The Saudi insurance sector is likely to see weak earnings growth in the near-to-medium term, as insurers increasingly focus on profitable market share rather than growth, Al Rajhi Capital said in a report.
The investment case for the insurance sector in the Kingdom hinges on regulatory changes such as compulsory insurance for Saudi nationals in private companies, stricter implementation of third party motor insurance, the move allowing women to drive, higher private employment, and public health insurance, the report said.
While all these factors are positive for the industry, the potential could be inflated and growth delayed.
“We believe growth rates would be at the best tepid or negative in the short to medium term as there are other challenges offsetting these benefits mainly in the form of no-claim/loyalty discounts, higher competition for motor and down trading in health segment,” Al Rajhi Capital said.
In terms of latest quarterly numbers, the insurance sector’s net profit declined by about 15 percent in Q3 2017.
The motor insurance segment remained under pressure, with gross written premiums (GWPs) declining 15 percent year-on-year (YoY) in Q3 2017, despite a 23 percent increase in total motor insurance policies.
Meanwhile, health insurance remained the largest segment, accounting for 55.5 percent of the sector. Health insurance GWPs rose 7 percent YoY in Q3 2017, primarily driven by Tawuniya and Al Rajhi Takaful.
"We do believe in the long-term story of Saudi insurance, but one may have to employ a 'wait and watch' approach in this macro till we begin to see stricter enforcement," the research firm noted.
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