Liberalized Saudi Market Augurs Well for Insurance

 


JEDDAH, 30 October 2007 — The Kingdom’s newly liberalized insurance market has come under the spotlight at the 2nd Saudi Insurance Summit, which opened at the Jeddah Hilton yesterday.
It is estimated that a market currently worth around $1.5 billion annually could soar to $8 billion within 10 years.
Principles of Islamic insurance and Takaful structures are especially in focus at the summit being held at a time when the Kingdom’s insurance industry is entering a new era of crucial importance, Ali A. Al-Subaihin, chairman of the summit, said in his opening remarks.
“We see the impact of new insurance market regulations, licensing of new companies, floating of shares in the Saudi stock market, implementation of new compulsory insurance laws and increase of competition. And with these developments, a number of significant issues are arising,” said Al-Subaihin, CEO of Tawuniya (formerly NCCI).
Issues that are arising, according to him, are the impact of compulsory insurance laws, effect of the competitive environment on enhancing business practices, future of cooperative (Shariah-compliant) insurance and the main elements for setting the base for a strong and sophisticated insurance industry.
The two-day summit is followed by a workshop tomorrow on bridging the insurance skills.
More than 30 local, regional and international insurance and business experts and professionals are speaking or giving presentations over 20 sessions and four interactive panel discussions in the summit being held for the second year consecutively with the support of Jeddah Governor Prince Mishaal ibn Majed. The event is designed to tackle the current “hot topics” and present a realistic vision toward the future of the insurance industry in the Kingdom.
Speakers said that the Takaful industry is growing rapidly worldwide with annual premiums already worth over $1.7 billion. Major international insurance companies including Allianz and Prudential are now entering the market, which already has dedicated Takaful companies. In a recent deal, Bank Aljazira has agreed to Prudential becoming the largest individual shareholder in a new venture hat will acquire the existing leader of the Saudi market — the Takaful Ta’awuni life insurance business of Bank Aljazira.
The new Takaful Ta’awuni Life Insurance operation will be listed on the Saudi Stock Exchange (Tadawul). They are also undertaking a Saudi Arabian Monetary Agency licensing process with Prudential plc, their new joint venture partner for both the Kingdom and the Middle East-North Africa region. Allianz is also competing in the Saudi market through its joint venture with Banque Saudi Fransi, which was granted a license in December 2006 and Allianz Takaful was established this year in Bahrain. Allianz is also involved in Indonesia through Allianz Utama, its rapidly expanding subsidiary. “It is this most populous Muslim country that may in the long run offer the greatest potential for Takaful,” a speaker said.
Brad Bourland, chief economist, Jadwa Investment Company, explained how the ongoing macroeconomic conditions could impact the newly formed insurance companies and how to come to terms with the reality of being a publicly listed company in the Kingdom. “A healthy investment environment equates to a healthy insurance industry,” he said.
Development of medical malpractice insurance in the Kingdom in the context of the Shariah law and enactment of medical practitioners regulation was dealt with by Fahad A. Al-Hesni vice president, property and casualty, Tawuniya.
There were also sessions on the emerging family Takaful market in the Kingdom with its opportunities and challenges and moving from minimum standards to best practice within the insurance industry.
The opening up of the Kingdom’s insurance sectors has injected hundreds of millions of dollars into the market with more to come through new company licensing and public offerings. All insurance companies operating in the Kingdom must obtain a license by March 2008 or cease operations.
The capital requirements for gaining a license are $26.67 million for insurers and $53.33 million for reinsurers with an additional 10 percent statutory deposit. Companies are also obliged to float at least 25 percent of their shares on the Tadawul and meet other regulatory requirements before receiving a license. At present 18 companies have been licensed, with 24 more expecting to be granted approval.
“The new laws have led many in the industry to forecast excellent growth in the non-life sector in the Kingdom with predictions of a $4 billion growth by 2009 being touted,” said Deep Marwaha, senior conference manager of IIR Middle East, which has organized the summit. “Within this high growth market, the landscape is shifting dramatically,” he added.

 
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