Riyadh-Mubasher: The Saudi insurance sector is expected to maintain strong yearly growth of 14-17% over the next five years, fuelled mainly by the enforcement of regulations, Argamm Capital said in a report
“We expect the insurance sector to be the least affected by weaker oil prices, budget cuts and the tightening liquidity as the enforcement of existing regulations will propel motor and medical premiums growth at a rate of 15-25% and 14-16% respectively," said Jaap Meijer, managing director and head of equity research at Arqaam Capital.
"We estimate that SAMA’s enforcement of mandatory medical and third-party Liability (TPL) insurance would account for half of the growth over the next five years, adding 3.5 million medical policyholders and 3 million insured vehicles," he added.
Jaap also said motor holds the most growth potential as it lags considerably behind medical in enforcement, pricing and penetration.
Compared with the current regulation enforcement rate in medical of c.70-75%, motor TPL enforcement stands only at 40%.
There is a potential for the number of motor policyholders to double in size but at a lower average of SAR 1,200 per policy instead of the current sector average of SAR 1,750.
"We see the segment doubling premiums by 2018 on re-pricing, cost of inflation and additional two million insured vehicles,” Jaap added.
The Saudi insurance sector has still to grapple with a number of issues. A key weakness of the sector is its inadequate pricing, which means that more than half of insurers incur underwriting losses.
"Many barely profitable insurers rely on investment income or unwinding claims to remain profitable. We expect higher interest rates to boost earnings by 5-8% as well. Furthermore, participation in the government bonds program, if allowed by SAMA, may offer the largest upside potential,” Jaap explained.
SAMA made actuarial pricing compulsory for all insurance companies in 2013, mandating insurers to price premiums in line with clearly defined risk criteria after intense competition pushed prices down, weighting heavily on underwriting profitability.
