The Insurance Authority has announced the transition to the mandatory implementation of the Risk-Based Capital (RBC) framework, effective 1 January 2027.
This is a significant step to strengthen the resilience of Saudi Arabia’s insurance sector and deliver on the National Insurance Sector Strategy, said the IA in a media statement.
The framework will serve as the official solvency regime for insurance and reinsurance companies, replacing the current framework in force. This move aligns with the strategy’s direction toward enhancing the efficiency and sustainability of the sector, while reinforcing the role of insurance in achieving the objectives of Saudi Vision 2030.
The Insurance Authority noted that the transition to the RBC framework will enable insurers to make more flexible, risk-informed decisions, while ensuring they maintain capital levels commensurate with the nature and scale of the risks they face. This, in turn, enhances confidence in the sector by strengthening insurers’ ability to manage risks effectively and meet their financial obligations toward policyholders and investors. The flexibility offered by the framework will also support greater diversification of insurers’ investment portfolios, contributing to broader economic activity within the financial sector.
The new framework further allows for capital enhancement through the issuance of subordinated debt instruments, providing insurers with additional options to meet capital requirements in line with business growth, while also encouraging increased investor participation in the insurance sector.
This transition reflects the maturity of the domestic insurance market and its readiness to adopt advanced regulatory frameworks that support financial stability and sustainable economic growth. It also strengthens the regulatory environment and enables the achievement of key objectives under the National Insurance Sector Strategy—most notably increasing the sector’s available Risk Bearing Capital to SAR50bn ($13.3bn) by 2030 from SAR25bn, in line with expected market growth.
The statement emphasised that the RBC framework is aligned with international best practices for capital requirements in the insurance sector, such as the Solvency II regime adopted in Europe, and tailored to reflect the specific characteristics of the Saudi insurance market.
The framework also fosters a more advanced risk management culture within insurance companies, both at the strategic decision-making level and in day-to-day operations, benefiting all stakeholders—from policyholders and shareholders to board members, executives, and employees.
Supporting transitional measures
As part of its commitment to ensuring a smooth and well-managed transition, the Insurance Authority has undertaken several supporting regulatory measures. These include conducting four simulation exercises in recent years to test the standard formula for calculating required capital, in addition to a fifth exercise based on 2025 data to further assess the standard formula and evaluate the expected impact of the transition on the sector’s overall solvency position. The process also involved extensive consultations with industry stakeholders, enhancing both the comprehensiveness and technical robustness of the framework.
A parallel run will commence this year, during which insurance companies will be required to calculate their solvency positions under both the new and existing frameworks, in accordance with guidance issued by the Authority. Companies will have the option to adopt the approved standard formula or develop a full or partial internal model, subject to prior approval from the Authority.
The Authority underscored the importance of ensuring that boards of directors and all relevant stakeholders are fully informed of these changes and their strategic implications. It also expects appointed actuaries to play an active role during this phase by organising internal workshops in coordination with risk, finance, and underwriting functions, to assess the financial, operational, and strategic impacts of the new framework and support an orderly and effective transition.
The Insurance Authority will continue to issue relevant guidance and updates, while maintaining close collaboration with insurance companies and all stakeholders to ensure the successful and sustainable implementation of this transformation.