The insurance market in Saudi Arabia has changed dramatically in the past decade, with further development anticipated, according to a report from A.M. Best Co.
According to the report, “Saudi Arabia’s Insurance Market Adapts to Dramatic Change,” insurance penetration in Saudi Arabia is low but has grown rapidly in the past few years.
Best said it “believes the country’s economic outlook supports an increased demand for insurance.”
Regulatory change has been a factor in the transformation of the market.
“Since the Saudi Arabian Monetary Agency (SAMA) began regulating the sector in 2003, there have been significant advancements to the regulatory environment, in particular structural changes to insurers,” said Dean Portelli, senior financial analyst. He said companies were required to become majority Saudi-owned and have needed to move onshore to the Kingdom.
Changes in the health sector have also boosted insurance.
“The introduction of compulsory health schemes, which began with expatriates from 2006, has been a major driver of growth in recent years. Health represented 53 percent of gross written premiums in 2010, compared to 32 percent in 2006, in a growing market.” said Mahesh Mistry, Best’s associate director of analytics.
However, he added that the insurance sector also faces challenges.
“The majority of business retained by Saudi insurers is retail, in particular, motor and medical, which creates a challenging operating environment for insurers given the competitive nature of these products. Moreover, persistent low rates as a result of intense competition and the zakat burden faced by companies are likely to continue to create a difficult operating environment and pose a risk to shareholders’ equity,” Mistry said.
The report also examines potential risks facing insurers.
Saudi Arabia was mildly affected by the Arab Spring, but while political concerns were somewhat heightened, stability was maintained.
The Saudi Arabian insurance market has opportunities for growth, given its population of 28 million, according to the report.
Yvette Essen, Best’s director of industry research for Europe and Emerging Markets, said that insurance density has increased strongly in recent years, but remains low compared with other countries in the region. “However, whilst demand for insurance is increasing, competition remains intense as newer entrants fight for market share,” Essen said.
Source: A.M. Best