New regulations to trigger M&As in Saudi takaful sector: Moody’s

The proposed increase in capital requirements is expected to drive consolidation in the takaful (Islamic insurance) sector, Moody's Investors Service said in recent report.

“We expect global takaful premiums to keep growing moderately in the next 2-3 years. In the GCC region, the introduction of compulsory motor and medical cover in Saudi Arabia and Oman respectively will support demand,” it added.

In addition, economic activity linked to the 2020 World Expo in the UAE and Saudi Arabia’s Vision 2030 economic diversification program will also have a positive effect, the report noted.

Last month, SAMA governor Ahmed Alkholifey, the Kingdom’s central bank and insurance market regulator, said it is studying new laws that encourage insurers to raise capital, compared to the current SAR 100 million and SAR 200 million cap for insurance and reinsurance firms, respectively.

Read: SAMA urges consolidation in Saudi insurance sector: Alkholifey

In addition, Moody’s said global demand for takaful was growing, helping premiums to rise and supporting profitability.

"Takaful insurers' profitability should stabilize in 2018 and 2019 after falling in 2017 due to discounting in Gulf Cooperation Council countries and rising claims in South East Asia,” said Mohammed Ali Londe, AVP-Analyst at Moody's.

Globally, gross takaful premiums rose at a compound annual rate of nine percent between 2014 and 2017.

In the GCC region, South East Asia and Africa, demand will continue to be bolstered by the widening of compulsory cover in products such as motor, travel and health. The GCC area will also benefit from activity linked to events such as the 2020 Expo and 2022 FIFA World Cup.

Moody's expects regulatory regimes to strengthen across all takaful markets, with improvements in risk management, underwriting and reserving.

Profitability in South East Asia and GCC countries is likely to remain stable, helped by adequate pricing and improved operating efficiencies, with a return on capital of eight to 10 percent.