Market Review

6.1 2024: Year in Review

In 2024, the global economy effectively navigated a complex landscape of geopolitical uncertainties, shifting financial conditions, and evolving consumer dynamics, showcasing its resilience against adversity. Despite ongoing challenges, the progress achieved in stabilizing growth and controlling inflation provides a promising outlook for a more balanced and sustainable economic trajectory in the year ahead.

The Gulf Cooperation Council (GCC) economies have proven robust despite volatility in the Middle East. The region’s economic prospects remain favorable, driven by a major transformation towards a less oil-dependent future. This shift is fueling increased demand for risk and insurance solutions. Notably, regional GDP growth continues to surpass the global average, supported by large-scale infrastructure investments in crucial sectors such as construction, transportation, and water.

Asia and Africa remain the world’s leading economic growth regions, a result of strong public infrastructure investment and supportive regulatory frameworks. Africa, home to 11 of the 20 fastest-growing economies, benefits from increased infrastructure investment and economic diversification policies. Asia, led by China and India, continues its rapid growth, with countries like Indonesia implementing ambitious development initiatives.

Saudi Arabia’s economy witnessed growth where GDP rose 4.5% year-on-year, reaching X 4.07 trillion for the year. This growth was primarily driven by robust expansion in non-oil sectors. Notably, the wholesale, retail trade, and hospitality sectors led annual economic growth, rising 6.4%, followed by financial services, insurance, and business services at 5.7%. Despite fluctuations in the oil sector and expenditure components, such as a decline in gross fixed capital formation, the Kingdom’s overall economic picture reflects sustained growth in its non-oil sector and successful navigation of economic challenges through strategic diversification.

6.2 Unlocking opportunities in global reinsurance

Traditional reinsurance capital, after a sharp decline in 2022, has rebounded, exceeding USD 500 billion in 2024. The deployment of alternative capital also reached an all-time high of USD 13 billion, with the catastrophe bond market expanding to USD 107.1 billion, reflecting an 11% annual increase. This trend emphasizes the growing role of alternative capital in complementing traditional reinsurance solutions. Furthermore, compulsory cessions in markets like India, and across Africa aim to retain premiums domestically, strengthening financial stability and fostering local reinsurance capacity.

The industry displayed remarkable adaptability, achieving significant growth and stability in recent years. Globally, reinsurance carriers have outperformed other sectors, with the market’s return on equity (ROE) surpassing the cost of capital for the first time in four years. This resurgence is attributed to improved underwriting profitability, disciplined pricing, and capital gains.

The impact of natural disasters

Global natural disasters in 2024 resulted in total losses of USD 320 billion, an increase from the inflation-adjusted USD 268 billion in 2023, with approximately USD 140 billion covered by insurance. Extreme weather events, such as hurricanes, thunderstorms, and floods, were the primary drivers, representing 93% of total losses and 97% of insured losses. Flooding has emerged as a particularly significant risk, with major flood catastrophes in 2024 resulting in global industry losses of USD 18.2 billion, accounting for 78% of payouts. In terms of insured losses, 2024 was the third most expensive year on record, and the fifth most expensive for total losses since 1980.

The MENA region, traditionally viewed as having low natural catastrophe (Nat Cat) risk, has experienced a shift in recent years. Events like the hurricane in Oman and the Dubai floods have indicated a growing exposure to natural disasters. The Dubai floods, with unprecedented rainfall and estimated insured losses reaching potentially USD 3.5 billion, significantly impacted the reinsurance market in 2024. This underscores the region’s increasing vulnerability and the need for enhanced natural disaster coverage.

A notable trend observed in recent years is the increasing frequency of smaller, yet costly, natural catastrophe events. In 2023, global insured losses exceeded USD 100 billion without a single event surpassing USD 10 billion, a first in six years. This pattern highlights the need for the reinsurance industry to adapt its underwriting practices as more regions are classified as high-risk.

6.3 Insurance market performance in the Gulf Region

During the year under review, Saudi Arabia led the region in insurance revenue, generating over USD 12.5 billion. The United Arab Emirates followed with over USD 7 billion, and Qatar ranked third with over USD 3 billion. Kuwait, Oman, and Bahrain also contributed to the sector’s growth. This strong performance is driven by extensive infrastructure development and increasing demand for motor and medical insurance. The UAE’s insurance market is projected to grow at a CAGR of 4.9%, while Kuwait is anticipated to experience the highest regional growth, with a CAGR of 6.4%, attributed to steady population growth.

