Insurers in Saudi Arabia tailor their offerings to a competitive and burgeoning market

Collectively, the Saudi Arabian insurance industry has seen five years of double-digit growth in both revenue and net profit. However, the positive performance of a few of the Kingdom’s largest insurers masks more modest results from many of its smaller firms, some of which have accumulated debts over many years. Although industry experts believe the overall outlook is positive for a country with a low insurance penetration by regional standards, conditions for some companies are expected to remain challenging in a crowded marketplace dominated by medical and motor coverage.

Cooperative Model

Clearly defined and supervised insurance activity is still in its second decade in the Kingdom and so is relatively new to Saudi Arabia, but the government has recognised that the industry can be a cornerstone of the financial services sector by promoting long-term savings and allowing policyholder funds to be channelled into investment opportunities. At the end of 2003 the Law on Supervision of Cooperative Insurance Companies was enacted, followed by the implementing regulation in 2004. The law was designed to provide clarity on sharia issues and increase market regulation, and formed the foundation for growth.

This legislative framework gave the Saudi Arabian Monetary Agency (SAMA) responsibility for regulating the sector, and a new insurance department within SAMA was created. Under these laws, the Saudi cooperative model of insurance was defined as a variation of takaful (Islamic insurance). The cooperative model does not require individual firms to have sharia boards, and insurers are not restricted from investing in financial instruments that may not be sharia-compliant.

The Kingdom resisted insurance activity for many years because it was deemed to be in contravention of sharia rules forbidding maisir (gambling, or games of chance), gharar (uncertainty) or riba (the charging of interest, or usury). A small nascent insurance sector in the 1950s was spurred on by the influx of foreign companies during the oil boom in the 1970s, and in 1977 religious scholars sitting on the Kingdom’s Council of Senior Ulema (a national body of religious scholars) declared that some forms of sharia-compliant insurance could be permitted. By 2004, and prior to the implementation of the new legal framework, the insurance sector consisted of one state-owned company, which subsequently became the publicly listed Tawuniya, and 130 unregulated insurers, many of which operated as agents for off-shore insurance companies.

Market Dynamics

SAMA’s Insurance Supervisory Authority is responsible for the development and enforcement of new regulations, licensing of insurance firms and brokers, product approval, market analysis and supervision. As of mid-2016, there were 35 insurance companies, 16 of which were also licensed to provide insurance and reinsurance policies. There is only one professional reinsurer, Saudi Re, which deals exclusively with insurance companies. The professional reinsurer label is for differentiation purposes only. “Reinsurance is almost entirely outsourced because the local market does not have the technical expertise to place huge risks nor to underwrite them,” Imad Husseini, CEO of Saudi Brokers, told OBG.

Each year local insurance company Arabian Shield’s CFO, Mohammed Atef, conducts a rigorous analysis of the published results of 34 companies but does not include reinsurer Saudi Re. In 2015 he reported that three insurers generated 53% of all written premiums, slightly down from 55% in 2014, while the 10 smallest companies together comprised less than 5% of the total. “There are 35 companies, but only 10 companies reported results for 2015 that were in the black, with shareholders’ equity exceeding capital, and the others were in the red,” Basem Odeh, CEO of Arabian Shield and chairman of the Insurance Executive Committee at SAMA told OBG, told OBG. Additionally, as of mid-2016, SAMA has licensed 80 insurance brokers, 84 insurance agencies, two actuaries, 15 loss adjusters and loss assessors, 10 third-party administrators and eight insurance advisers.

Performance Indicators

Saudi Arabia’s insurance industry is the second largest in the GCC after the UAE, according to Alpen Capital, a Dubai-based investment bank, with gross written premiums (GWPs) in the Kingdom worth $8.1bn in 2014, compared to $9.1bn in the UAE and $2.2bn in Qatar, the third-largest market. GWPs in the remaining three GCC countries (Oman, Kuwait and Bahrain) totalled $2.7bn in 2014.

