Growing economies of scale is a crucial aspect of our strategy, as it enables us to reduce volatility and absorb large losses more easily. By attaining economies of scale, we can make larger investments in developing our capabilities and enhancing our operational efficiency. Furthermore, our scale benefits enable us to earn investment income from premium floats, thereby boosting our investment performance.

To support our expansion efforts, we will continue to explore opportunities in high-growth markets in the Middle East and Asia. The strength of the Saudi Re brand and our cooperative model provide further advantages in these markets.

Diversification is a crucial element of our strategic approach, enabling us to minimize correlated risks, concentration risks, and accumulation risks: ensuring a more balanced reinsurance portfolio is maintained with reduced volatility. Our efforts to diversify globally have resulted in a sound portfolio that consists of over 40 markets in the Middle East, Asia, and Africa. At present, our international business accounts for 44% of our portfolio.

Saudi Re also continually strives to build strong capabilities that span the entire gamut of operations in the reinsurance industry. Our underwriting team possesses strong professional skills and an in-depth understanding of the regional risk profile, guided by clearly defined risk appetite parameters. Actuarial and analytical teams work closely with the underwriters to judiciously to better manage our underwriting portfolios, while our streamlined claims management, supported by technical accounting, ensures efficient operations. Saudi Re actively utilizes retrocession to manage risk exposure and mitigate the impact of volatility. Furthermore, our growth and decision-making processes are supported by our advanced capital modeling capabilities, allowing us to make informed and effective decisions.

At Saudi Re, we pride ourselves on our comprehensive operational capabilities. Our team possesses advanced technological, decision-making, and human resources skills. Our client servicing is well supported by advanced technological, analytical, and communication infrastructure, which enables us to be highly responsive to client needs. Our lean and cost-efficient infrastructure allows for efficient operations. We take a holistic approach to risk management, implementing prudent policies and programs and closely monitoring the risk management process through the risk, technical, and Audit Committees of the Board.

Looking to the future, we are committed to leveraging our competitive advantage in the Saudi market by not only retaining our market share but also capitalizing on the growth opportunities presented by the expanding Saudi economy. Saudi Re is also determined to utilize its expertise and experience in the reinsurance industry to achieve sustainable long-term growth in inherent defects insurance and other classes.

Our strategy involves building and strengthening long-term relationships with clients and brokers, which is managed prudently by our skilled underwriting teams. We seek to establish strong links with high-value counterparties, and our markets in Asia are served by the branch in Kuala Lumpur. Brokers are also integral to our business process. Through leveraging the strong links, we have established with retrocession insurers, we are able to increase our capacity by reducing risk.

To maintain the financial health of the Company, financial soundness is continuously monitored using indicators for all criteria, including:

• Capital adequacy and solvency – measured by relevant ratios and internal capital model
• Asset quality – includes quality of investment portfolio and asset liability matching
• Retro and actuarial provisions – strong reserving and a high-quality retrocession program are in place
• Management strength – effective enterprise risk management program
• Earnings and profitability – measured by relevant ratios
• Liquidity – a highly liquid investment portfolio is maintained
• Sensitivity to market risk – limited exposure to equity markets

8.1 Overview of new developments in 2022

Capital Increase

In April 2022, corresponding to 05/09/1443H, the Board of Directors made the recommendation to increase the Company's capital through a rights issue of 50%, with a targeted amount of SR 445.5 million. The main reason for the increase was to strengthen Saudi Re’s capital base and support its future expansion activities.

Furthermore, Saudi Re obtained SAMA’s approval in May 2022 corresponding to 24/10/1443H. The approval indicated the Company had met all the necessary regulatory requirements to proceed with the capital increase. Al Rajhi Capital was appointed financial adviser to manage subscriptions to the rights issues.

8.2 New mechanism for local retention of reinsurance premiums

The Implementing Regulations issued by the Saudi Central Bank in 2003 require companies to reinsure at least 30% of its total premium in Saudi Arabia. In October 2022, SAMA introduced a new mechanism aiming at improving the enforcement of local retention of reinsurance premiums within the Kingdom and increasing the insurance sector’s contribution to the local content. This new mechanism requires insurance companies to cede a share of all their reinsurance treaties, proportional and non-proportional, to the local resonance market with effect from 1 January 2023.

The cession share, under the new mechanism, starting at 20% in 2023 will gradually increase to 25% in 2024 and 30% in 2025. This new mechanism is expected to strengthen the domestic reinsurance ecosystem and enable the national reinsurance market to play an active role. The increased retention of reinsurance premiums within the Kingdom is expected to have a positive economic impact and contribute to the financial stability of the sector. Being the only specialized local reinsurer, Saudi Re is well-positioned to support the implementation the new mechanism and benefit from potential growth of its home market.

8.3 Inherent Defects Insurance (IDI) Program

In August 2020, Saudi Re announced the signing of an exclusive reinsurance contract with Malath Insurance Company on behalf of the Saudi insurance industry’s participants in the Inherent Defects Coinsurance Program. As part of the arrangement, Saudi Re acts as the exclusive reinsurer for the Saudi Arabian Inherent Defects Coinsurance Program for five years.

