8.1 Prospects and outlook

Saudi Re continues to demonstrate a robust performance driven by the Company’s long term strategy and forward-looking approach to leverage opportunities in its key classes of business and develop revenue streams across domestic and international markets. The key strategic approach involves client-centricity, commitment to market development and diversification, and adherence to sustainable business practices. This is evident in the results of operations and growth in business volumes recorded during the year.

The Company captures the local opportunities via reinsurance exclusivity of Inherited Defect Insurance (IDI), and continuing the 30% local retention strategy. Internationally, Saudi Re cautiously develops its business in preferred and profitable territories and capitalizing on business mix diversification.

Saudi Re exhibits its capital adequacy and solvent position via achievement of S&P “A-” credit rating with stable outlook and, “A3” rating from Moody’s with positive outlook. Saudi Re’s credit rating opened additional profitable opportunities in new international markets, especially in Asia. Moreover, Saudi Re’s strategy enabled the Company to capitalize on the international market hardening, which contributed positively to performance.

The Saudi Central Bank (SAMA) introduced a mechanism in October 2022 to improve local retention of reinsurance premiums within the Kingdom. According to this mechanism, insurance companies are required to cede a share of all their reinsurance treaties, proportional and non-proportional, to the local reinsurance market with effect from 1 January 2023. The cession share which starts at 20% will gradually increase to 25% in 2024, and 30% in 2025.

Saudi Re continues to maintain a well-balanced underwriting portfolio with 51% international business, while keeping focus on risk selection which in turn reflects positively on underwriting performance. The Company has recorded decent growth on the back of business written in other markets, especially in Saudi Arabia and Asia, and this opens up further opportunities in the region.

In line with Saudi Re’s strategy, the Company aims to strengthen its capitalization to unlock new expansion opportunities. To that effect, Saudi Re announced the signing of a non-binding memorandum of understanding with the Public Investment Fund (PIF) pursuant to which PIF intends to subscribe to new cash shares in Saudi Re by way of capital increase with suspension of preemptive rights. A subsequent event occurred on 4 March 2024, as the Company announced signing a share purchase agreement for the sale of its entire stake in Probitas Holdings (Bermuda) Limited (PHBL), consideration of GBP 120 million, to be paid in cash, subject to final closing adjustments and applicable regulatory approvals.

The global reinsurance market has shown considerable hardening on account of inflation, rising interest rates, reducing retrocession and reinsurance capacities, and geopolitical tensions.

Notwithstanding the retrocession capacity shortage, these market conditions have been favorable to Saudi Re and resulted in price correction in certain markets. However, and by virtue of cyclicality, the reinsurance market may possibly soften in the medium term. Saudi Re aims to sustain positive through-the-cycle performance by managing volatility and risk exposures and reinforcing its foothold in high growth and profitable market segments.

Furthermore, Saudi Re plans to continue to capitalize on favorable regulatory and market conditions in its home market, which for example are represented by the enforcement of local retention of reinsurance premiums within the Kingdom. This increased retention of reinsurance premiums is expected to develop local content, strengthen the financial stability of the sector, and enable the national reinsurance market to play a more active role.

8.2 Revenue

Saudi Re has adopted IFRS 17 (Insurance Contracts) and IFRS 9 (Financial Instruments), as endorsed in Saudi Arabia, starting 1 January 2023, with retrospective application, which has materially changed the presentation of the financial results for periods starting Q1 2023 onwards with the comparative periods restated under the new standards.

Saudi Re illustrated a strong 5-year growth momentum that was maintained with a 14% increase in GWP, reaching SR 1.6 billion in 2023. The IDI, which represents 25% of Saudi Re’s GWP in 2023, also indicates upbeat future prospects based on the Company retaining exclusive privilege to reinsure the mandatory IDI program. This is the highest premium recorded by Saudi Re, and holds the Company in good stead with regard to its plans for continued growth and expansion.

The 2023 GWP in the following graph is unaudited IFRS 4 figures and for illustration purposes only.

In 2023, Reinsurance Revenue reached SR 627 million, which demonstrates a 10% deterioration compared to the year 2022. Though there was a growth in most of the business lines, the deterioration was mainly due to non-renewal of major non-performing contracts, essentially for medical and motor, and that is demonstrated through improvement in the reinsurance service result that increased by 43% compared to the last year. Moreover, the net financial results have boosted by 163%, and net income after Zakat & Tax increased by 80% to reach SR 139.85 million.

