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In 2023, the global economic environment experienced notable shifts due to a confluence of macroeconomic disruptions, culminating in subdued growth rates and escalated inflationary trends.
Fundamental drivers of global GDP, encompassing both investment and consumption, encountered obstacles in returning to their pre-pandemic trajectories. A combination of factors - including the enduring impacts of the pandemic, geopolitical tensions such as the Russia-Ukraine conflict, and a pronounced cost-of-living escalation - contributed to tepid economic recuperation. The global growth trajectory moderated from 3.5% in 2022 to 3% in 2023, with forward-looking indicators projecting a further contraction to 2.9% in 2024.
International financial markets managed to defy pessimistic forecasts in 2023. Equities surged, and bonds rebounded from earlier declines, shifting sentiment from recession apprehension to increased confidence despite US interest rates rising to a 22-year high. Global inflation declined from 8.7% in 2022 to 6.9% in 2023, and future projections suggest a rate of 5.8%i for the upcoming year. Although a moderation in core inflation is anticipated, attainment of optimal inflationary benchmarks remains unlikely until 2025. Moderation can be attributed to stringent monetary policy frameworks and consequential adjustments in global commodity pricing structures.
The year 2023, and outlook for 2024 saw a mix of economic uncertainty, simmering geopolitical tensions, and the advent of rapid technological change that is reshaping and redefining the risk environment. The World Economic Forum (WEF) Global Risk Report identified propagation of emerging technologies such as Artificial Intelligence (AI), without suitable checks and balances, to be a major factor in the risk landscape for 2024/25 and the next decade. Potential adverse effects of AI and other frontier technologies includes the spread of misinformation and disinformation, which was seen as the most severe global risk anticipated over the next two years. Similarly, Cyberattacks and resulting insecurity was noted amongst the top five current risks, with potential to remain a significant factor in the next two years.
Within this evolving economic setting, the efficacy of global monetary policy is paramount to anchoring inflationary expectations. Moreover, the overarching economic trajectory is significantly contingent upon the outcomes of sustained elevated policy rates, which could further escalate financing costs for consumers and capital for enterprises, thereby amplifying systemic pressures on the international economic landscape.
Growth in advanced economies is expected to slow from 1.5% in 2023 to 1.4% in 2024 as policy measures start to take effect amidst heightened geopolitical uncertainties, less favorable credit conditions, the residual effects of Central Bank tightening cycles, and inflation rates surpassing targets. Emerging market and developing economies are projected to maintain growth at around 4% in 2024.
Global energy consumption is set to grow by 1.8% in 2024, largely driven by strong demand in Asia. Despite high prices and continued supply chain disruptions, the demand for fossil fuels is expected to reach record levels, even as demand for renewable energy continues to rise by an estimated 11% in 2024.
If Brent crude oil averages at USD 80/bbl, oil-exporting sovereigns in the Middle East and North Africa (MENA) will benefit, bolstering their credit metrics. MENA oil-exporting nations are expected to experience enhanced growth in 2024, supported by advancements in non-oil real GDP and stabilization in oil production following the reductions observed in 2023. However, if global growth remains sluggish in 2024, there might be considerations for additional OPEC+ production cuts, especially if the oil market transitions to a surplus. Although non-oil growth is projected to decelerate compared to 2023, persistently high oil prices are expected to maintain.
With escalating situation in the war on Gaza, regional geopolitics continue to pose risks to sectors like tourism, trade, and investment.
Over the past year, a significant narrative in the insurance and reinsurance sectors has been the reversal of pricing cycles. Throughout 2023, prices in the majority of commercial insurance lines sustained their upward trajectory, marking the fifth consecutive year of a hardening market cycle. However, when viewed on an indexed basis, the rate of annual increases has started to taper off.
The expectation of buyers for a shift back to more lenient conditions was challenged by unprecedented inflation levels and substantial losses stemming from natural disasters. Nevertheless, despite significant market losses experienced this decade and the capital impairments in 2023, returns within the sector have seen a notable improvement.
In 2024, buyers should anticipate a mixed landscape within the insurance sector. While certain segments like property insurance might experience challenges due to adverse loss experiences and increasing claims inflation, other areas will likely witness abundant capacity. Insurers are expected to focus on expanding sectors where performance remains robust, thereby creating a dichotomy in market dynamics.
