Insurance Authority to adopt risk-based capital framework from 2027

Logo of Insurance Authority (IA)

The Insurance Authority (IA) said it will implement a mandatory risk-based capital (RBC) framework starting Jan. 1, 2027, making it the approved standard for measuring the financial solvency of insurance and reinsurance companies, replacing the current framework.

According to the Saudi Press Agency (SPA), the IA has taken several regulatory steps to support the transition, including conducting four simulation exercises in recent years to test the standard formula for calculating required capital.

A fifth simulation, based on 2025 data, was also carried out to further test the formula and assess the expected impact of the transition on the sector’s financial solvency.

The authority said it also held extensive consultations with industry participants, helping enhance the framework’s scope and technical robustness.

A parallel implementation phase will begin in 2026, during which insurers will be required to calculate solvency under both the new RBC framework and the current regime, in line with IA guidance.

Companies will have the option to apply the approved standard formula or develop full or partial internal models, subject to prior approval from the regulator.

The IA said the RBC framework aligns with global best practices for capital requirements in the insurance sector, such as Europe’s Solvency II, while being tailored to the characteristics of the Saudi market.

It stressed the need to inform boards of directors and relevant stakeholders of the changes and their strategic implications.

Actuaries are expected to play a key role during this phase by organizing internal workshops in coordination with risk, finance, and underwriting teams to assess the financial, operational, and strategic impact of the new framework and ensure a smooth transition.

The authority said the move marks a significant step toward strengthening the resilience of the Saudi insurance sector and delivering on the National Insurance Strategy, in line with efforts to enhance efficiency and sustainability while supporting the sector’s role in achieving Saudi Vision 2030 goals.

It added that the RBC framework will enable insurers to make more flexible decisions while ensuring they maintain capital levels commensurate with the nature and scale of their risks,

boosting confidence in the sector and its ability to meet financial obligations to investors and policyholders.

The framework is also expected to support diversification of insurers’ investment portfolios, helping stimulate activity in the financial sector.

In addition, it allows insurers to strengthen their capital through the issuance of subordinated debt instruments, providing additional options to meet capital requirements in line with business growth and encouraging greater investor participation.

The IA said the transition reflects the maturity of the local insurance market and its readiness to adopt advanced regulatory frameworks that support financial stability and sustainable economic growth.

It added that the move will help achieve the targets of the National Insurance Strategy, including raising available risk-bearing capital in the sector from SAR 25 billion to SAR 50 billion by 2030, in line with expected growth.

The authority noted that the framework will reinforce a more advanced risk management culture within insurance companies at both the strategic and operational levels, benefiting all stakeholders—from policyholders and shareholders to board members, executives, and employees.

The IA said it will continue issuing relevant guidelines and updates, while maintaining close coordination with insurers and stakeholders to support the effective and sustainable implementation of the transition.