‘Expect more run-off than M&A’

Moody’s expects more insurance firms in KSA to get into run-off than consolidation efforts owing to lack of capitalization and weak underwriting results.

Saudi Arabia’s primary insurers saw weaker profitability in the first half amid intense competition and there is increasing pressure for consolidation in the industry, Moody’s Investors Service said in a report published recently.

The reasons for weaker profitability vary from weak underwriting results in the first half of the year to pressure on capitalization due to the potential regulation-mandated increase in minimum capital requirements.

“The profitability squeeze will hinder organic capital generation and thus pressure capitalisation,” said Mohammed Ali Londe, AVP Analyst at Moody’s. “The sector also faces a likely increase in capital requirements that small to medium-sized insurers may struggle to meet from their own resources. We therefore expect more pressure for Saudi insurers to consolidate and/or go into runoff.”

Although premium growth was nine percent in the first half of 2019, the top 12 insurers accounted for the bulk of the increase with revenues stagnating for the remaining 19. Competitive conditions therefore remain intense for the industry as a whole. Moody’s expects premium growth to remain flat to modest over the coming years, reflecting sluggish economic expansion in Saudi Arabia. Compulsory motor and medical cover, which is sensitive to economic conditions, accounts for about 84 percent of the country’s insurance premiums.