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Young population and strong economy reinforces rise of reinsurance market

Article - June 29, 2015

Reinsurance company Saudi Re is the lone domestic company in an increasingly competitive and profitable market


According to Fahad Al-Hesni, Managing Director and Chief Executive Officer at Saudi Re, most of the local reinsurers in the Arab world enjoy compulsory cession from their markets.

“Saudi Re, by contrast, is forced to compete with big brands without such an advantage,” he says. “The law in Saudi Arabia requires insuring 30 per cent of operations within the kingdom but does not name us exclusively.

We are not against this, Saudi Re welcomes competition and feels it is healthier for its well-being and the sector in the long term to operate in a completely competitive environment.”

Competition certainly has not hurt growth, which under Mr Al-Hesni’s leadership was up 32 per cent in 2014 while the expense ratio was held to 8 per cent, compared to 30 per cent four years ago.

The company’s assets exceeded $500 million, earning it a sound rating of BBB+ and a stable outlook from the Standard & Poor’s rating services.

While the company has enjoyed robust growth thanks to a strong economy and untapped potential, it values stability, the raison d’être for its founding.

It was created in 2008 to help address volatility and bring balance to the industry.

In recent years the overall profitability rate in the sector has improved from 100.3 per cent (indicating a slight underwriting loss) in 2010 to 92.2 per cent in 2012.

Regulatory changes in the cost structure ratio have contributed to improved bottom lines, but so has leadership, a responsibility that Saudi Re embraces.

“Part of our role is to educate the market players and help them adopt best practices as a basic means of alleviating market volatility and dealing with uncertainty,” says Mr Al-Hesni.

“The changing nature of the market is something Saudi Re has paid close attention to in the past few years and we have set up dedicated risk management procedures using top of the line models and IT systems.”

A prudent strategy with a focus on customer service is helping Saudi Re maintain its course to sustainable growth, according to the CEO.

“A gradual and profitable growth based on steady and sound steps is far better than trying to make a big impact and then end up with big liabilities which will eventually impact the company’s status.”

Saudi Re’s influence is not just limited to the insurance industry; it also has made a significant contribution to the government’s overall effort to diversify its interests outside of the oil industry. 

“Expanding the financial sectors to increase their contribution to the GDP is part of the government’s strategy,” says Mr Al-Hesni. “Insurance is an integral part of the development plan.”

Saudi Arabia’s insurance market has doubled since 2010 and exceeded $8 billion in premiums last year.

The country’s massive energy resources has served as the backbone of its economy but the government has been intent on diversifying its economy to support job creation and development.

The country’s youthful population is another factor fueling growth in the insurance industry.

The growth potential of the Saudi insurance market has captured keen interest from abroad, a fact that is not lost on the Saudi Re.

The company has already developed a broad network of international clients from 35 countries in the Middle East, Asia and Africa.

It also boasts a portfolio of assets evenly split between local and non-Saudi companies. And its strong balance sheet which reflects $276 million in capital provides the impetus to expand.

Although it does not have any current plans to operate beyond its borders, it is a vision that is part of its future.

“We are relatively young, but regardless of size we have great ambition,” says Mr Al-Hesni.

“Reinsurance is international by nature. It is essential for doing business, especially for expanding exposure.

Doing business not only revolves around making profits and meeting stakeholders’ interests, but it also involves the exchange of experiences, cultures and knowledge.

We welcome relationships and openness. The world is a big place, but relationships make it easier to know.”