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Saudi Arabia Insurance Report Q1 2012
Market |
Finance and Banking |
Report Type |
Market Research |
Country |
Saudi Arabia |
Published |
31 January 2012 |
Number of Pages |
75 |
Download |
|
Immediate |
|
Publisher |
Business Monitor International |
File Format |
There are many positive features of Saudi Arabias insurance sector. By the standards of most developing countries, it is already reasonably large. It has also been growing rapidly. Life premiums are† nearly† an order of magnitude larger than they were in 2004-05. Non-life penetration has nearly trebled since that time. Foreign multi-nationals participate as minority shareholders and providers of technical knowhow. The vast majority of the insurance companies are listed on Tadawul, the local stock exchange: this means that, at least in theory, they have greater access to capital and are more transparent in reporting about their activities than would otherwise have been the case. Because the law requires the insurers to operate according to the principles of co-operative insurance, they form the largest single sharia compliant sector in the world - accounting for about half of all takaful contributions written globally.
However, it is the weaknesses of the sector that dominate. The most obvious problem is that social security (or government benevolence) towards locals is so generous that most Saudi households do not need to use life insurance. Protection products have grown enormously from a miniscule base. However, by any metric, life insurance is – and during the forecast period will almost certainly remain – small. The industry is fragmented, in that Tawuniya – the former state-owned monopoly – is the only company that is writing substantially more than US$1bn in annual premiums, while most of the 30 or so insurers have annual premiums of less than US$150mn. Retention ratios (i.e. net premiums as a percentage of gross premiums) are higher than in other GCC countries, but are still – at 72% or so – quite low. Much of the growth in the sector has been due to the introduction of compulsory medical insurance. There is a shortage of skilled labour, as companies struggle to meet the official Saudisation ratio (i.e. the percentage of total staff accounted for by locals rather than by expatriates).
The results released by the listed companies in relation to the first nine months of 2011 suggest that overall premium growth has accelerated to around 17%. The larger companies have been selective about the business that they have been writing. Smaller companies (with the exceptions of the local takaful operators) have generally been growing quickly. There are marked differences between companies in terms of the effect of motor-related claims. A favourable development is that, through 2011 as a whole, most companies achieved significant growth in net investment income – in spite of the volatility in global financial markets.
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