Saudi Arabia market report

Saudi Arabia's insurance market grew 18% per annum over the period 2008-12. A report by Saudi Hollandi Capital last year noted that non-life insurance was the key contributor to the industry's growth. It said factors such as a strong economy, structural reforms, favourable demographics and regulatory environment have been vital for the industry's growth. According to Moody's Investors Service, Saudi Arabia's insurance market had premiums worth $8.1bn in 2014. Saudi Arabia was the GCC's second-fastest growing insurance market in 2014. Insurance premiums grew by more than 20% in 2014, helped by premium rate increases in the medical and motor sectors. Regulatory changes undertaken, with the adoption of the cooperative insurance model in 2005, and measures implemented by the government (such as mandatory health insurance for expatriates) have also boosted the insurance industry.hideStandard & Poor's Ratings Services maintained its intermediate assessment of industry and country risk for Saudi Arabia's non-life property/casualty insurance sector, reflecting moderate country and low industry risk for insurers based in Saudi Arabia. S&P said that property/casualty and health premium growth across the sector continues to outstrip expansion in GDP. "Although official policymaking can sometimes prove difficult to predict, the domestic insurance sector remains largely unaffected by political uncertainties because of the generally transparent institutions that regulate the industry," said S&P. Moody's said that the growth of Saudi Arabia's insurance market over the last few years stems from the Saudi Arabian authority making health and motor third-party-motor coverage compulsory, the increasing awareness of the need to purchase insurance products, and favourable economic conditions. It also pointed to prudent actuarial reserve modelling introduced by the regulator in 2013 which has spurred rates hardening in the medical and motor lines. Saudi Arabia's insurance market is highly competitive, however, with 37 licensed insurance and reinsurance companies and 76 brokers and a similar number of insurance agencies. Moody's said it expects that the number of market players may need to reduce over time. It said the largest Saudi insurers show a good and consistent level of underwriting profitability, with combined ratios typically in the low 90% range. However the overall industry shows a different picture, with a poor underwriting performance driven by the high level of competition. Non-admitted not permitted The regulator in Saudi Arabia is the Saudi Arabian Monetary Agency (SAMA). The Saudi Hollandi Capital report said that SAMA, "had been instrumental in creating a well-defined regulatory environment for the insurance industry. SAMA mandated all of the insurance companies operating in Saudi Arabia to follow the domestic cooperative insurance model." Regulatory changes initiated by SAMA in the last 10 years have helped in ring-fencing operations as well as creating a level-playing field for entities operating in the industry. The Cooperative Insurance Companies Control Law (2003) set the stage for the legal framework and supervision of the insurance sector, and the Saudi Arabian Monetary Agency (SAMA) was appointed to act as the regulator and responsible body for the supervision of the insurance sector. The law stated: "Insurance activities within Saudi Arabia shall be carried out by insurance companies established and registered in the Kingdom and operated in a 'Cooperative' manner consistent with the principles of Islamic Law and Jurisprudence." In particular, this means 10% of the net surplus must be distributed to the policyholders directly, or in the form of reduction in premiums for the next year. Insurance contracts which do not comply may not be enforceable in Saudi Arabia. Oussama El Khatib, general manager of Arabian American Insurance Company in Saudi Arabia, a joint venture in which AIG is a shareholder, said that no local policy can be issued unless it complies with the Cooperative Law, its implementing regulation, and is subject to surplus distribution. Non-admitted insurance is not permitted in Saudi Arabia, however local insurers can be used to issue policies in Saudi Arabia, but all products are subject to the approval of the regulator. In general, according to Mr El Khatib, there is a tougher stance being taken by the regulatory and tax authorities on compliance: "In 10 years, Saudi Arabia jumped from having the least regulation to one of the most sophisticated regulatory systems in the GCC and the Arab world." He explained that a foreign insurer cannot operate in the Kingdom of Saudi Arabia. However, they can be a shareholder in a Saudi Arabian joint stock public cooperative insurance company. But, he said, this company should be fully independent and the foreign insurer can only be represented on the board. Compulsory covers introduced Compulsory third party motor insurance was introduced in 2001 and other compulsory insurances have been subsequently introduced for health insurance, medical malpractice, oil pollution, and professional indemnity (for insurance and reinsurance service providers). There are no insurance premium taxes in Saudi Arabia, but insurance and reinsurance companies in Saudi Arabia are subject to a SAMA levy of 0.5% of total underwritten premiums in a financial year. A Clyde & Co report said: "Subject to certain restrictions (such as the prohibition on non-admitted insurance) the provision of services on a cross-border basis is permitted, subject to the service provider not establishing a physical presence in Saudi Arabia or conducting its business in Saudi Arabia, and the payment of withholding tax on the fees payable to the service provider." It said that risks can be placed with insurance companies outside of Saudi Arabia in exceptional circumstances where coverage cannot be provided for a risk within Saudi Arabia. An insurance intermediary must obtain written approval from the Saudi Arabian Monetary Agency (SAMA) in those circumstances. The report went on: "In practice, given the number and scale of insurance companies in Saudi Arabia, this exception is rarely applied and, to our knowledge, has primarily been limited to construction and property risks for large high-value projects. It is risky for foreign insurers to rely on exemptions provided in previous years of account and each renewal should be treated as a separate contract (and separate exemptions sought)." Clyde & Co explained: "The prohibition on 'non-admitted' insurance causes real issues in the context of insurance programmes for multinational entities wishing to purchase coverages for their operations in multiple territories. It is increasingly common to see global programmes utilising 'fronting' arrangements with locally licensed insurers to comply with local regulatory requirements." Overall, Mr El Khatib said he believes it is getting easier to incorporate Saudi Arabian risks into a global programme. "Local insurers shall retain a certain percentage of the risk in country. The market is moving into a more regulated environment and the regulatory tendency is to follow international regulations for the sector by fine-tuning these regulations to make it acceptable locally."

Saudi Arabia market report

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