In contrast, the reinsurance sector observed a swift escalation in pricing. Reinsurers demonstrated a heightened focus on capital preservation due to six successive years of elevated catastrophe losses. This translated into increased retentions, more stringent terms, and diminished frequency coverage, including adjustments to aggregates, reductions in excess-of-loss layers, and modifications to quota shares.
Escalating demand-side pressures, coupled with a pronounced capacity shortage, were exacerbated as capital providers pulled back, while others opted merely to sustain existing allocations. Such developments heightened liquidity and credit risks for specific reinsurers, especially amid increased uncertainties surrounding claims.
The convergence of geopolitical upheavals, macroeconomic challenges, and devastating natural disasters such as Hurricane Ian, the second most costly natural disaster in history, as well as two destructive earthquakes that hit Turkey and Syria in February, and Morocco in September, has injected notable volatility into the market. Despite these challenges, Fitch Ratings has upgraded its global reinsurance sector outlook from “neutral” to “improving”, reflecting the sector’s enhanced financial resilience expected to continue in 2024. The sector’s combined ratio is forecasted to reach 94% and near-term return on capital is expected to exceed cost of capital.
In the near term, price escalations are expected to surpass the growth in claims costs, leading to underwriting margins peaking in the upcoming year. Concurrently, escalating reinvestment yields and a robust demand for reinsurance are anticipated to bolster earnings progressively. Pricing related to natural catastrophe risks will more accurately reflect the implications of climate change on claims. This shift is especially evident as numerous reinsurers curtail coverage for mid-scale natural catastrophe risks, thereby reducing pricing competitiveness.
S&P raised reinsurance sector view to stable from negative on higher price and increasing investment income, while Fitch raised its global reinsurance sector outlook to “improving” from “neutral”. The sector is anticipated to uphold robust capital adequacy levels, following an estimated 13% recovery in 2023 where global reinsurance capital exceeded USD 635 billion.
With institutional investors showing renewed interest owing to anticipated higher returns, there could be an inflow of alternative capital into the sector. Fitch anticipates that the surplus of both traditional and alternative capital will contribute to a gradual softening of the reinsurance market starting in 2025.
The GCC region has demonstrated resilience in its recovery from the pandemic-induced slowdown and the decline in oil prices, maintaining growth momentum fueled by increased domestic demand, ongoing reform initiatives, positive tourism sentiment, and a rebound in the hydrocarbon market.
The Gulf Cooperation Council (GCC) insurance market is poised for significant growth, with a projected compound annual growth rate (CAGR) of 5.3% expected to propel it to USD 44.4 billion by 2028, up from USD 34.3 billion in 2023. This expansion will be driven by a variety of factors, including robust economic growth, population increase, rapid technological and digital advancements, heightened demand for health and life insurance, extensive infrastructure projects, strengthened regulations, mandatory insurance schemes, and a spike in mergers and acquisitions (M&A). Government efforts toward economic diversification are expected to drive spending on sustainable and alternative infrastructure projects, consequently boosting insurable assets and driving demand for property and liability insurance.
However, the market is characterized by fragmentation and intense competition, which poses a threat to insurers' profit margins as they strive to secure business. Rising claims inflation and tax rates present additional challenges to insurers, particularly in core business lines like motor and medical insurance, which constitute a significant portion of Gross Written Premiums (GWP). Despite prevailing challenges, the notable increase in M&A activities serve as a strategic avenue for companies to pursue inorganic growth.
Regulatory bodies in the GCC have implemented rules and standards, including the adoption of International Financial Reporting Standard 17 (IFRS 17) in January 2023, aimed at enhancing transparency, accountability, and fairness within the insurance industry. This required insurers to overhaul their existing frameworks and processes significantly. Coupled with heightened capital requirements, the transition presents particular challenges for medium-sized providers with limited resources and capacity.
Additionally, GCC governments are prioritizing personal data protection in response to rising cyber threats, creating opportunities for new products such as cyber insurance. Moreover, there is a growing demand for credit insurance in the region, spurred by the complexities of global trade and economic uncertainties.
