Size big advantage for top Saudi insurers
Riyadh, October 10, 2013
The insurance market in Saudi Arabia risks greater market share concentration, as size remains a big advantage for these major industry players, said a report.
The size and efficiency of a small number of large Saudi insurers will remain a competitive advantage that should see them steadily increase both their earnings and market share, according to Standard & Poor's ratings services.
These dominant insurance companies are likely to see their financial strength stabilize or even improve, following the enforcement of actuarial pricing, which was introduced by the principal regulator, Saudi Arabian Monetary Agency (SAMA), earlier this year, the ratings agency said in its report titled "Saudi Arabian Insurance in the Q3 of 2013: Will The Winners Take All?".
The directive, which states that all Saudi-based insurers must apply actuarial pricing to their motor and medical policies, locks what should be reasonable profit margins into the business these large players will be writing in the second half, it stated.
However, this will leave many smaller, often loss-making local insurers under an increasing obligation to consider their diminishing list of strategic options. Unless they can lower their cost base, their relative lack of economies of scale means that some smaller insurers risk being priced out of the market if they rigorously apply actuarially-based tariffs, the report said.
"The promotion of the new, prudent pricing regime by SAMA indirectly risks further entrenching the competitive advantages of the largest players in an insurance market that is already dominated by a small number of large companies," remarked S&P credit analyst, David Anthony.
As a result, there may be a greater impetus for consolidation among some smaller, loss-making players, said the S&P report.
For some of these entities, merger, ideally with a stronger peer, must be a serious consideration, something that the authorities are known to be keen to promote, it stated.
Further changes could include aggressive cost reductions to help justify lower pricing and maybe a concession or two from the regulators to help the sector as a whole, the report added.
Despite this, Saudi Arabia has both the economic base and demographics to support a vibrant insurance sector, pointed out Anthony.
"With consumers spending little on insurance compared with international standards, there is good potential for further growth in premiums as more people and more companies require additional protection for an ever greater panoply of objects and activities," he stated.-TradeArabia News Service