Arab News
Arab news, Wed, Jun 11, 2025 | Dhu al-Hijjah 15, 1446
Saudi insurance market mergers to accelerate amid regulatory push: Fitch
Saudi Arabia :
Saudi Arabia’s insurance sector is
headed for a wave of consolidation as tougher capital rules and fierce price
competition squeeze smaller players, Fitch Ratings said in a new report.
The agency expects mergers and acquisitions to
accelerate as many insurers struggle to meet new capital requirements or remain
profitable amid intense competition and rising costs.
The shakeout comes as the newly established Saudi
Insurance Authority, which took over from the Saudi Central Bank and the Council
of Health Insurance in November 2023, steps up efforts to stabilize and
modernize the market in line with Vision 2030.
Several smaller insurers are already in talks with
larger rivals as they look for ways to shore up their capital positions and
ensure long-term survival.
“These measures will be credit positive for the
sector in the long term,” Fitch said. “However, they will increase insurers’
regulatory compliance costs, particularly during implementation, adding to
pressure on profitability in the short term.”
Growth, but thin margins
The findings come amid a period of rapid change in
the Kingdom’s insurance sector. Even with tighter regulations and competitive
pressures, the industry remains a vital pillar of the Saudi economy, covering
everything from health and motor to property and mega-project risks.
Despite these challenges, the insurance sector is
still growing. According to KPMG’s “Saudi Arabia Insurance Overview 2025,” total
revenue rose 16.9 percent year on year in the third quarter of 2024, driven by a
boom in compulsory medical cover, increased motor vehicle activity, and the
Kingdom’s property development surge.
Health insurance, which accounts for roughly 60
percent of the market, saw revenue climb 13.6 percent in the third quarter
alone, thanks to mandatory employee cover.
Motor insurance premiums also rose over 20 percent
amid a robust auto market, while property and casualty insurance posted 20
percent growth driven by large-scale construction projects.
Profitability remains a sticking point,
however. Health insurance margins have been hurt by medical inflation — the
rising costs of medical goods and services — which has pushed up claims payouts
even as price competition remains fierce.
Arab News has previously reported on how medical
inflation, fueled by technological advances, labor costs, and changing health
needs, makes it difficult for insurers to improve their combined ratios.
Fitch noted that of the 10 largest insurers, six
made an underwriting profit in the first quarter of 2025, but several did so
only marginally. Four of the top 10 reported underwriting losses, showing just
how challenging the environment remains for even the biggest players
While property, casualty and life insurance
offerings remain generally profitable, medical coverage has weaker margins
except at the largest insurers, according to Fitch. Motor insurance, the
second-largest segment, continues to face aggressive pricing challenges,
particularly for compulsory third-party coverage.
A significant regulatory shift is also underway.
Starting from January, insurers must now cede 30 percent of their reinsurance to
local firms. This move is designed to bolster domestic reinsurance capacity, but
it may temporarily raise counterparty risks for insurers since local reinsurers
typically have thinner capital bases.
Over time, however, the quota might help local
reinsurers build scale and improve risk management, supporting a more resilient
market that keeps premium income and jobs within the Kingdom.
Fitch sees consolidation as inevitable — and
ultimately healthy — for the sector. As competition intensifies and regulators
raise the bar, many smaller players will likely seek mergers or alliances to
survive.
This, the agency says, should create a more stable
and competitive insurance industry capable of supporting Saudi Arabia’s Vision
2030 transformation.
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