Gulf Union Alahlia Cooperative Insurance Company (Gulf Union) is expected to maintain combined ratios in the mid to high 90s in 2025 due to its underwriting and pricing discipline, says Fitch Ratings.
This is despite intense price competition in motor and medical markets, which Fitch considers a significant risk for Saudi insurers.
At end-2024, Gulf Union reported a net profit of SAR44m [$11.7m] (end-2023: SAR125m). The reduction was primarily driven by a deterioration in the underwriting performance, particularly in the group medical segment due to price competition, which is reflected in an increase in the Fitch-calculated combined ratio to 95% (end-2023: 83%).
However, losses were offset by underwriting profitability in other P&C lines of business, and bottom-line profitability was supported by an investment income of SAR32m (end-2023: SAR38m).
Ratings affirmed
Fitch has affirmed Gulf Union Alahlia Cooperative Insurance Company's (Gulf Union) Insurer Financial Strength (IFS) Rating at 'BBB+' and National IFS Rating at 'AA-(sau)'. The outlooks are ‘Stable’.
The ratings reflect Gulf Union's strong capitalisation, good financial performance, and small size in the Saudi insurance market.
Aside from financial performance, other key rating drivers for Gulf Union include:
Small Saudi Insurer: Gulf Union is a small insurer in Saudi Arabia, with a market share of about 1% in 2024. This was marginally higher than in the previous year, as gross written premiums (GWP) increased to SAR976m in 2024 from SAR691m in 2023, driven by group medical, and motor SME and retail segments. The 41% increase in GWP outpaced the overall industry but was in line with the company's plans to profitably grow its business.
Fitch’s assessment of the company profile is also influenced by the insurer's well-diversified product mix. Medical insurance contributed 46% of GWP in 2024 (2023: 38%), followed by motor at 38% (2023: 44%) and property and casualty at 16% (2023: 18%). Gulf Union has implemented several initiatives to enhance operational efficiencies and launched new products, with plans to further expand its product offering in the short to medium term.
Strong Capitalisation and Leverage: Fitch’s assessment of Gulf Union's capitalisation is reflected in a Prism Global score of 'Extremely Strong' at end-2024, unchanged from 2023. The regulatory solvency ratio, although still strong, fell to 176% at end-2024 (end-2023: 237%). This was driven by an increase in premium based solvency capital requirement as the company reported 41% growth in GWP year-on-year, and a reduction in profitability. Fitch expects the Prism Global score to remain at least 'Strong' in the medium term, helped by financial performance that is partly offset by significant business growth that could consume capital. The insurer's financial leverage was zero, which also supports Fitch’s assessment of capitalisation and leverage.
Good Reserving Practice: The majority of Gulf Union's policies are short tailed, which limits the impact of significant claims experience on reserve adequacy. The insurer sets reserves at best-estimate levels, based on regular evaluation of historical results and expectations of claims experience.
Conservative Investment Mix: Fitch regards Gulf Union's investment risk as low. Cash, deposits and other fixed-income investments make up around 70% of its investment portfolio. The majority of fixed-income investments are in Saudi Arabia’s government sukuk. Exposure to equity and mutual fund investments is limited.