Reinsurance highlights (IFRS 17)

	2023 (SR ’000)	2022 (SR ’000)
Reinsurance revenue	627,187	696,998
Reinsurance service result	119,762	83,589
Net investment income	60,388	8,379
Net financial result	25,762	9,864
Share of profit of equity accounted investee	40,071	33,105
Net income after zakat and tax	124,429	76,052

Revenue highlights (IFRS 4)

	2022 (SR ’000)	2021 (SR ’000)	2020 (SR ’000)	2019 (SR ’000)	2018 (SR ’000)
Gross written premiums	1,403,281	1,115,880	935,114	792,848	721,605
Retroceded premiums	462,920	123,898	123,898	127,844	72,997
Net written premiums	898,599	958,968	772,639	645,605	616,896
Net earned premiums	927,891	854,730	647,120	642,535	613,615
Total revenues	942,706	874,406	659,814	660,711	630,083

8.3 Reinsurance Revenue

As indicated earlier, Saudi Re implemented a strategy to revive its business and improve the performance of business lines: capturing advantages from international market hardening and upgrading of credit ratings. This triggered an underwriting plan that involves penetrating new international business lines. In addition, Saudi Re reconsidered and improved its reinsurance terms for some business lines. On the other hand, the strategy implies non-renewal of part of the book of business mainly in marine, protection, medical and motor that were underperforming.

Revenue by lines of business

	2023 (SR ’000)	2022 (SR ’000)
Engineering	58,866	51,613
Fire	150,416	172,447
Marine	26,100	36,142
General accident	40,380	35,536
Specialty	127,997	122,410
Others	143,819	127,909
Motor	44,815	82,155
Protection	6,564	17,207
Health	16,336	48,196
IDI	11,893	3,383
Total	627,187	696,998

Reinsurance revenue by lines of business

Reinsurance revenue by geography

	2023 (SR ’000)	2022 (SR ’000)
KSA	216,821	255,592
ME	67,953	82,534
Africa	16,366	32,510
Asia	196,874	201,319
Other territories	129,173	125,043
Total	627,187	696,998

Reinsurance service results by line of business

Saudi Re’s underwriting strategy can be demonstrated in a 43% improvement of the Reinsurance service result, and improvement in most business lines. Major improvement was in the Fire business line mainly due to reaching claims settlements with counterparties that was less than claims provisioned. Moreover, Saudi Re avoided renewing underperforming fire contracts.

In contrast, the motor business showed the most deterioration with 77% reduction compared to 2022, mainly due to incurred claims from the unfortunate Jeddah flood event that occurred in October 2022. In addition, the Company contracted its business in the motor business line. Saudi Re trusts that IDI performance will pick up in future years, as this particular business line has a long-term earning phase.

	2023 (SR ’000)	2022 (SR ’000)
Engineering	13,796	10,440
Fire	16,675	(22,798)
Marine	13,895	9,526
General Accident	5,596	5,498
Speciality	26,263	31,350
Others	33,949	23,883
Motor	4,352	18,724
Protection	494	766
Health	7,603	4,436
IDI	(2,861)	1,764
Total	119,762	83,589

Reinsurance service results by geography

Saudi Re's strategic decision to not renew underperforming reinsurance contracts in Saudi and Asian markets, coupled with favorable market hardening and an international credit rating upgrade, contributed significantly to success.

As part of Reinsurance business, the unfortunate earthquake events in Turkey and Morocco caused the deterioration in the Middle East and Africa regions. In this regard, Saudi Re’s strategy of continued business diversification has contributed to reaching 43% growth in overall results.

	2023 (SR ’000)	2022 (SR ’000)
KSA	86,807	51,134
Middle East	(37,722)	25,739
Africa	(8,266)	18,388
Asia	50,352	(46,639)
Other territories	28,590	34,966
Total	119,762	83,589

Reinsurance service expenses by line of business

Although the business grew compared to last year, reinsurance service expenses demonstrated a 14% reduction compared to last year. This was mainly due less claims due to Saudi Re’s strategy of underperforming business non-renewals. Increase in reinsurance expense for the Marine business line was due to one major account that was mostly retroceded.

