Covering the Kingdom


Insurance, the advantages of which are becoming clearer, has growth potential, even though infrastructural insurance has tended to be undertaken abroad.

According to Ernst & Young’s (EY) ‘Waves of change: The Shifting Insurance Landscape in Rapid-Growth Markets’ report, Saudi Arabia offers juicy growth opportunities. Boasting double-digit performance, the Kingdom’s Total GWP for 2014 stood at $8.1 billion, while the industry had posted a compounded annual growth rate (CAGR) of 17% for the period of 2010 to 2014, chiefly on the back of mandatory products, notable among which was Saudi Arabia’s adoption of a health insurance system; this in addition to third-party motor insurance. According to EY, in pursuit of market growth in Saudi Arabia where penetration rates were historically low, insurers are faced with optimizing capital and asset liability strategies to remain cost competitive while providing quality products to the customer.


Once prevailing religious mores labeled insurance haram. Perceptions have however begun to change in the wake of compulsory third party motor insurance. The broader virtues of protection for business, health, and family have therefore taken root. The insurance landscape in the Kingdom is not strictly speaking sharia compliant in nature, but, rather, has the characteristics of a cooperative. Accordingly, a percentage of the insurance players’ profits returns to the policyholders.


The Saudi population—the largest in the Gulf—is young, upwardly mobile and tech-savvy, which conveniently opens up alternative avenues for premium generation via mobile insurance. This is vital as industry data reveals that roughly half of industry participants in the Kingdom posted underwriting losses in 1H2014, with many reporting shareholders below the mandatory required capitalization as stipulated by local insurance regulator Saudi Arabian Monetary Agency (SAMA). The Kingdom’s insurance sector has been adapting to new pricing regulations introduced to contend with the fiercely competitive environment characteristic of a rather saturated market of 37 players as of 2014. Meanwhile, compulsive stipulations have done much to reverse tradition disdain of insurance products on religious grounds.


According to AXA insurance, currently ranked 6th in gross written premiums (GWP) in Saudi Arabia, “There is great potential [although] there are possibly too many players and too many trying to enter the market. The insurer therefore sees, “…the possibility of some players disappearing over the next few years due to the strain on profitability.” The classic dilemma in saturated markets is price competition, the strain of which will likely lead to a measure of consolidation in pursuit of profit over the race for market share.


Like other Gulf nations, Saudia Arabia is keen to develop its local content, important among which s its professional workforce. By law, newly licensed insurance companies are obliged to meet a Saudization ratio of 30% at the end of its first year. By 2014 the Saudi insurance sector was providing work for 9,559 employees, up from 9,261 in 2013. Official data puts Saudi nationals in the sector at 57% of the total for 2014, marking a 1pp YoY rise. Broken down, we observe a Saudization ratio for non-managerial of 59%, and for managerial positions of 44%, up from 42% in 2013. In a TBY interview, Raeed Al-Tamimi, CEO of Tawuniya, the Kingdom’s first licensed insurer addressed the Saudization issue. “One of our national obligations is to employ more locals in the industry, and we currently have more than 77% of Saudis among our current staff. The difficult part, which is challenging for all companies, is that we do not have experts in Saudi insurance, and so the only way to overcome that is to bring in expatriates and have them train the Saudis…”


According to SAMA data, in 2014, the top eight insurance companies printed 71.3% of the entire market’s Gross Written Premiums (GWP), while the remaining 29 players of the 37-company sector accounted for 28.7% of total market premiums.

The Law on Supervision of Cooperative Insurance Companies stipulates minimum capital of $26.7 million for insurance firms and $53.3 million for those combining insurance with reinsurance business lines. Encouragingly, by end-2014 insurance firms’ equity rose from $2.6 billion at end-2013 to $3.8 billion, where 23 entities exceeded $266,600, despite the competitive mood.

For 2014, total GWP reached $8.1 billion, up from $6.7 billion in 2013 marking annual appreciation of 20.8%, up from 2013’s 19.2%. Specifically, health insurance GWP, accounting for 52% of the total market, rose 21.9% to $4.2 billion in 2014 from $3.4 billion in 2013. General insurance GWP, also a major component, at 45% of total market, rose 20.5% to $3.7 billion in 2014 from $3.1 billion in 2013. Meanwhile, protection & savings (P&S) insurance GWP, accounting for 3% of the insurance market, climbed 7% to $241 million in 2014 compared to $225 million a year before.

