Insurance companies in Saudi Arabia continued their top-line growth momentum at the end of Q3 2021, with a matching trend foreseen for year-end, KPMG in Saudi Arabia, one of the leading audit, tax and advisory services provider in the Kingdom, said in its latest Insurance Pulse report.
The report includes a detailed analysis of the financial performance of 28 insurance companies in Saudi Arabia in the third quarter of 2021. Aggregate gross written premiums (GWPs) hit SAR 31.81 billion by the end of Q3, 2021, increasing 7.7% year-on-year (YoY). Motor and medical segments were the biggest contributors of GWPs at 79% and 81%, respectively, of GWP and net underwriting income for the nine-month period ended September 30, 2021.
“The Covid-19 pandemic changed the insurance industry’s perspective for customers around the globe, both in terms of the available products and services. Consequently, digitally advanced insurance companies in Saudi Arabia capitalized on their advantages as customers desired more seamless and improved digital interactions with their service providers,” commented Khalil Ibrahim Al Sedais, Office Managing Partner – Riyadh KPMG in Saudi Arabia.
The higher loss ratio of 80.9% directly impacted the overall industry’s net profit after zakat and tax, which witnessed a decline of 62.6% to SAR 537.65 million in Q3 2021, compared to SAR 1.438 billion in Q3 2020.
“The insurance industry observed a decline in loss ratios in the mid of 2020, which was primarily in a motor and medical heavy industry that experienced a steep decline in relevant claims due to the lockdown and delays in discretionary medical treatments. However, analysis shows that the loss ratios in 2021 moved back to the pre-pandemic rates and stood at 80.9% as of Q3 2021, compared to 73.7% as of Q3 2020,” said Al Sedais.
The total assets and total equity of the insurance industry stood at SAR 68.03 billion and SAR 18.93 billion, respectively, showing an increase of 5.4% and 4.9% YoY. This represented an annualized return on equity of 3.8% and annualized return on assets of 1.1% as of Q3 2021 YoY. Total investments grew 7.3% YoY to SR 32.97 billion.
In today’s environment, digitalization, new risks and new customer demands are fundamentally changing the insurance industry.
“Therefore, it is becoming imperative for insurance companies to consider data analytics, artificial intelligence (AI) and other means of digital transformation to stay ahead of the curve,” said Ovais Shahab, Head of Financial Services at KPMG in Saudi Arabia.
The risks of falling behind are growing larger than other business risks, while companies need to be aware of an evolving environmental, social, and governance (ESG) perspective of stakeholders, whether those are regulators, investors or customers, he noted.
Overall, global insights from KPMG’s recent CEO Outlook – with insights from 129 insurance CEOs from around the world – demonstrate an extensive and optimistic theme of growth, where prospects are over 60% for every sector over the next three years. It also indicates that insurance CEOs believe that half of the growth is initiated from organic growth strategies while the other half is dominated by mergers and acquisitions (M&A). Regulatory and task risks come first in recognizing the greatest threats to organizational growth. Most of the survey respondents agree that increasing investment in disruption detection and innovation processes is the best action to take for pursuing growth.
On the International Financial Reporting Standards (IFRS) front, insurers could face operational complexities and one-time accounting mismatches between insurance contracts and financial assets in the comparative information, which they need to present when applying IFRS 17 insurance contracts for the first time.
“The International Accounting Standards Board published a narrow scope amendment that aims to provide insurers with an option to present comparative information about financial assets using a classification overlay approach on the basis that is more consistent with how IFRS 9 will be applied in future reporting periods,” Shahab concluded.