	2023 (SR ’000)	2022 (SR ’000)
Engineering	(19,849)	(24,860)
Fire	(147,376)	(211,532)
Marine	(50,029)	3,192
General accident	(31,588)	(24,569)
Speciality	(101,734)	(91,061)
Others	(73,550)	(113,337)
Motor	(40,424)	(63,420)
Protection	(5,702)	(15,973)
Health	(8,733)	(43,760)
IDI	(30,790)	(5,849)
Total	(509,774)	(591,168)

Reinsurance service expenses IFRS 17

	2023 (SR ’000)	2022 (SR ’000)
Incurred claims and other directly attributable expenses	611,206	597,537
Changes that relate to past service – adjustments to the LIC	(249,212)	(83,069)
Losses on onerous contracts and reversal of those losses	132,877	65,268
Reinsurance acquisition cash flows amortisation	14,903	11,432
	509,774	591,168

Underwriting costs and expenses (2019-2023) IFRS 4

	2022 (SR ’000)	2021 (SR ’000)	2020 (SR ’000)	2019 (SR ’000)	2018 (SR ’000)
Gross claims paid	(537,845)	(471,216)	(481,191)	(436,701)	(389,327)
Retroceded premiums	75,974	61,707	181,476	60,006	24,638
Net claims incurred	(595,044)	(565,312)	(391,980)	(417,070)	(404,054)
Policy acquisition costs and profit commissions	(218,199)	(232,404)	(194,682)	(172,781)	(172,472)
Other underwriting expenses	(1,995)	(5,063)	(4,002)	(3,616)	(1,997)
Total underwriting costs and expenses	(815,238)	(802,779)	(590,665)	(593,467)	(578,523)
Net underwriting income	127,468	71,626	69,149	67,244	51,560

Net reinsurance finance (expense)/income

	2023			2022
	reinsurance contracts (SR ’000)	retrocession contracts (SR ’000)	net (SR ’000)	reinsurance contracts (SR ’000)	retrocession contracts (SR ’000)	net (SR ’000)
Interest accreted	(41,524)	2,414	(39,110)	(29,344)	3,909	(25,435)
Effect of changes in interest rates and other financial assumptions	(25,849)	115	(25,733)	(11,906)	2,536	(9,370)
Effects of measuring changes in estimates at current rates and adjusting the CSM at rates on initial recognition	8,285	17,674	25,959	42,491	(17,584)	24,908
Foreign exchange differences	4,237	22	4,259	11,966	(584)	11,381
Total	(54,851)	20,225	(34,626)	13,207	(11,723)	1,484

 

	2023 (SR ’000) IFRS 17	2022 (SR ’000) IFR17	2021 (SR ’000) IFRS 4	2020 (SR ’000) IFRS 4	2019 (SR ’000) IFRS 4
Net income for policyholder operations	9,924	5,359	2,571	3,432	3,518
Net income for shareholders operations before Zakat	158,562	91,318	53,315	60,692	45,444

Investment income

Investment income increased due to the high interest environment which increased returns from investments in the money market and fixed-income investments. Investment assets were also actively allocated between money market funds and listed equity into fixed term deposits to lock in higher yields for longer.

	2023 (SR ’000)	2022 (SR ’000)
Investment income from financial investments not measured at FVIS	58,460	38,728
Net income/(loss) from financial investments measured at FVIS	6,243	(25,289)
Investment management expenses	(4,208)	(3,719)
Provision for expected credit losses	(108)	(1,340)
Net investment income	60,388	8,379
Share of profit of equity accounted investee	40,071	33,105
Total net investment income	100,458	41,484

8.4 Net income

	2023 (SR ’000)	2022 (SR ’000)
Total income for the year before Zakat and tax	158,562	91,318
Zakat and tax charge for the year	(33,948)	(15,266)
Net income for the year after Zakat and tax attributable to the shareholders	124,429	76,052
Basic and diluted earnings per share for the year (SR)	1.4	0.85

8.5 Comprehensive income

	2023 (SR ’000)	2022 (SR ’000)
Net income for the period after Zakat and tax attributable to shareholder	124,429	76,052
Financial investments at FVOCI – net change in fair value	711	(8,285)
Re-measurement loss on employees’ end of service benefit obligations	(3,734)	(462)
Share of foreign currency translation reserve of an equity accounted investee	5,038	(8,258)
Total comprehensive income for the year	126,445	59,047

8.6 Assets

The Company’s growth was also reflected in assets, which increased by SR 433 million compared to last year. This rise is mainly attributed to improved liquidity, a strengthened investment portfolio, increased insurance activities, enhanced equity investments, and overall financial growth.