Total insurance GWPs rose $1.4 billion to $8.1 billion in 2014, compared to SR 25.24 Billion in 2013, rising 20.8%. Health insurance remained the big fish of the year, its contribution to total GWP fractionally up from 51% in 2013 to 52% in 2014. General insurance’s contribution to overall business volume slipped to 45% in 2014, while health insurance stumped up $746.6 million of the $1.4 billion annual increase, accounting for a 53% contribution to the market GWP climb. Again, protection and savings coverage was the slimmest business line on 3% of total GWP, albeit with a 7% YoY rise in its written premiums for the year.

Insurance penetration is on a gradual climb leveraging several growth factors, not least of which is the young and tech-savvy population. Over the past five years, insurance penetration has risen at a compound annual growth rate (CAGR) of 3%. Fort 2014 the figure rose to 1.08% up from 0.9% in 2013. What’s more, insurance penetration of non-oil GDP—defined as GWP divided by non-oil GDP—rose to 1.9% from 1.72% YoY, having slipped by an average annual rate of 2% between 2010 and 2014.

Insurance density, namely GWP per capita, climbed from $230.4 per capita in 2013 to $264.3 per capita in 2014, up 14.6%. Sticking with double-digit performance, per capita expenditures on insurance products saw an average annual rise of 13% between 2010 and 2014. And meanwhile, the density of protection and savings coverage, at $7.7 per capita, was relatively low in absolute terms, compared to the general and health.
Broken down by business line Motor and Health insurance boasted the lion’s share, at 77.9% of total GWP in 2014. The latter component, comprising both compulsory and non-compulsory lines remained the largest business type in 2014, at 51% of total GWP. This was followed by combined compulsory and noncompulsory motor insurance on 26.3% share of total GWP. Incidentally, motor posted the highest premium growth of 2014 of 26.3%. And finally, health and engineering underwritten premiums respectively rose by 21.9% and 19.5%.
In 2014, SANA data puts total commissions incurred at $266.7 million, up from $261.3 million in 2013, on an incline of 6%. General insurance related commissions claimed 57.4% of the total, while health insurance commissions were at 40.5%, protection and savings were on 2.2% of total commissions incurred.
Net written premiums (NWP) rose from $5.1 billion in 2013 to $6.5 billion in 2014, up a robust 26.5%. Motor and Health insurance accounted for a massive 91.4% of total NWP for the year, the latter of the two contributing 60.2% of total NWP, with motor insurance on 31.2% of NWP in 2014. Total NWP CAGR for the 2010 to 2014 period was at 20%.

And in terms of what the insurers themselves retained for 2014, the overall retention ratio in the Saudi market rose marginally from 76.2 % in 2013 to 79.8% in 2014, predominantly favoring Motor and Health insurance, collectively on 77.9% of total GWP. Respectively, the two segments printed ratios of 95% and 93.
Sector profitability marked a positive reversal in 2014 where insurance underwriting stood at $173.6 million, compared to $-453.3 million a year before. Return on Assets (ROA), the ratio of net result to total assets was at 1.6% in 2014, while sector return on equity (ROE), the ratio of the net result to total equity was at 7.3%.


Growth potential exists in the motor insurance segment, long non-compulsory with many purchasing a car having taken out coverage, but waiting until the third year thereafter when renewing car registration. Drivers in Saudi Arabia are only legally required to have third-party insurance, the cheapest insurance available. Motor insurance’s GWP in 2014 stood at $2.1 billion on a 26.3% share of total GWP. The retention ratio of 95% was the highest among all business lines. Meanwhile, motor coverage net written premiums (NWP) were at $2 billion. Motor insurance’s net earned premium NEP was at $1.8 billion on 31% of the insurance sector total. Insurance companies recorded $1.7 billion in Motor segment net claims incurred (NCI) leading to a 92% loss ratio for the year by SANA data, and confirming perhaps that the dubious pastime of drifting across the Kingdom’s highways remains as popular as ever.


The healthcare insurance segment, too, continues to grow. Back in 2005, health coverage became compulsory for all non-Saudi nationals under the Cooperative Health Insurance Act, extended in 2008 to encompass Saudi nationals in the private sector. Health insurance, amassing both compulsory and non-compulsory lines, claimed 51.6% of 2014’s overall market GWP on $4.2 billion in underwritten premiums. The segment accounted for 60.2% of overall sector NWP, while insurance players managed to hold onto $3.9 billion of their Health insurance GWP, marking a 93.2% retention ratio. Nonetheless, the segment’s NEP posted at $3.5 billion, the NCI rate of $2.8 billion: a 79% loss ratio for 2014.