The Inherent Defects Insurance (IDI) became a mandatory requirement for contractors involved in private sector construction projects, following the Council of Ministers Resolution No. 509 issued on 5 June 2018. To support the implementation of the IDI program, SAMA issued a standard policy wording for the IDI cover.

The IDI policy has a duration of 10 years for the cover; Saudi Re has put in place retrocession protection as a risk management measure to manage this long-tail business.

The IDI program underwent various implementation phases and during the year 2022 the program witnessed and improved enforcement. Saudi Re has booked SR 394.5 million of gross written premiums (GWP) under IDI class of business and represented 28% of Saudi Re’s 2022 GWP. This IDI program is among the key strategic initiatives as the advancement of IDI implementation stimulates growth for Saudi Re and reflects on its financial performance.

8.4 Credit Ratings

The credit rating of an insurance company plays a critical role in the sector, as it indicates the Company’s level of solvency and creditworthiness, its ability to meet its obligations to customers and creditors, and its financial performance. Credit ratings also assist investors in assessing a company's strategic approach, risk management, and governance.

Saudi Re was assigned an “A-” long-term issuer credit and insurer financial strength rating and a “gcAA+” GCC regional scale rating, with a stable outlook, by S&P Global Ratings in December 2022. S&P noted that Saudi Re has continued to strengthen its competitive position through profitable business growth and diversification. The Company’s exposure to catastrophe and other large risks is relatively modest, and it maintains capital adequacy above the “AAA” level in S&P’s model. The stable outlook reflects S&P’s expectation that Saudi Re will maintain excellent capital adequacy and continue to profitably expand and diversify its business over the next two years. S&P also views Saudi Re’s governance practices as effective and appropriate, and the consistency in strategy, and management expertise and experience as a benefit to the Company.

Moody’s affirmed Saudi Re’s "A3" Insurance Financial Strength Rating (IFSR), with a stable outlook, in June 2022. The rating reflects the Company's strong brand and market position in Saudi Arabia as the sole reinsurer and its growing presence in the target markets of Asia, Africa, and Lloyd’s. It also reflects Saudi Re’s preferential position in the Saudi market and its strong asset quality evidenced by its conservative investment portfolio. The rating also reflects the Company's strong capital adequacy, non-existent leverage, and good access to capital markets in Saudi Arabia, given its listing on the Saudi stock market, in addition to a broad investor base. The expanded capital base is expected to provide a platform that helps Saudi Re strengthen its market position in the broader Middle East region while providing additional capacity to support insurance market growth in Saudi Arabia and pursue further international expansion opportunities to diversify its business in line with the Company’s strategic plan.

The two A-level ratings, A- from S&P and A3 from Moody’s, reinforce the confidence of clients, shareholders, regulators, and all stakeholders of Saudi Re and its future. These ratings are critical in ensuring Saudi Re’s financial ability when dealing with reinsurers and in supporting the Company’s growth efforts in the international markets.

8.5 Performance against our strategy

	Gross Written Premium Growth	Combined Ratio %	Investment Return %	Return on Equity (ROE) %	Expense Ratio %	Credit Rating	Solvency Ratio %	Regional Reinsurance Ranking
2021	1,115,880	99.1	3.82	3.9	7.50	A3 Moody’s	SAMA 163 S&P 125	Among Top 3 Regional Reinsurers
2022	1,403,281	96.4	2.27	3.4	10.2	A- S&P A3 Moody’s	SAMA 291 S&P 133	Among Top 3 Regional Reinsurers

8.6 Common success factors in the reinsurance industry and progress of Saudi Re

Success Factors	Description	Saudi Re’s Progress
Clear strategy and proposition	Clear value proposition boosts market perception Established role with brokers and cedants ensures steady premium income from targeted segments	Evolving into a large and well diversified reinsurance company Strong and responsive relationships with brokers and cedants
Geographic diversification	Diversification across business lines and geographies improves capital efficiency and reduces loss volatility	Portfolio is diversified over 9 lines of business and spread across 40+ markets
Scale benefit	Expanding size and profitability, enhancing capital base, and improving resilience to loss events	Strong growth momentum, recording 21% CAGR 2019-2022. Progress in increasing capital base.
Strong client/distribution relationships	Strong ties with leading international brokers and global distribution platforms ensure ongoing business Skilled underwriters improve business generation capabilities	Well-established ties with high value counterparties Named “reinsurer of the year” by Middle East Insurance Review. Market-dedicated underwriting teams prudently manage the client relationships
High limits/line leader	Increased limits and underwriting capacity increase attractiveness of reinsurers	Growing ample underwriting capacity and prudently engaging as a lead reinsurer.
Active broad range of risks	Writing a wide range of risks increases visibility with brokers Exercising flexibility on terms improves relationship with brokers	Engaging in the development of new products and offering main lines of business in life and non-life, both in Treaty and Facultative
“A-rated” capital	Required to compete for desirable business Favored by cedants and brokers	Obtained an “A-” long-term issuer credit and insurer financial strength rating by S&P, with a stable outlook. Maintaining “A3” Credit rating by Moody’s, with a stable outlook.
Robust technical capabilities and operational effectiveness	Strict underwriting, cycle management, and controls drive strong technical and investment returns Strong focus on operational efficiency leads to lower operating costs	Investing in technical and technological capabilities while maintaining operating expense within acceptable range