	31 December 2023 (SR ’000)	Restated 31 December 2022 (SR ’000)	Restated 01 January 2022 (SR ’000)
Cash and bank balances	87,905	31,557	27,807
Financial investments at fair value through income statement	154,456	272,654	762,723
Financial investments at fair value through other comprehensive income	141,633	119,921	92,871
Financial investments at amortized cost	1,127,330	1,030,134	496,236
Reinsurance contract assets	77,827	105,037	76,794
Retrocession contract assets	439,593	189,246	211,549
Prepaid expenses, deposits and other assets	303,917	199,272	136,319
Property and equipment, net	37,139	36,379	37,156
Investment in an equity accounted investee	208,990	160,687	132,580
Statutory deposit	89,100	89,100	89,100
Accrued income on statutory deposit	22,057	22,084	20,962
Total assets	2,689,947	2,256,070	2,084,097

8.7 Liabilities

The Company’s total liabilities grew by 25%, due to business growth during the year.

	31 December 2023 (SR ’000)	Restated 31 December 2022 (SR ’000)	Restated 01 January 2022 (SR ’000)
Margin loan payable	56,797	56,797	56,797
Reinsurance contract liabilities	1,287,902	919,992	864,300
Retrocession contract liabilities	190	12,156	–
Accrued expenses and other liabilities	112,072	195,322	159,608
Provision for employees’ end of service benefits	18,633	13,868	12,288
Provision for Zakat and tax	41,548	17,533	15,266
Accrued commission income payable to SAMA	25,982	23,219	20,962
Total liabilities including reinsurance operations’ surplus	1,543,125	1,238,887	1,129,222

8.8 Equity

Shareholder equity increased by 13% from SR 1 billion to SR 1.146 billion by end of 2023 reflecting profitability improvement.

	31 December 2023 (SR ’000)	Restated 31 December 2022 (SR ’000)	Restated 01 January 2022 (SR ’000)
Share capital	891,000	891,000	891,000
Statutory reserve	67,931	43,045	34,750
Retained earnings	194,358	94,815	27,058
Other reserves	(6,468)	(11,677)	2,067
Total equity	1,146,822	1,017,184	954,875

8.9 Dividends

No cash dividends were distributed for 2023.

Dividend Policy

To achieve suitable returns to the Company’s shareholders in one or more of the following:

1. Distribution of cash dividends to the shareholders taking into consideration the financial position of the Company, solvency margin requirements, available credit lines, and the general economic situation.
2. Stock dividends taking into consideration the requirements and conditions related to retained earnings and other stockholders’ equity in the balance sheet.
3. Shareholders who are registered at the end of trading before the General Assembly at which dividend preeminent is approved will be entitled for the dividends.
4. The Company pays the profits to be distributed to the shareholders at the dates specified by the Board of Directors. According to the Articles of Association of the Company, profits are distributed according to the decision of the General Assembly, and this is done as follows:
   • Set aside Zakat and assessed income tax.
   • Set aside 10% of the profit to form a statutory reserve and the Ordinary General Assembly may stop this appropriation when the total reserve reaches 30% of the paid-up capital.
   • Once determining the stock shares in net profits, the Ordinary General Assembly has the right to form other reserves, to the extent that it achieves the interest of the Company or ensured distribution of fixed profits to shareholders.
   • After that, the first payment shall be distributed to the shareholders, with the condition that it is not less than 1% of the paid-up capital.

8.10 Zakat, taxes, fees, and other charges

Description	Reasons	Paid amount (SR ’000)	Outstanding amount at end of financial period (SR ’000)
Zakat and income tax	The Company’s share according to Zakat and tax regulations in the Kingdom	10,117	41,548
WHT	The Company’s share according to Zakat and tax regulations in the Kingdom	14,064	9,360
VAT	The Company’s share according to Zakat and tax regulations in the Kingdom	69,086	23,203
IA fees	Supervision fees for the Insurance Authority	8,642	218
GOSI	Social insurance contributions for Company employees to the General Organization for Social Insurance	3,275	310

Saudi Re has continued its trajectory of strengthening its competitive position through profitable business growth and diversification, both domestically and internationally. The Company has maintained its exposure to catastrophe and other large risks at relatively modest levels, while ensuring its capital adequacy remains above the “AAA” level in S&P’s model.

