Saudi Q1 insurance premiums fall 3% in tougher market: S&P

Gross premiums written (GPW) in Saudi Arabia fell 3.7 percent in the first quarter of 2018 due to pressure on rates and slower consumer spending following the introduction of value-added tax (VAT) in January, S&P Global Ratings said in a new report.

The departure of a large number of expats from Saudi Arabia over the past year also resulted in lower premium income, it added.

"We anticipate that the local authorities' efforts to tackle the large number of uninsured drivers, combined with the arrival of women drivers in mid-2018 and higher rates for medical business will support a slight pick-up in premium growth in Saudi Arabia in the medium term," the report noted.

However, the above growth avenues may be offset in the short term by the large number of foreign workers that have already left or will be leaving this year, as Saudization policies are increasingly enforced.

Industry-wide, the first quarter 2018 saw an overall decline in GPW by about 3 percent from the previous year.

Meanwhile, the estimated net income of publicly listed Islamic insurers in the GCC halved to $375 million last year, compared with $674 million in 2016, mainly due to materially weaker results in the Saudi Arabian insurance sector. In fact, the Kingdom contributes about 85 percent of total regional GPW.

While S&P expects the Islamic insurance sector in the GCC to remain “profitable overall in 2018,” there are a number of factors such as - underwriting profits, extra coverage under medical policies and challenge of collecting  VAT from retail clients for policies written in 2017 and into 2018 - that may affect insurers' profitability in Saudi Arabia and the UAE.

Separately, total shareholders' equity in the GCC's Islamic insurance sector rose by about 3 percent to $4.8 billion in 2017, from $4.6 billion in 2016, as a number of insurers retained parts of their profits or raised additional funds through rights issues.

The report, however, warned that credit conditions in the sector may weaken over time, if total premium growth remains slow and insurers try to capture market share by further lowering their rates.

According to S&P, local regulators, particularly in Saudi Arabia and the UAE, will remain committed to maintaining market discipline by introducing more sophisticated risk-based regulations.

"This may mean that we will see fewer but more profitable insurers in these markets over time, particularly if smaller and weaker capitalized insurers are not able to cope with all the additional regulatory demands," it added.