PwC expects more consolidation in KSA insurance market

Fahad Al-Mubarak
Fahad Al-Mubarak

Fahad Al-Mubarak

With an increase in price competition and capital erosion, PwC expects the Saudi insurance market to move toward consolidation of the industry to ensure long-term financial viability and narrow the performance gap between the top three insurance performers and the rest of the market.

The Kingdom’s insurance market is highly fragmented with three out of the 35 insurance companies generating 53 percent of gross written premium (GWP) in FY14 — the smallest 10 companies share less than 5 percent of the market.

In his keynote speech at the 3rd Saudi Insurance Symposium that took place in Riyadh on April 29-30, Saudi Arabian Monetary Agency (SAMA) Gov. Fahad Al-Mubarak said the agency is currently working closely with the insurance companies’ management teams to put together new plans to help restructure and return to profitability and to price their services based on the actuarial studies.

It was also quoted in different publications that SAMA welcomes M&A requests if they meet all the requirements for consolidation and lead to positive results to all policyholders, shareholders, the general public and the rest of stakeholders.

“This disparity within the industry is not sustainable for the future, with many smaller companies unable to achieve the scale required to generate a profit,” said Raymond Hurley, financial services deals leader, PwC, Middle East, at the latest launch of PwC’s Middle East Financial Services’ “Point of View” on insurance reform and M&A prospects in the Kingdom.

“This has led to insurers competing on price, rather than service. With demand for insurance products mostly made up of compulsory lines, where competition has pushed down pricing, some insurers are unable to balance their portfolio with other more profitable lines,” added Hurley.

One solution to market fragmentation is consolidation, which can be done either through putting in place regulatory measures to compel M&A combinations or alternatively using regulatory inspections and oblige management teams to assess the long term viability of certain business models.

Existing foreign insurers (typically the global majors) in the region and aspiring entrants remain poised to take advantage of the right investment opportunities that would give them access to the key growth markets such as Saudi Arabia.

While some have made successful acquisitions and investments in 2013, M&A activity in 2014 appears to have been subdued.

“A focus on improving underwriting processes, loss ratios and expense ratios will be essential to survival. Those that can make this work may be more attractive for foreign insurers looking to gain market share, and therefore maximize value for shareholders,” said Hurley.

In 2014, ten out of the 35 listed insurance companies approached the Saudi Arabian Capital Market Authority (CMA) for a capital increase, a clear sign that the sector continues to deplete capital. 13 out of 35 companies reported a loss in 2014, resulting in an aggregate loss of SR0.5 billion in 2014 (2013 saw 21 out of 35 companies reporting losses, resulting in a combined loss of SR1.65 billion).


Saudi April inflation flat at 2 percent
Jeddah awaits 15,000 pilgrim over next few months
%d bloggers like this:
Powered by : © 2014 Systron Micronix :: Leaders in Web Hosting. All rights reserved

| About Us | Privacy Policy | Terms of Use | Disclaimer | Contact Us |