According to recent data from SAMA, GWPs in Saudi Arabia increased by a compound annual growth rate of approximately 16.8% between 2010 and 2014. By 2015 they had reached SR36.5bn ($9.7bn), up 19.7% year-on-year (y-o-y). The motor segment of the market produced the greatest growth in GWPs, up 34.5% from SR8bn ($2.1bn) in 2014 to SR10.8bn ($2.9bn) in 2015; followed by medical, up 20.7% from SR15.7bn ($4.2bn) to SR18.96bn ($5.1bn); property and casualty, up 4% from SR5.19bn ($1.38bn) to SR5.4bn ($1.44bn); and protection and saving (P&S), up 14.5% from SR904m ($241m) to SR1bn ($266.6m).

Medical and motor insurance cover continue to dominate the market, and in 2015 these two categories took an even larger share of overall premiums, with medical accounting for 52% of the total, up from a 51.6% share in 2014. Motor premiums constituted 28.9%, up from 26.8%. Medical and motor GWPs together comprised more than 81.6% of the total. Property and casualty’s share dropped from 17.4% in 2014 to 15% in 2015, and over the same period P&S fell from 3% to 2.8%.

The continuing growth and dominance of the motor and medical segments is driven, to a large extent, by regulation and enforcement. Owners are required to show proof of insurance when they license a vehicle, and expatriates are increasingly expected to have medical coverage if they wish to be treated in state or private hospitals.

According to Albilad Capital, a local investment company, in its “Saudi Insurance Sector 2015” report, the introduction of compulsory health insurance for all families of foreign residents working in the private sector was a key contributor to the 25% increase in health insurance GWPs in 2015. The Council of Cooperative Health Insurance (CCHI) has been enforcing compulsory health insurance for all non-Saudi private sector employees since 2006, and these expatriate workers and their families constitute a significant market in their own right. The General Authority for Statistics estimated that there were just over 10.3m expatriates in the Kingdom in 2015, meaning the population of foreign residents in Saudi Arabia is greater than the total population of any other GCC country. Although demand for health and motor insurance has not been directly affected by the fall in global oil prices and the resulting tightening of government spending, Arabian Shield’s report suggested that the property and casualty segment could be affected by these factors. However, it also saw some hope for expansion in the smallest segment of the market, P&S, in light of the introduction of new mortgage laws in the Kingdom in 2015.

Profit & Loss

With four companies sharing almost 60% of the insurance market, their combined financial performance has had a significant impact on the sector. Tawuniya is the largest company, and its share of the market increased from 20.8% in 2014 to 21.2% in 2015, according to Arabian Shield. BUPA Arabia’s footprint grew from 19.2% to 20.6%, while the third-largest player, Medgulf, had a less positive year, shrinking from 14.8% to 11.3%. Malath Insurance, meanwhile, grew its share from 4.7% to 5.2%. Tawuniya and BUPA led the table of 15 companies that reported a profit in 2015, with Tawuniya seeing its income increase by almost 6.8% from SR560.1m ($149.3m) to SR598.4m ($159.5m), and BUPA enjoying a 114% jump from SR301m ($80.2m) to SR645m ($172m).

These two leading companies made combined profits of SR1.29bn ($343.9m), which was 76.8% of the sector’s SR1.68bn ($447.9m). A smaller player, Al Sagr Cooperative Insurance, had a particularly strong year, having seen its market share increase from 0.8% to 2.4%, and its sales rise by 260%. It recorded SR863.8m ($230.3m) in GWPs in 2015, 87% of which were medical policies, making it the ninth-largest insurance firm in the Kingdom. However, in early 2016 Al Sagr’s sales of medical insurance policies were frozen pending a joint investigation by SAMA and the CCHI.

It was a more troubled picture for Medgulf, the third-largest player in the market, which went from a SR193m ($51.5m) profit in 2014 to a loss of SR261m ($69.6m) in 2015. The company also reported a loss of SR192m ($51.2) in 2013. In 2015 around 70% of Medgulf’s GWPs were in medical insurance with a combined value of SR2.81bn ($749.1m).

