With less than 1% penetration, the insurance sector in Saudi Arabia is one of the fastest growing in the GCC

Amana Insurance was established in 2010 and the insurance market here has been volatile over that period, lots of competition, race to the bottom pricing and these sorts of things but the company has progressively lost less and less money since you have been here and now looks like it’s really going to grow significantly and turn that corner and become very profitable and interesting.  Perhaps you could just give us from your perspective a brief overview of the story of AMANA Insurance and how you are expecting to develop moving forward.

The whole idea of AMANA was to establish a multi-line of business in the insurance industry. The focus in the beginning was to grow within a profitable line.  A profitable line at that time was medical retail.  So, they decided medical retail was going to supersede all other lines of insurance and see how that goes. The medical retail was too tricky because of multiple layers, missing documentations and all these things and documentations can be really, really overwhelming.  So, at some point in time in 2011, they changed the management.  They moved it from Managing Director to General Manager.  The previous General Manager came in with an idea that he wants to change the company from almost one line of business and open it up to all the multi-line of business.  At the same time, they were required to change system and all these things.  All this turbulence has in a way, even though it’s very applaudable to look at it from outside, it became almost a disaster for the company because it hindered the company from growth.  So, from a year where they sold 260 million to the next year of 54 million in the same line.  It was absolutely not a good idea.  Then comes the year after and the company managed in the last 3-4 months to recover some of the losses because up until the end of September there was only growth of almost 30 million, close to 83 million worth of losses.  At that time there was a plan that was put together that we needed to grow in the top line while preserving the bottom line even though we know that it’s going to be a big reservation, we are going to have to put some …

It’s going to have to be about efficiency …

It’s going to be efficiency but when you sell under different lines and you grow from almost nonexistent to triple / quadruple, you know there’s going to be some reserve that’s to be put against any part that you get growth and we know in the middle of next year 2015, this company’s going to have hopefully, according to plan,  a really big income and the big income is going to be the turnaround for the company.  So, in 2014 we decided that this is going to be the company growth year.  While we are growing, we need to look at all aspects of the company from efficiency first, cutting down cost second. Therefore, we are going to have to make the transformation in 2015 to sell only and only in the profitable lines that we have and diminish the other lines.  That’s going to be the focus.

Looking at the product range, I haven’t seen any Shariah compliant products.  Is that a conscious decision or not?

There are two different ways of doing it actually.  There is the capital way and there is the cooperative way.  Both of them are Shariah compliant.  So, it’s a choice.  Even when you look in the market, all the insurance sector, some of them don’t have the Shariah board but all the products are Shariah compliant.  Each and every product that you see in the market is 100% Shariah compliant under the cooperative agreement.  So, you don’t have to be the capital to be Shariah compliant but we do have a Shariah board and they approved all of our products, they approved our investments and all that.

The central bank, SAMA, they recently introduced obligatory actuarial pricing to the market to sort of stabilize that inertia or race to the bottom.  How has that effected or influenced your business?

SAMA has implemented two different ways of regulating the reserve.  One of them is a formula that you have to apply to all your products to figure out what is the amount of reserves, so companies are not under reserve in certain businesses.  The other way of doing this is through the actuarial pricing and in the beginning of the year, as the time changed and accidents changed, the ratio has been changed.  The actuary reserve can change based on given facts in the market itself.  It is not always a set formula but it’s an industry wide study.  They do their studies industry wide, they come back to us, they say “Okay, your book now needs to have that much reserve in it.”  Sure you want to fight it but smart companies don’t want to fight because a few over reserve at any given time for the quarter, all that’s to do when you come to the next year is they are going to release all this reserve and this reserve is going to turn the company from loss making to a profit making one. So, we met with SAMA just in September and they asked us to readjust our reserve.  We increased our reserve and we feel good about it.  I think it’s better to have over reserve to protect the policy holders.  Basically what we are saying is god forbid in case of the biggest disaster, we can pay every single policy holder.

What do you think more could be done from a regulatory perspective to protect companies and investors and their customers?

I think the regulatory agency really have done as much as possible to re-reserve which we appreciate.  We have to evaluate the management and we have to evaluate the board.  You need to have some of the board members with some knowhow.  When you come to some companies, when you only have one person or two persons with limited knowledge of the insurance industry and the rest of them is just pure investors, it makes things really difficult. 

There’s 30, 33, 35 companies in the insurance market that’s fiercely competitive for a market of size of Saudi Arabia.  How does that affect your ability to plan for the long term as a company?

Planning for the long term has to end up honestly with limiting these companies.  Many of these companies that are in the market, as we speak now, are suffering big losses because you cannot compete on the premium.  You have to offer other things for the market to understand what are you and what can you offer.  So, what we encourage in our company which we have an advantage of is some companies are specifically in the market to sell one product, as we have multi line of business and when we do multi-line of business, we can cross sell.  Cross selling, this is one of our strengths.  So, we are not only selling medical, we are selling medical, motor. We don’t have life but we have other things.  We can insure your buildings, we can insure your home, we can insure all these things.  So, that gives us an ability to cross sell.

