The effective and proactive management of risk is vital for a company as it helps identify, assess, and address potential risks that could impact on operations, financial stability, reputation, and long-term success. By managing risks proactively, a company can prevent or minimize potential disruptions, optimize decision-making, and protect valuable assets. Effective risk management enables companies to adapt to changing market conditions, maintain regulatory compliance, and safeguard against unforeseen events. It also enhances stakeholder confidence, improves operational efficiency, and supports sustainable growth. Ultimately, a strong risk management framework ensures the company can navigate uncertainties and remain resilient in an increasingly complex and competitive business environment.
13.1 CURRENT AND FUTURE RISKS
Saudi Re’s Board of Directors plays a pivotal role in shaping the Company’s approach to risk management by setting defined levels of risk appetite and tolerance. In addition, the Board sets the levels of the Company’s risk appetite and risk tolerance, and oversees strategic and business planning, ensuring the Company’s objectives align with its risk management framework. The business is managed through a collaborative structure involving the Board, its specialized Committees, and the Executive Management, all working together to ensure effective oversight and decision-making.
To maintain a robust risk management process, the Board has established an internal control system aimed at ensuring the adequacy, efficiency, and ongoing effectiveness of risk management practices across the organization.
As specified in Note (31) of the financial statements, Saudi Re is exposed to a range of risks. These include reinsurance risk, regulatory framework risk, claims management risk, reserving and ultimate reserves risk, credit risk, liquidity risk, currency risk, special commission rate risk, and capital management risk.
The Company’s internal annual review of risks conducted for 2025 identified current risks and emerging future risks, reflecting the evolving landscape in which Saudi Re operates.
13.2 CAPITAL MANAGEMENT RISK
Capital Management Risk arises from the potential inability of the Company to maintain sufficient capital to support its underwriting activities, absorb unexpected losses, meet regulatory and rating agency requirements, and execute its strategic objectives. Inadequate capital levels could adversely affect the Company’s financial strength, market position, and stakeholder confidence.
To mitigate this risk, Saudi Re has established a disciplined capital management procedures that aligns with its overall risk profile, underwriting and investment exposures, and Company’s business strategy. These procedures encompass prudent capital planning, stress testing, and continuous Solvency monitoring to ensure that capital resources remain sufficient considering the business profile. The Company regularly evaluates its capital adequacy by considering internal capital measurements, regulatory solvency requirements, and rating agencies requirements.
The capital management approach is supported by a disciplined risk appetite statement and governance structure, enabling the Company to respond effectively to market developments, catastrophic events, and other risk drivers while maintaining a strong and resilient capital base. Overall, Saudi Re’s resilient capital base and strategy enable it to seize growth opportunities in line with its risk appetite and risk tolerance parameters.
13.3 REINSURANCE RISK
Reinsurance Risks encompass a range of challenges, including the concentration of risks within specific regions or industries, the accumulation of exposures that could result in substantial losses, vulnerability to catastrophic events, and significant exposure to single large losses. Additionally, the increasing frequency and severity of claims, driven by factors such as climate change, economic shifts, and evolving market dynamics, further amplify these risks.
To address these challenges, effective mitigation strategies include diversifying the portfolio of accepted risks to reduce dependency on any single source of exposure, implementing stringent underwriting guidelines that are customized to align with both regional and global conditions, and employing retrocession protection.
13.4 ACCUMULATION RISK
Accumulation of exposure refers to the potential maximum loss the Company may incur at any single point in time due to the concentration of risks, whether arising from a single risk or multiple risks across lines of business or geographic areas. Underestimating this accumulation may result in losses exceeding expectations. The Company manages this risk through prudent contract design, such as applying event limits, and through regular monitoring of accumulated exposures to ensure that potential losses from any single event remain within the Company’s defined risk appetite and the protection provided by retrocession coverage.
13.5 RETROCESSION RISK
Retrocession Risk arises when retrocessionaires fail to meet their contractual obligations as per the retrocession contracts, including defaults on claims payments. This risk is mitigated through a rigorous selection process that emphasizes diversifying reinsurance sources and carefully evaluating the financial stability and credit ratings of reinsurers.
Retrocession transfers portions of risk to other reinsurers, thereby distributing the financial burden and strengthening the reinsurance framework’s resilience. These measures ensure a balanced and sustainable approach to managing the complex reinsurance risks.
