Insurance companies in Saudi Arabia record a significant increase in net...

A recent economic report revealed that insurance companies listed on the Saudi stock market “Tadawul” achieved a significant increase in net profit before zakat, in the first half of 2020 AD, while maintaining the total written premiums on an upward path and declining loss rates, due to subsidies. The government healthcare is reviewing auto claims.

According to a report issued by KPMG in Saudi Arabia, which specializes in auditing, taxes and consulting, which is based on company disclosures, listed insurance companies achieved a combined profit of 1.014 million Saudi riyals in the first half of 2020, compared to 341.19 million Saudi riyals in the same period of 2019. The total written premiums for the same period increased by 5.3 percent to reach 21.27 billion Saudi riyals, compared to 20.21 billion Saudi riyals in the same period in 2019.

The report indicated that, focusing on the overall performance in the first half of 2020, the net profit of insurance companies after zakat and taxes was 1.01 billion Saudi riyals, and the return on shareholders’ equity was 3.22% higher during the first six months of 2020, compared to the same period last year. Driven by better than expected underwriting results for cars (engines) and healthcare (medical lines), which represent a large share of the insurance business in the Kingdom.

As part of the underwriting results, the report indicated that insurance companies reported increases in total underwritten premiums in most business categories during the six-month period, but the total costs of claims were significantly lower due to the limited number of car claims issued during the embargo and closure period due to the pandemic. The emerging corona virus and due to the possible delay of elective medical procedures in the first six months, indicating a decrease in investment income during the six months ending on June 30, 2020, compared to the same period in 2019, due to lower interest rates and lower returns on shares.

Commenting on the report, Office Shehab, head of financial services at KPMG in Saudi Arabia, said: “Looking at the first half of 2020, we see that most sectors showed a slowdown in growth and a decline in profits in the midst of the emerging Coronavirus pandemic. Insurance in the Kingdom has maintained its performance and recorded marginal growth in insurance premiums.

Moreover, Shihab added that the extended closure in major cities has restricted the movement of most citizens and residents, which has led to a sharp drop in car claims during the second quarter of the financial period. As a result, the 11.7% decline in loss ratios was the main contributor to net income growth, despite the regulatory extension in the two-month auto policies granted by SAMA.

Looking to the future, the Saudi insurance market will pursue the global action plan for organizational and accounting change, product innovation, improved distribution channels and competencies in business management, he said, adding: “We will emerge from this crisis into a new reality with challenges. Diverse opportunities; fast approach and financial flexibility will become the framework for the new approach to the insurance sector. ”

The implementation of IFRS 17 is at the core of the coordination of accounting systems, but the effective date has been pushed back for a year until January 1, 2023. Major market players have welcomed this delay to a large extent because it provides an opportunity to clarify and implement the rules without haste and pause. For business. It will also allow insurance companies to improve their systems and educate investors about expected changes in financial results.

While global regulators continue to push the wheel to ensure readiness by January 1, 2023, the Saudi Arabian Monetary Agency (SAMA) has been carrying out an exceptional activity in monitoring insurance companies and sharing notes on their preparations. 17 for all insurance companies. These comments will assist companies in completing the implementation of IFRS 17.

In its report, KPMG considered that, in general, the demand for insurance in the Kingdom is still mainly driven by government legislation and consumer entry strategies pursued by the main parties in the insurance field, as there has been an increase in recent times, digital platforms through which products and services are provided. With many auto insurance policies being sold online, and the flexibility to provide this service over the Internet is most evident among the major insurance companies.