Malath, the fourth-largest player, was in the red in both 2014 and 2015, but saw its losses ease by 27.9% from SR13.7m ($3.7m) in 2014 to SR9.9m ($2.6m) in 2015. The company is primarily focused on motor insurance, where it reported GWPs of SR1.86bn ($495.9m), constituting 85% of its sales. “Our strategy has changed since 2014, when we examined the whole company and the market, and decided to become a leader in the motor insurance line,” Abu Baker Shehab, CFO of Malath, told OBG. “As a management team and as a board, we believe in building reserves for the future, and this has had an impact on our end-of-year results.”

Overall, six companies moved from profit to loss in 2015, while eight others reported losses in both years. Four companies moved from loss to profit: Trade Union, Alamiya, Gulf Union and Sanad.


Although sector-wide GWPs grew by 19.7% in 2015, this was outpaced by 24.4% growth in net written premiums, which are GWPs less deductions for commissions and ceded reinsurance. According to Arabian Shield, this trend reflected a reluctance by reinsurers to engage with the risks attached to the motor and medical lines, but it anticipated these attitudes changing as the market becomes more stable and profitable.

The sector’s net retention ratio, which measures the level of risk retained by insurers and not ceded to reinsurers, climbed across the sector, from 79.8% to 83% y-o-y. SAMA’s “Financial Stability Report 2015” concluded that retention ratios in the Kingdom were indicative of low reliance on the reinsurance market and a low level of integration between domestic and international insurance markets.

The result is that most market risk in Saudi Arabia is being assumed by the insurance companies. SAMA pointed out that there is wide variation when different insurance lines were compared. The retention ratios for health and motor insurance in 2014 were 93.2% and 94.7%, respectively, but were much lower for other lines, with the figure for energy insurance standing at 2%, for example.

The overall profitability of insurance companies was also adversely affected by a 27% fall in earnings from investments, down from SR545m ($145.3m) in 2014 to SR400m ($106.6m) in 2015. Albilad Capital attributed the decline to low interest rates.

The loss ratio of net claims to net earned premiums was 80% across the market in 2015, virtually unchanged from 81% in 2014 but significantly better than the 92% figure for 2013. This improvement is attributed to the new minimum actuarial standards, and rates for medical and motor insurance imposed by SAMA. However, this has had a greater impact on medical insurance than the motor line, where losses had an effect on overall profitability in the sector. Net claims across all lines and for all companies increased by 20.7% from SR20.3bn ($5.4bn) in 2014 to SR24.5bn ($6.5bn) in 2015.

Capital Strength

Many companies in the sector are still dealing with the legacy of a premium price war, which only eased when SAMA stepped in to enforce stricter actuarial pricing practices in 2013. The regulator sought to ensure underwriters did not undercut the actuarial pricing model submitted to SAMA for approval. In 2015 the accumulated losses for the sector increased marginally by 3% to SR1.57bn ($418.6bn), representing 13% of the market capital of SR11.82bn ($3.2bn).

According to Arabian Shield, no more than 10 companies had shareholder equity that exceeded their capital: Tawuniya, BUPA, ACE, Al Sagr, Arabian Shield, Al Ahli, Jazira, SABB Takaful, AXA Cooperative and Allianz Saudi Fransi Cooperative Insurance. The equity-to-share ratio for the market was 99%, with the report predicting this would cross the 100% threshold in 2016.

Low Penetration

Although it has been growing slowly, insurance penetration in Saudi Arabia – defined as GWPs as a percentage of GDP – is well below the global standard. According to figures from SAMA, Saudi Arabia’s insurance penetration was 1.9% in 2014 and 1.5% in 2015, while the average for emerging markets was 2.7% and the global average was 6.3%. However, these numbers were similar across the GCC countries. The UAE led the way in 2014 with penetration of 2.3%, followed by Bahrain (2.2%), Oman (1.3%), Qatar (1%) and Kuwait (0.6%). Albilad Capital’s report suggested an increase in insurance penetration in 2015, from 1.1% to 1.5%, triggered by the growth of GWPs.

