Saudi pre­par­ing tougher rules for in­sur­ers

Kuwait Times - - BUSINESS -

RIYADH/DUBAI: Saudi Ara­bia’s cen­tral bank is pre­par­ing tougher rules for in­sur­ance com­pa­nies as part of a drive to cre­ate a smaller num­ber of stronger mar­ket play­ers op­er­at­ing in the coun­try, two peo­ple with direct knowl­edge of the mat­ter told Reuters. A new su­per­vi­sory frame­work will be in­tro­duced in the com­ing months that will force in­sur­ers to boost cap­i­tal sig­nif­i­cantly as well as im­prove in­ter­nal risk con­trols, said the sources, who de­clined to be named due to the sen­si­tiv­ity of the mat­ter. The moves are aimed at trig­ger­ing con­sol­i­da­tion in the in­sur­ance in­dus­try and forc­ing weaker com­pa­nies to merge with stronger ones, in­dus­try an­a­lysts said. “They (cen­tral bank of­fi­cials) said half of the com­pa­nies that are here to­day will not be here,” one of the sources said. “They want stronger com­pa­nies in the mar­ket.”

The pro­posed changes were dis­cussed dur­ing a meet­ing be­tween of­fi­cials of the Saudi Ara­bia Mone­tary Au­thor­ity (SAMA) and se­nior in­sur­ance ex­ec­u­tives this week, the peo­ple said. SAMA did not im­me­di­ately re­spond to a Reuters re­quest for com­ment. Cur­rent re­quire­ments for com­pa­nies to have at least 100 mil­lion Saudi riyals ($27 mil­lion) of cap­i­tal for in­sur­ance ac­tiv­i­ties in Saudi Ara­bia, or 200 mil­lion for rein­sur­ance ac­tiv­i­ties, are likely to be sig­nif­i­cantly in­creased, the sources said. The Saudi in­sur­ance sec­tor has come un­der pres­sure as the econ­omy has slipped into re­ces­sion this year, with health in­sur­ance suf­fer­ing in par­tic­u­lar as ex­pa­tri­ates have left the king­dom and hos­pi­tal costs have risen, the sources said.

Abrupt lib­er­al­iza­tion

That pres­sure has ex­ac­er­bated prob­lems stem­ming from the sec­tor’s abrupt lib­er­al­iza­tion a decade ago, when the cen­tral bank li­censed some 30 in­sur­ance firms in an at­tempt to en­cour­age the sec­tor and cut the econ­omy’s re­liance on oil. Ten of the com­pa­nies li­censed at that time are now un­prof­itable. Mediter­ranean and Gulf Co­op­er­a­tive In­sur­ance and Rein­sur­ance Co (MedGulf), one of the most trou­bled, posted ac­cu­mu­lated losses in the sec­ond quar­ter that sur­passed 73 per­cent of its cap­i­tal.

Over the last year, 11 firms have been tem­po­rar­ily sus­pended from is­su­ing new in­sur­ance poli­cies, some more than once. Among them was Sharia-com­pli­ant in­surer SABB Taka­ful , which ear­lier this month was stopped from is­su­ing or re­new­ing in­sur­ance or sav­ings prod­ucts. — Reuters

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