of non-essential infrastructure projects; and a general decline in disposable income due to the VAT increase and social benefit cuts could negatively affect the sector’s GWP growth and earnings prospects in 2H2020 and over the next year, said S&P.
With 32 insurers in the market, the Saudi insurance sector remains highly concentrated in terms of GWP and earnings. In 2019, the five largest primary insurers had a market share of about 68%, said the report. The largest insurer Bupa Arabia crossed the SAR10bn GWP mark for the first time but there were 13 companies that generated less than SAR367m and another six that wrote less than SAR200m.
The five largest insurers by GWP reported a combined post-zakat profit of about SAR1.2bn in 2019, while the remaining 26 primary insurers recorded a combined post-zakat loss of about SAR177m. In 2018, post-zakat losses were reported by 13 insurers, representing about 42% of all primary insurers in the market, said the report. These companies had a combined market share of about 12%.
Mr Mujkic expects that the credit conditions for these small and loss-making insurers will continue to weaken. Consolidation will help insurers to dilute some of their expenses, which are relatively high in Saudi Arabia compared with other markets, he said.