13.6 CLAIMS MANAGEMENT RISK
Claims Management Risk arises primarily from inaccuracies or inadequacies in case reserves and claims settlements, leading to financial misstatements or operational inefficiencies. To mitigate this risk, the Company has established a dedicated Claims Management Department operating under a comprehensive framework of policies and procedures. This department ensures that claims are processed fairly, efficiently, and within a reasonable timeframe, adhering to the terms and conditions outlined in the policies. Additionally, it ensures compliance with regulatory requirements and aligns its practices with the Company’s overarching business objectives.
13.7 CLAIM RESERVING RISK
Claims Reserving Risk arises when the reinsurance reserves set aside prove to be inadequate to meet the Company’s reinsurance liabilities, typically due to inaccurate or overly optimistic projections. To manage this risk effectively, the actuarial team employs a variety of well-established methodologies to estimate ultimate claims with a high degree of accuracy. These include analyzing claims development patterns over time, conducting detailed projections of ultimate claims, and performing stress tests on the ultimate reinsurance liability balances.
13.8 CREDIT RISK
Credit Risk arises from the potential default of counterparties, including retrocessionaires, cedents, brokers, and debt issuers, which can lead to financial losses or disruptions in operations. To mitigate this risk, the Company has implemented comprehensive policies designed to assess and ensure creditworthiness, financial stability, and legal standing of all counterparties. In addition to these initial assessments, the Company maintains a focus on the ongoing development and management of these relationships.
This includes periodic monitoring of outstanding receivables and regular evaluations of the financial health and risk profiles of all involved parties.
13.9 MARKET RISK
Market Risk refers to the potential for financial losses resulting from the movements and fluctuations in market forces, which can lead to a reduction in the Company’s capital. For Saudi Re, market risk exposure primarily arises from its investment portfolio, with key risks driven by factors such as interest rate changes, equity market volatility, and economic instability, including fluctuations in oil prices. These market dynamics can significantly impact the value of investments and the Company’s overall financial position. To manage these risks effectively, Saudi Re has implemented a comprehensive Investment Policy Statement, which is regularly reviewed and approved by the Board. This policy outlines the strategies and controls designed to mitigate market risk, ensuring that the Company’s investment activities remain aligned with its risk appetite and financial objectives.
13.10 LIQUIDITY RISK
Liquidity Risk arises when the Company is unable to access the necessary funds to meet its financial obligations as they come due, potentially resulting in losses due to the forced liquidation of investments at unfavorable prices. To mitigate the impact of this risk, the Company regularly monitors its liquidity needs and ensures that sufficient cash flow is available to cover its obligations. In addition, the Company has implemented a comprehensive investment policy that includes strict controls designed to manage liquidity risk effectively.
13.11 CURRENCY RISK
The Company faces Currency Risk due to fluctuations in foreign exchange rates, which can affect investments or underwriting commitments denominated in those currencies. If not managed effectively, these fluctuations can lead to unexpected financial outcomes.
To minimize the impact of this risk, the Company regularly monitors its currency exposure, assessing the potential effects of exchange rate movements on its financial position. When necessary, the Company takes proactive measures to manage this risk, such as adjusting its currency hedging strategies or altering its foreign currency exposures to better align with its risk management objectives.
13.12 RATING RISK
Reinsurance companies are at risk of rating downgrades by rating agencies if they fail to meet the agencies’ requirements, which can harm their reputation and hinder growth. Rating agencies primarily evaluate the Company’s ability to fulfil its financial obligations, meaning factors such as financial losses, significant growth fluctuations, or changes in the sovereign rating of Saudi Arabia can impact the Company’s compliance with these agencies’ standards. To mitigate this risk, the Company actively manages its capital in line with the requirements set by the rating agencies, reviewing this on a quarterly basis.
The Company also maintains open communication with these agencies, providing regular updates on its business performance and the market conditions. Any concerns raised by the agencies are promptly addressed, and appropriate actions are taken to adjust to any significant changes in the Company’s risk profile, ensuring its ongoing ability to meet the required financial criteria.
13.13 CYBER RISK
Saudi Re considers information to be a critical asset, integral to its operations and overall success. As the use of information systems and data becomes increasingly central to the Company’s activities, it faces heightened risks, including potential threats of unauthorized access, theft, disruption, leakage, modification, or destruction of sensitive data by malicious actors. These individuals or entities may seek to compromise the Company’s operations, harm its assets, or negatively impact employees and other stakeholders. To safeguard against these risks, Saudi Re employs a comprehensive set of regulatory, technical, and preventative measures. These include robust security protocols designed to protect computers, servers, networks, and all sensitive data from unauthorized penetration, damage, alteration, or interruption, ensuring the integrity and continuity of the Company’s services and operations.
