Saudi insurance sector to post 'modest' profit in 2019: S&P

The extension of mandatory medical insurance to more than two million dependents of Saudi nationals and increasing infrastructure spending this year will help the insurance sector return to modest growth in premiums and profitability, global rating agency S&P said in a recent report.

Though pricing on the third-party motor cover will remain highly competitive, leaving insurers with “thin or no margins”, higher discounts on motor policies may be offset by new business from the rising number of female drivers and the authorities' plans to gradually reduce the number of uninsured drivers, it noted.

According to S&P, the Saudi insurance market has declined over the past two years due to slow economic activity, application of higher no-claims discounts for motor policies, strict actuarial pricing, and departure of more than one million expatriates last year.

"These factors weighed on profitability last year and we believe they will continue to do so in 2019," it said.

Meanwhile, rising competition, volatile investment returns, higher regulatory costs, and stricter accounting standards will impact earnings of insurers across the GCC.

Growth of gross written premiums (GWP) in most GCC markets is expected to stay sluggish, due to the lack of new mandatory insurance coverage and difficult economic conditions, S&P said.

“Although the GCC's six insurance markets should remain profitable, we anticipate a decline for some of them this year.”

S&P expects consolidation of insurers in the GCC will help improve their operational scale and increase the capital base of individual companies, allowing them to retain more risk and easing the highly competitive market conditions.

"We believe that regulatory incentives will be required to kick start M&A activity, for example a requirement to increase capital bases and improve service levels,” it noted.