Insurance market set to consolidate on tougher rules in Saudi Arabia: Fitch

Saudi Arabia’s insurance market is likely to see consolidation in the next few years with weaker companies merging with stronger players amid tightening solvency requirements and improved internal risk controls, Fitch Ratings said in a new report on Monday.

“Consolidation should strengthen profitability in the sector as the new larger firms will be able to benefit from economies of scale and reduced competition,” the rating agency added.

Saudi Arabia’s insurance industry is largely fragmented with 33 small insurers listed on Tadawul, with only 26 of them having a market share of less than 3 percent.

Regulatory reforms could also spur growth, particularly in the motor sector.

Further growth is likely to be driven by more reforms, including King Salman’s decision to allow women to drive from 2018 along with other measures to enforce compulsory motor cover more effectively.

However, the positive impact of these procedures will be wiped out in the short term by the steep decline in new car sales in Q1 2017, Fitch added.

For foreign participation, Bupa and Allianz Group boosted their stakes in Saudi-listed Bupa Arabia and Allianz Saudi Fransi Cooperative Insurance, respectively.

Meanwhile, insurance penetration remains relatively low despite strong growth over the last decade, and the sector is highly focused on motor and health services only, the report said.