Consolidation seen among Saudi Arabian insurers
Friday, 07 03 2020, Category: Insurance and Reinsurance, Country: Saudi Arabia
After a material improvement in growth and earnings in 2019, the Saudi Arabian insurance sector will report solid underwriting results in first-half 2020. This is benefiting from fewer motor and medical claims due to the Covid-19-related lockdown, despite negative economic growth, predicted S&P Global Ratings.
"With the lifting of strict lockdown measures in late June, we expect that motor and medical claims will pick up, as traffic flow increases and policyholders start returning to hospitals for nonurgent medical services in the coming months," said S&P Global Ratings credit analyst Emir Mujkic.
The increase in value-added tax to 15% from 5% from July 1 and cuts in social benefits for citizens could further pressure consumer spending, in our view. Insurers are therefore likely to experience a slowdown in premium collections, since many consumers and businesses could delay their premium payments in an attempt to manage cash flows. This would pressure asset quality, liquidity, and consequently credit conditions of some players. However, we expect the sector to still remain profitable overall in 2020, despite slower premium growth and substantially weaker profitability in the second half.
"Following two recent merger announcements, we expect to see further and accelerated consolidation in the sector over the coming quarters, given that there is a relatively large number of small and loss-making insurers," Mujkic concluded.
Source: Trade Arabia