The other thing is that we also offer other services that other companies don’t have.  For example, if you want to insure with me in the medical line, I can actually also have an addition where you can have the ability with my card to use your card in Jordan, Lebanon, UTCC and we can also extend it to international lines because we have our international arms and each one of those cards have more premium but it covers you worldwide. 

What would you say are the key distinguishing factors for AMANA from the competition in Saudi Arabia?  What distinguishes your brand?

It’s the name.  First of all, the name.  We like to pay for our claims.  It’s an immediate payment of claims.  That sets you aside from the market because what we are selling here really is we are selling a promise and if you are going to sell a promise to anybody, you can lose face value immediately if you don’t deliver on your promise.  The second things is, like I said, cross selling also helps us to set the stage to just be different than the rest of the market.

We need the market to know that there is a strong company called AMANA and we need to start making a profit.  In the longevity, we are not really looking to mergers more than we are looking to acquire.  Acquisition is what we are thinking instead of merging.  Merging is not a bad thing.  To merge with another company with one line of business or two lines of business you are successful at, you want to merge them to bring one line of business stronger to yourself but I think acquisition is what AMANA is looking at.  If there are two different companies, you cannot – or maybe you can, depends on how is the management – but you cannot put a lead company with a lead company to make a successful story about it and it will be a disaster.

Speaking with leaders in the policy making institutions surrounding the stock exchange here and the Council of Saudi Chambers, the leaders in these areas, long-term partnerships and developing international relationships are a key vision of the Tadawul opening up for investment.  How are you approaching that thinking about partnerships?

We haven’t really established this.  We have a few interested groups from the rest of the world.  Namely, German partners would like to get involved, Swiss partners would like to get involved and it’s mostly coordinated from England for us.  So, we have been in meetings with a few interested investors if they want to come and pump capital or invest in the company or they want to be part of our company in terms of growth. They have vast knowhow.  If you look at the market in Saudi Arabia, as big as it is, we still did not even uncover so much of the market.  I have come from a background in the US where we have so many things that we sell at the corporate level. Then you come here and you find out that the pie or most of the pie is in non-life.  Imagine the potential. It’s huge growth that we are expecting but, like you said, the market is saturated and we have many companies that are hurting financially.  So, once this is consolidated, my expectations is to cover the other opportunities.  So, if this happens, imagine if the growth within that for me.  Then you open it up to other lines of insurance where you don’t have to … Home insurance, we still don’t have home insurance, individual home insurance; livestock, all these things.  We aren’t covering all these things.  It will be interesting.  It will really be interesting. Travel insurance.

The opening of the Tadawul is something that’s provided great excitement and opportunity.  How do you view it as the leader of an exciting insurance company?

I think it’s going to be absolutely tremendous.  I think it’s going to add so much value.  The Saudi stock exchange, if you look at the diversification of it, it’s fully diversified.  It might be just one of two things but it’s fully diversified.  So, this diversification helps investors actually to look at it from a perspective to understand that we are not limited to one or two products.  We have so many different industries that we can invest in and this will just attract many investors from all over the world.  To us it’s an exciting time.  We look forward to it and we would like to join that too.

What specific preparations are you making as a company to be in the best possible position so when the market opens next year?

We are not prepared for that.  We can never be prepared for that.  We look forward to it really.  We, as a company, have been discussing about many other interested partners.  We would like to see where we are going to take this and what is the best thing for AMANA and what it is for AMANA.  Then we will look at all the other additions.

One final question is about London, the UK obviously is the oldest insurance market. It’s got some excellent strength and knowledge, and one of the key things is partnerships here but you have 33 insurance companies in Saudi Arabia, you can get a little bit lost in the crowd.  What sort of key messages do you have or defining features of the company.

Even if we go just little bit back or even further back, Saudi Arabia is still reliant on the expatriate community and their knowhow.  UK, if we look at it outside of military affair that are present in southern Saudi Arabia in advisory and all those levels.  So, we always look back to their knowledge.  The knowledge that they bring in from the UK, from Great Britain to Saudi Arabian market is big.  It’s big, it’s understandable, they have seen it, they lived the past to build the future. We need the leadership to give us an insight into the future, what we expect in the future.  That’s the difference between successful and unsuccessful companies is the vision that comes from the knowhow.  The UK, as we all know, is one of the greatest in terms of consulting and in terms of advising, giving you a clear vision in the future and how you need to go about it.  You don’t need to be a big winner now and a great loser later.  You want to have that steady stable income that’s going to last forever and that’s something that we always look back in the UK and we trust that’s going to happen.