13.14 LEGAL and REGULATORY COMPLIANCE RISK
The Company is required to adhere to the legal and regulatory mandates established by relevant regulatory authorities, including the Insurance Authority, the Saudi Capital Market Authority, the Ministry of Commerce, and the Ministry of Human Resources and Social Development. In order to ensure full compliance with these regulations, the Company has implemented a rigorous compliance policy that governs its operations. Additionally, the Company has established a dedicated Compliance Department, which is responsible for overseeing all compliance-related matters and ensuring that the Company’s activities remain in line with the relevant legal and regulatory frameworks. This Department reports directly to the Audit Committee, enabling prompt identification and resolution of compliance issues at the highest level.
13.15 REPUTATION RISK
The Company considers its reputation of paramount importance crucial for maintaining the trust of both existing and prospective clients. As such, any information or news, whether directly or indirectly related to the Company, has the potential to damage its reputation and erode client confidence in its ability to provide reliable reinsurance services. To manage this risk, the Company prioritizes retaining the trust of its partners through effective communication channels, consistently reinforcing the strength of its brand and demonstrating its stability and reliability.
Additionally, the Company’s credit ratings from reputable rating agencies reinforce its strong financial standing. The Company has received an Insurance Financial Strength Rating (IFSR) of (A2) on the international scale from Moody’s, as well as a national-scale rating of (A1.sa), both with a stable outlook. The Company also holds a long-term credit rating and an insurance financial strength rating of (A-) from Standard & Poor’s (S&P), in addition to a regional rating of (gcAAA) with a positive outlook. These ratings underscore the Company’s financial resilience and its commitment to maintaining the confidence of its stakeholders.
13.16 EMERGING RISK
Emerging Risks are considered high risks due to the challenges of identifying them early. However, when recognized in time, these risks can be effectively mitigated. The Company monitors all events that might be a peril to the Company, keeps its Board of Director, related committees and Executive Management informed and provides the necessary plan to avoid, transfer, or reduce these risks.
One of the emerging risks is the non-adoption of Environmental, Social, and Governance (ESG) standards. An example of these standards is addressing climate change and its impact, as reinsurance provides various levels of security over a long-time period. Increased temperature variability and the resulting heatwaves can not only affect agriculture, productivity, water resources, health and mortality, but can also increase unsustainability in certain regions. The Company is adopting different initiatives to ensure meeting ESG standards and has published Sustainability Reports since 2020, highlighting the Company’s initiatives towards ESG standards compliance.
In addition, global conflicts are considered emerging risks for the insurance sector as they may lead to an increase in the cost of insurance and reduce the availability of insurance protection. However, the Company has limited exposure to the conflicted region, and it is continuously monitoring the exposure and is prepared to take necessary measures to address any future impacts.
13.17 Business Continuity Management (BCM)
Business Continuity Management (BCM) is a proactive process that ensures critical business functions continue during and after disruptions by identifying potential threats, assessing their impact, and implementing response strategies to protect people, assets, and operations. It strengthens organizational resilience and minimizes downtime through key activities such as Business Impact Analysis (BIA) to prioritize critical processes, Disaster Recovery (DR) testing to confirm IT recovery capabilities, and maintaining alternative data centers to support timely recovery in line with defined Recovery Time Objectives (RTO) and Recovery Point Objectives (RPO).
13.18 ESG RISK
Environmental, Social, and Governance (ESG) Risk refers to the potential negative impact on the Company’s financial performance, operations, or reputation arising from environmental, social, and governance factors. These risks can affect underwriting and investment decisions, stakeholder confidence, and long-term sustainability, often evolving gradually and requiring ongoing monitoring and integration into strategic and risk management processes. To address this, the Company incorporates ESG considerations into decision-making through scenario analysis and robust governance frameworks that promote ethical conduct, accountability, and responsible operations.
13.19 Geopolitical Risk
Geopolitical Risk refers to the potential adverse impact on the Company arising from political instability, conflicts, sanctions, regulatory changes, or other geopolitical developments that may disrupt economic activity, trade relations, and financial markets in regions where the Company operates or has exposure. Such events can increase uncertainty across underwriting, investment, and reinsurance activities, affect market confidence, asset valuations, and counterparties’ financial strength, and ultimately influence the Company’s performance and strategic objectives. The Company mitigates these risks through prudent diversification of underwriting and investment portfolios, maintaining a restricted list of high-risk jurisdictions where business is not conducted, and explicitly excluding war and related hostilities from reinsurance contracts and insurance policy wordings. Continuous monitoring of global geopolitical and economic developments, supported by scenario analysis and stress testing, ensures emerging risks are identified in a timely manner and managed in line with the Company’s risk appetite and strategic priorities.