GCC insurers heavily rely on reinsurance, with a substantial portion of premiums ceded to international reinsurance markets. However, a hardening reinsurance market poses risks to the financial performance of GCC insurers.
Despite growth, insurance penetration in the GCC is projected to remain between 1.6% and 1.7%, with density expected to increase from USD 597.6 in 2023 to USD 699.5 in 2028. Penetration rates across all segments in the GCC insurance sector fall below global standards, indicating untapped potential. Addressing this requires concerted efforts and strategic initiatives to raise awareness and build consumer confidence in the region’s insurance products.
The Kingdom remains steadfast in its pursuit of the ambitious Vision 2030, achieving numerous milestones ahead of predetermined timelines. Several initiatives, particularly those that initiated early-stage restructuring within key state sectors are beginning to yield tangible results.
According to estimates from the General Authority for Statistics (GASTAT), real GDP of Saudi Arabia decreased by 0.8% during 2023ii, primarily driven by a 9.0% decline in oil activities. Non-oil sectors are estimated to have grown by 4.4%, and government activities by 2.1% in 2023. Financial, Insurance and Business Services activities recorded a growth of 6.8%. Gross Domestic Product at current prices amounted to SR 4,003 billion in 2023, with crude petroleum and natural gas activities continuing to provide the highest contribution to GDP with a share of 25.4%ii.
The International Monetary Fund (IMF) raised its growth projections for the Kingdom to 4% in 2024, while the preliminary budget statement from the Ministry of Finance has said that real GDP is expected to grow by 4.4%. The Kingdom has continued to increase its expenditure, allocating a budget exceeding SR 1.2 trillion for 2024, accompanied by prudent revenue forecasts. Geopolitical shifts can present either challenges or opportunities for the Kingdom.
Reports from the newly established Insurance Authority (IA) indicate that the Kingdom’s insurance sector grew by 26.9% in 2022, with total Gross Written Premium (GWP) reaching SR 53.4 billion during the same period. The year 2023 continued this steady trend with 21.8% growth in GWP over the first nine months, when compared to the same period the previous year.
In developments during 2023: January saw SAMA issue a circular mandating phased reinsurance cession to the local market from 1 January 2023, targeting a minimum of 30% reinsurance cession offered to the local market by the beginning of 2025. This is likely to impact the local insurance industry in the medium to long term. Amendments were introduced to the Unified Compulsory Motor Insurance Policy, making it mandatory for all vehicles in the Kingdom to have at least third-party liability insurance. Additionally, changes were made to the Comprehensive Motor Insurance Rules to fortify the regulatory framework and safeguard the rights of beneficiaries. SAMA announced the licensing of the first foreign health insurance company branch in Saudi Arabia. This move aimed to encourage foreign direct investment, while stimulating competition in the sector. In August, the Insurance Authority (IA) was established to regulate and supervise the insurance sector in Saudi Arabia, taking over responsibilities previously held by SAMA. The IA has been set up with the aim of enhancing the sector's effectiveness and promoting stability, while protecting rights and strengthening contractual principles. This significant development in regulatory supervision, bringing with it the potential for legal reform, happens at the same time as issuance of new Insuretech rules governing online reinsurance brokerage; signaling new opportunities for the Kingdom’s reinsurance sector. Marine Insurance Coverage instructions were issued to help develop a regulatory framework for compulsory and non-compulsory marine insurance in the Kingdom. Furthermore, two insurers obtained their final regulatory approvals for their on-market merger, marking the sixth merger in the Kingdom’s insurance market, in line with the goal to create fewer and stronger companies capable of meeting market expectations.
Projections for the forthcoming year are shaped by multiple elements, encompassing the developments of 2023 and the strategic initiatives undertaken by the Kingdom aiming to counterbalance potential vulnerabilities in the global oil markets. Anticipations suggest a continued uptick in revenues for 2024 attributed to the increasing participation of the private sector, stimulated by diverse governmental initiatives and strategies aligned with Vision 2030. Saudi Arabia is also poised to host Expo 2030 and the 2034 World Cup, leading to the anticipation of numerous extensive infrastructure projects in Riyadh.
