Reinsurance Industry at a glance

Reinsurance is an arrangement in which an insurance company can enter into a contract with a reinsurer to indemnify the insurance company against all or portion of the primary insurance risks that it has underwritten. Reinsurance provides insurance companies with additional underwriting capacity by permitting it to accept larger risks and write more business without an increase in capital and surplus. Reinsurance, however, does not discharge the insurance company from its liability to policyholders.

Insurance companies rely on reinsurance to:

  • stabilize underwriting results by leveling claims volatility
  • protect capital and surplus
  • avail underwriting capacity
  • help in achieving solvency requirements
  • mitigate concentration of risks
  • benefit from best practice and reinsurers expertise

Similar to the insurance industry, reinsurance business in the Kingdom is regulated by SAMA and is subject to the provisions of the Insurance Regulations. Only companies duly authorized by SAMA can engage in reinsurance activities in the Kingdom. The Insurance Regulations require insurance companies in the Kingdom to retain at least 30% of their total insurance premiums and reinsure at least 30% within the Kingdom.

Insurers in the Middle East rely more heavily on reinsurance protection than those in other regions of the world and reinsurers are therefore very much strategic partners. Reinsurance cessions in Arab countries vary from one country to another and ranges from 35% to 65% depending on the portfolio structure in a given country, capital base, volume of premiums of the insurers, their risk appetite as well as the sizes of the insured risks.

Saudi Market

I. The Cooperative Insurance Companies Control Law

The Cooperative Insurance Companies Control Law was approved by Royal Decree number (M/32) dated 2/6/1424 H (31 July 2003) which set the stage for the legal framework and supervision of the insurance sector. The Saudi Arabian Monetary Agency (SAMA) was appointed to act as the regulator and responsible body for the supervision of the insurance sector.

Subsequently, Implementing Regulations were issued by Ministerial Decree No (1/596) dated 1/3/1425 H (20/4/2004) to regulate the insurance business in Saudi Arabia. Some of the salient features of Cooperative Insurance Companies Control Law and its Implementing Regulations are as follows:

  • Insurance activities within Saudi Arabia shall be carried out by insurance companies established and registered in the Kingdom and operated in a "Cooperative" manner consistent with the principles of Islamic Law and Jurisprudence
  • Applicant insurer/reinsurer must be a joint stock company, established primarily to engage in insurance and/or reinsurance activities with direct insurers having a minimum capital of SAR 100 million and reinsurers having a minimum capital of SAR 200 million.
  • Gross premiums written should not exceed 10 times the paid capital and reserves of the company.
  • Direct insurers to retain at least 30% of total gross written premium and reinsure a minimum of 30% of total gross written premium within the Kingdom of Saudi Arabia.
  • 10% of the net surplus shall be distributed to the policyholders directly, or in the form of reduction in premiums for the next year. The remaining 90% of the net surplus shall be transferred to the shareholders' income statement.
  • Solvency requirement: using premium as well as loss ratios parameters necessitating adjustment of the shareholders equity wherever necessary for the protection of the policyholders.
  • Investment policy guidelines were introduced to ensure the security of the operators' assets.

II. Market Development & Premium Growth

In the last ten years, the Saudi insurance industry witnessed a significant growth recording an 18% average annual growth, making it one of the world's fastest growing markets. In 2016, the market gross written premiums reached SAR 36.9 billion, up from SAR 8.6 billion in 2007.

 

In 2016, Health insurance gross written premiums represented 51% of the insurance market, while Motor represented 33% of the market gross written premium, followed by Property & Casualty (P&C) 14% and Protection & Savings (P&S) 3%.