Although the reasons for low insurance penetration may be complex, it can be partially explained by historical problems in developing a sharia-compliant model. In addition, in countries such as Saudi Arabia, Qatar and Kuwait, the lion’s share of GDP is generated from hydrocarbons extraction rather than commercial activities that might spawn a more versatile insurance market.

Insurance density, which reflects average per capita spending on insurance premiums, rose from SR990.7 ($264.12) in 2014 to SR1186.1 ($316.21) in 2015, representing growth of 19.7%, according to Arabian Shield. Alpen Capital noted that Saudi Arabia had the second-lowest insurance density of any GCC country in 2014, at $264. Only Kuwait had a lower density at $252, while Oman’s stood at $278 and Bahrain’s was $585. The UAE and Qatar had higher densities at $979 and $977, respectively, well above the global average of $662 and the emerging market average of $136. However, this reflects the relative wealth of consumers in GCC countries, with citizens in many emerging economies having significantly lower spending capacity than people who live in Saudi Arabia, where the IMF recently projected GDP per capita of $21,556 in 2016.

Insurance Classes

Insurance products and services are offered in three classes, each of which contains several lines. The first class is P&S insurance, which is the equivalent of life insurance; the second is health insurance; and the third is general insurance, which has business lines, including motor, marine, aviation, engineering, accidents and liability, property and fire, and energy.

However, according to Albilad Capital, despite this broad range of offerings, 82% of GWPs are driven by compulsory cover for health and motor insurance. The ongoing dominance of these two areas leaves insurance companies with the option of specialising in specific lines or attempting to develop a broader offering.

Tawuniya’s GWPs were split among health, property and casualty, and motor, which accounted for 65%, 18% and 17%, respectively, in 2015. In contrast, BUPA only offers health insurance and was the biggest player in this segment with SR7.3bn ($1.9bn) in GWPs, almost 40% of all health insurance sales in the Kingdom, compared to Tawuniya’s SR4.9bn ($1.3bn). Medgulf spreads its offering across medical, motor, and property and casualty, with each line representing 70%, 17% and 13%, respectively. Meanwhile, Malath is increasingly focused on the motor insurance segment, which accounted for 85% of its premiums in 2015, at a total value of SR1.6bn ($426.6m) and constituted more than 15% of all motor GWPs in the Kingdom.

Among smaller firms, some have chosen to specialise in more niche areas while others have a more general offering. At Al Alamiya, ACE and Alinma Tokio Marine, the majority of GWPs are in property and casualty, with the bulk of their remaining premiums covering motor insurance. Meanwhile, three firms dominate the P&S segment, Al Ahli Takaful, SABB Takaful and Allianz, representing over 80% of the market share. The P&S segment is worth SR913m ($243.4m) in Saudi Arabia, and although the amount spent on P&S premiums rose by 6% in 2015, its share of the overall market is only 2.6%. According to SAMA, life insurance penetration declined from 0.05% in 2010 to 0.03% in 2014, and density fell from $9 in 2010 to $8 in 2014.

Alpen Capital’s report suggested that the appeal of P&S insurance has waned with the government’s provision of additional social security benefits, and that reliance on strong extended family support networks, combined with a lack of awareness of the benefits of life insurance, dampen consumer enthusiasm for this form of coverage. The report also noted that wealthier clients looking for a longer-term investment and savings strategy have tended to turn to equity markets rather than buying unit-linked insurance products.

Regarding distribution, while brokers and agents have traditionally dominated the market, growth in non-corporate insurance has driven more direct selling. The retail segment offers the greatest potential for direct sales, due to there being less financial incentive for brokers to pursue commission on coverage for individuals. However, some expense-driven corporate lines, such as medical, are also being sold directly to large clients by insurers keen to avoid paying fees to brokers and agents.

Mergers & Acquisitions 

Another prevailing attitude that affects the wider insurance market is reluctance of smaller companies to consider expanding through mergers and acquisitions, despite an abundance of players in the sector. According to SAMA, the preferred route to expansion has been through recapitalisation.