6.4 The Saudi Insurance and Reinsurance Landscape

Market growth and development

Saudi Arabia’s insurance market is expanding rapidly, with the reinsurance sector benefiting from capital growth and a favorable market cycle. Improved profitability is driven by pricing discipline and de-risking strategies. As one of the world’s fastest-growing markets and the largest in the Middle East by GWP, the Saudi insurance sector offers significant potential, contributing to national economic growth, investment attraction, and job creation.

The Insurance Authority (IA) is leading market development through the National Insurance Strategy and has consolidated regulatory authority over the sector. To maximize domestic premium retention, the IA is implementing a phased local cession of reinsurance premiums: 20% in 2023, 30% for treaty contracts by early 2025, and 30% for facultative contracts from 1 January 2025. This new mechanism is expected to strengthen the domestic reinsurance ecosystem and enable the national reinsurance market to play an active role.

Capital restructuring and market consolidation

The Saudi insurance market has undergone significant capital restructuring, primarily through capital increases by established players, alongside the entry of new international participants. Additionally, several Memoranda of Understanding (MoUs) for mergers were signed, with some mergers successfully concluded over the past year, indicating a trend toward market consolidation.

Investment and product innovation

The Public Investment Fund (PIF) investment is expected to amplify the insurance and reinsurance sector’s economic impact. The Insurance Authority has also issued a standard civil liability policy for high-risk areas. Innovative insurance products have been introduced, enhancing coverage and risk management, including the Surety Insurance Bonds Coinsurance Program, employer’s default coverage, and cultural insurance.

6.5 Future Outlook

The global economy and insurance in 2025 and 2026

Global GDP growth is projected to remain steady at 3.3% for both 2025 and 2026. Global headline inflation is expected to continue its decline, reaching 4.2% in 2025 and 3.5% in 2026. The medium-term economic outlook is primarily subject to downside risks, while the near term presents a mix of potential upside and downside scenarios due to elevated policy uncertainty. Policy-driven disruptions to disinflation may hinder monetary easing, threatening fiscal and financial stability.

Both Insurers and reinsurers have benefited from increased capital and capacity. However, premium rates are moderating, with a projected global premium growth of 2.3% annually in real terms over 2025 and 2026.

The global reinsurance market is expected to stabilize, with potential mild softening in pricing over the next few years. However, the industry is entering 2025 in a strong position and well-positioned for continued growth, with major rating agencies anticipating sustained profitability, robust capitalization to withstand potential shocks, favorable pricing, and strong investment income. Additionally, the continued growth of alternative capital markets and a stable outlook across various lines of business support sustained success.

Vision 2030 and the Future of Saudi Insurance and Reinsurance

Saudi Arabia’s Vision 2030 is fueling an immense USD 1.3 trillion investment across key sectors, including real estate, infrastructure, and transportation, with USD 164 billion already awarded in real estate contracts.

The Vision aims to raise home ownership among Saudi citizens to 70% by 2030 to accommodate population growth estimates. Tourism is also set to soar, with a target of 150 million annual visitors by 2030, These ambitious giga-projects are fundamentally reshaping the Kingdom’s urban landscape, tourism, and commercial sectors, paving the way for unprecedented economic growth.

Considering the Kingdom’s continued efforts in economic diversification, sustained growth of the non-oil sector, and development of the local capital market, Standard & Poor’s has upgraded Saudi Arabia’s credit rating to A+ with a stable outlook.

The Saudi insurance sector is projected to maintain strong profitability in the short to medium term. It is poised for further consolidation in 2025 driven by new minimum capital requirements, compelling insurers to raise additional capital or pursue mergers and acquisitions to meet solvency standards, thus intensifying M&A activity. The Kingdom’s general insurance market is poised for significant growth, with gross written premiums (GWP) projected to increase from X 68.8 billion (USD 18.4 billion) in 2024 to X 105.3 billion (USD 28.1 billion) by 2029, reflecting a compound annual growth rate (CAGR) of 8.9%.

Reinsurers are projected to maintain strong profitability in the short to medium term. Over the next two years, growth will be primarily driven by Vision 2030 projects and initiatives, including giga projects, World Cup 2034, and Expo 2030. National infrastructure developments, alongside mandatory health and motor insurance, will further contribute to sector growth. Digital transformation and enhanced risk management will play a crucial role in market stability.