The Kingdom has exhibited agility and adaptability in navigating economic and political challenges in recent times. Unlike many nations, it remained largely insulated from pandemic-induced inflation and adeptly managed the effects of global geopolitical tensions. The Kingdom proactively launched initiatives targeting global supply chain issues. This forward-thinking approach is anticipated to persist into the upcoming year, with strategic measures in place to safeguard its economic and strategic priorities. Benefiting from a resilient economy and strong international partnerships, the Kingdom is poised to pursue its national endeavors aimed at elevating key sectors.
As a result of our efforts to widen the scope of our operations, especially in the local and Middle Eastern markets, Saudi Re has achieved positive results and notable growth in performance throughout 2023. Our business activities have reinforced our position as a leading company and opened new doors of opportunity and growth both locally and globally. We have also maintained remarkable financial and technical performance and a robust financial position, which resulted in the Company maintaining its A- credit rating from S&P with stable outlook, while Moody’s reevaluated the Company, resulting in an A3 rating and raising the outlook from stable to positive.
With increasing risks of natural disasters, the Company undertakes thorough procedures to monitor and evaluate its risk exposure rates, investing in advanced tools and technologies to analyze and manage risks, and utilizing actuarial forecasting and prototyping methodologies. For instance, Saudi Re operates state-of-the-art actuarial systems from RMS, which are considered among the world’s most effective natural disaster management technologies.
Reflecting the ever-changing and diversifying catalog of international risks, we continuously strive to update our risk management strategy, consolidating our ability to identify areas of risk and handle them preemptively, and scaling up our readiness to handle any crisis. Our business continuity framework was also refreshed, and comprehensive procedures were put in place to respond to a diverse array of risks, which ensures operational resilience and the continual provision of services to our clients. Additionally, we have placed a special focus on mainline activities, safeguarding the Company’s success and ability to adapt with a changing reinsurance market. With all in place, attention was paid to the preemptive management and enhancement of claims activities – considering the rising rates of global inflation – and to capitalizing on advanced analytics and accrued statistical experience, limiting risks and ensuring effective claims management.
Saudi Re’s general strategy was likewise updated to align with market and regulatory environment developments through conducting a complete review of business goals, market trends, and growth opportunities. This strategic orientation strengthens our capacity to accommodate emerging trends and improve our operational, technical, and human capabilities, maintaining the pace of growth and achieving greater performance overall. Moreover, and owing to our commitment to our ambitious growth strategy, we worked towards finding solutions to support and bolster our capital base and attract strategic investors to maximize the Company’s future operational output. We have also reached an agreement to sell our share in Probitas for 120 million AUD, enabling us to reinforce our competitive foothold and redirect monetary resources into new local and international growth opportunities.
At Saudi Re, we focus on the vital importance of ESG to achieving sustainability, confirming our steadfast commitment towards sustainable business practices through maximizing economic value, creating positive environmental impact, and supporting sustainable social development. Sustainability continues to represent a key pillar in Saudi Re’s strategy; therefore, our achievements have been recognized by being awarded first place in 2023 Saudi insurance sector’s sustainability rankings for the second consecutive year. As for governance, we adhere to a robust structural system that is designed to protect shareholder and other stakeholders’ interests, while ensuring compliance with laws, regulations, and guidelines of regulatory agencies, and as a sharia-compliant company, we avoid investments that could lead to adverse societal impacts, and continually advocate for equality, inclusion, and economic prosperity.
| Opportunities | Saudi Re’s response |
| Change in regulations |
Refresh Saudi Re’s strategy
|
| Developing economies grows by 4% in 2024 | |
| Global energy consumption grows by 1.8% in 2024 | |
| Renewable energy rises by 11% in 2024 | |
| Inflow of alternative capital |
| Risks | Saudi Re’s response |
| Geopolitical tensions |
|
| Enduring impacts of the pandemic | |
| Cost-of-living crisis | |
| Cyberattacks | |
| AI-generated misinformation and disinformation | |
| Attacks on critical infrastructure | |
| Global inflation | |
| Advanced economies growth slow | |
| Regional conflict | |
| Geopolitical upheavals | |
| Climate change issues |
i International Monetary Fund 2023. World Economic Outlook Update, October 2023.
ii General Authority for Statistics (GASTAT). 2023. GDP and National Accounts Fourth Quarter of 2023. Riyadh, KSA.