In the summer of 2015 the insurance regulator reported that no insurance company had formally approached it to seek approval for any merger and acquisition activity. However, in early 2016 there were signs that this might be about to change. “We have been encouraging the sector to consolidate, and we would definitely like to see it,” Ali Al Ayed, general director of insurance controls at SAMA, told OBG. “There are three deals in the pipeline, and hopefully one will materialise. We need one deal, and the rest will follow.”


One way for smaller firms to remain competitive in such a challenging market is to focus on the quality of their products and the standards of underwriting. As such, the development of a skilled workforce is a key objective for SAMA in the immediate future. The authority wants to see systematic training to enhance underwriting skills across the sector and develop the local Saudi insurance industry. It points to a shortage of qualified and skilled Saudi professionals working in underwriting and the country’s firms, and says the shortage is particularly acute in middle management at many companies. According to SAMA, insurance courses are rare at the country’s universities even though the industry is highly skilled and knowledge-oriented. The provision of this kind of training and education might also encourage more young citizens to enter the profession, thereby increasing Saudiisation levels within the industry. “One of the biggest challenges across the industry is to find talented local people,” Odeh told OBG. “Saudiisation was at 59% in our company last year, and we hope to see that grow to more than 60% in 2016. We are working as an industry with universities to establish programmes and develop training in skills required in insurance, and we think that is the future.”

Enhancing Regulation

Although SAMA is the main regulator of the insurance industry in Saudi Arabia, it is not solely responsible for ensuring best practices and stability in the sector. The CCHI supervises the medical line, providing technical and medical advice, and protecting consumer rights. All insurance companies in Saudi Arabia are listed on the Tadawul, and the Capital Market Authority ensures that all insurance companies comply with Saudi capital markets law.

The importance of robust but fair regulation and enforcement of the market was demonstrated by SAMA’s intervention in the price war of 2013, as well as the subsequent improvement in the performance of most insurnace companies. However, SAMA also acknowledges that the three regulatory bodies could work more cohesively together. In its 2015 report, the authority noted that “Further coordination between SAMA and the CCHI will reduce regulatory arbitrage and eliminate conflicts in the law implementation”.

Insurance companies in the Kingdom report a healthy working relationship with the regulatory bodies, but feel there could be more clarity and cooperation on longer-term proposals. “We have excellent communication with SAMA as the regulator, because it consults with the industry and allows the public to have their say,” Odeh told OBG. “We also have an excellent rapport with CCHI, the medical insurance regulator. When it comes to the Ministry of Health, communication is very limited in terms of explaining their proposals and plans to the industry. I hope that the ministry will take into consideration the views of the industry and realise that we may have ideas that will give them solutions to issues in the market.”


Although it is a crowded marketplace, which was tested by trading practices in 2013, the Saudi insurance sector has worked with regulators to return to a more robust footing. Unlike some sectors in the Kingdom, insurance is insulated for the most part from the downturn in oil revenues. The relatively low level of insurance penetration would appear to make the sector ripe for growth, but the pattern of that expansion may be shaped by deeply ingrained attitudes to risk, savings and family support mechanisms, as well as by legal reforms introducing compulsory coverage in certain areas.

For these reasons, P&S may continue to remain underdeveloped, while the motor and medical lines could see the greatest growth. “The Saudi insurance market has bounced back with new compulsory lines coming into effect and increased competition focused on service rather than price,” Mahmoud El Madhoun, general manager of Kingdom Brokerage, told OBG. “This bodes well for the sector as cultural changes give a boost to life and medical insurance.”

Insurers continue to tailor their offerings to these market dynamics, but also acknowledge there are similarities with other jurisdictions where insurance is a relatively young industry. “In my view, the development of the sector in all emerging markets is down to compulsory measures, and it subsequently grows further when people see the benefit of insurance,” Odeh told OBG. “Growth may come from enforcement rather than from new opportunities.”

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The Report: Saudi Arabia 2016

Insurance chapter from The Report: Saudi Arabia 2016

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