The stable outlook persists, indicating S&P’s confidence that Saudi Re will uphold its excellent capital adequacy and sustain profitable expansion and diversification over the coming years.

S&P continues to view Saudi Re’s governance practices as effective and appropriate, with consistency in strategy and management expertise contributing positively to the Company’s operations.

Saudi Re’s financial rating reflects several key factors: (i) Its strong brand and market position in Saudi Arabia, where it operates as the sole professional reinsurer, coupled with a growing presence in targeted markets across Asia, Africa, and Lloyd’s. (ii) The Company’s preferential position in the Saudi market due to its right of first refusal on a portion of premiums ceded by primary carriers. (iii) Strong asset quality demonstrated by a conservative investment portfolio. (iv) Good capital adequacy, supported by robust capital levels and a relatively modest exposure to natural catastrophe risk.
(v) Strong financial flexibility characterized by non-existent leverage and favorable access to capital markets in Saudi Arabia, facilitated by its listing on the Saudi stock exchange and broad investor base.

8.12 Return on investment in PHBL

On 6 October 2017, Saudi Re acquired 49.9% of the ordinary shares of Probitas Holdings (Bermuda) Limited (“PHBL”) for a total of USD 25 million (SR 94 million). Subsequently in June 2020 a further USD 985,840 (SR 3.7 million) was invested in PHBL. Saudi Re has accounted for this investment as an associate (equity accounted investee). The carrying value of the investment as at 31 December 2023 is SR 208.9 million. PHBL operates in insurance and reinsurance businesses including Lloyd’s market in London, United Kingdom. Probitas Group via its wholly owned subsidiary Probitas Corporate Capital Limited (PCCL) provides capital to Syndicate No. 1492 which is a syndicate at Lloyd’s of London specializing in property, construction and casualty (re)insurance solutions. Probitas Managing Agency Ltd. which is a wholly owned subsidiary of Probitas Group manages the Syndicate 1492.

In addition to its investment in PHBL, Saudi Re also writes reinsurance contracts from PCCL, During the financial year these contracts had an estimated reinsurance revenue value of SR 127.9 million. Contribution of these contracts to the underwriting profitability of Saudi Re’s book is shown within the Segmental Information under the headings; Specialty in Business Segments and Other Territories in Geographical Segments.

Representing Saudi Re Mr Abdullatif Al-Fozan, Chairman and Mr Fahad Al-Hesni, Managing Director are holding Non-Executive Director positions of PHBL and its Subsidiaries (Probitas Group) Boards. By virtue of these Board memberships an indirect interest is present in the reinsurance contracts written by Saudi Re from PCCL. (As disclosed in the Related Party Transaction section on Governance page.

The following table summarizes the financial information of PHBL as included in its own Financial Statements. The table also reconciles the summarized financial information to the carrying amount of the Company’s interest in PHBL.

	2023 (SR ’000)	2022 (SR ’000)
Percentage ownership interest (%)	49.90	49.90
Total assets	1,333,804	1,123,931
Total liabilities	944,322	831,244
Net assets (100%)	389,482	292,684
Company’s share of net assets (49.90%)	194,351	146,049
Goodwill	14,638	14,638
Transition to IFRS 17	–	–
Carrying amount of interest in associate	208,990	160,687
Profit from continuing operations	80,302	66,342
Other comprehensive income – Impact of foreign currency exchange	10,096	(16,550)
Total comprehensive income (100%)	90,398	49,792
Company’s share of profit	40,071	33,105
Company’s share of Other comprehensive income – Impact of foreign currency exchange	5,038	-8,258
Company’s share of total comprehensive income (49.90%)	45,109	24,846

On 4 March 2024 (corresponding to 23/08/1445H), Saudi Re announced signing a share purchase agreement for the sale of its entire stake in Probitas Holdings (Bermuda) Limited (PHBL). Saudi Re has signed a share purchase agreement with Aviva Insurance Limited for consideration of GBP 120 million, to be paid in cash, subject to final closing adjustments.