Mousa Al Rubaian has been at the forefront of Saudi Arabia’s transition into a liberalised insurance market, as chairman of reinsurance start-up Saudi Re and former CEO of state-owned giant NCCI, which he successfully took public in 2005.
The end of January 2009 was arguably the end of the Saudi market’s transition as it was the final deadline for approved insurers who were previously operating outside the country to relocate their business to Saudi Arabia.
We asked Al Rubaian to assess the market’s prospects following another year of intense regulatory change and outline the future for Saudi Re.
How does regulation in Saudi Arabia now compare with the rest of the GCC?
From a regulatory point of view, Saudi Arabia is probably ahead of the rest of the Gulf now. Thanks to Sama (the Saudi Arabia finance and insurance regulator), we are operating under a much stricter environment than other parts of the region and in the long run this means business in Saudi Arabia will be more robust.
But it also means that our competitors in the region can sometimes take decisions that we can’t take.
You only need to look at the Sama website to see documents relating to capital adequacy, ethical standards, reinsurance and risk management. In a way, they are ahead of themselves on certain aspects, but it is still in transition and we will continue to see a tremendous change throughout the rest of this year.
What does the rest of 2009 hold for the Saudi Arabia insurance market?
In less than five years the market has gone from nothing to a directly regulated market, which is quite an achievement. For many years there was only NCCI and other companies were registered outside, often Bahrain, and operating in Saudi Arabia through an agency.
Most of the companies have been set up in 07/08 and they have not really started business, so 2009 will be the real test year and I expect the Sama’s regulations will have an impact on a number of companies.
Some of them are rating business as if they were still in Bahrain, but it will be at least the end of 2010 before the real issues start surfacing.
Does that mean it will be 2010 before consumers start to benefit from the new environment and regulation?
No, consumers are already benefiting. At the beginning of 2008, we had fly-by-night companies who are being wiped out of the market. Within one year, those that did not meet the requirements had to leave.
Although if the question is ‘have we seen the full benefits’, the answer is no, it will take a while.
Any regulatory changes that you want to see?
A company is obliged to go public as soon as it has entered the market. This is expensive and the company does not already have a successful history in market in order to make it a success. These regulations will evolve over time.
What indicators have we seen that demonstrate the effect of the new regulatory regime?
We are seeing more discipline in the market. Companies have to justify their actions to Sama and insurers are not slashing rates like they were before, they have to be more careful.
Sama have told a number of companies to stop writing business and one company was even told to run off its business before it had completed the licensing process.
On the other hand, newcomers in the market can still be expected to use pricing as a means of claiming market share, so there could still be downward pressure on rates.
In the medium term, I would expect to see a period of enforcement and consolidation with more and acquisitions in Saudi Arabia due to the financial requirements, not just the capital requirements, but costs associated with human capital and business procedures which are very high.
Which business lines are causing the most excitement?
Construction is still a big business, not just the economic cities, but the whole infrastructure being built across the kingdom.
Two lines that are growing significantly quickly are medical and motor, but these are generally retained, or protected by stop-loss or XOL arrangements. In 2009, reinsurers will be looking to support insurers in motor and medical quota share.
Do the other regional reinsurers present a challenge for Saudi Re?
We’ve seen other newcomers in the market – Gulf Re, Al Fajer Re and Hannover Re moving into Bahrain. We are seeing new capacity, but there is also capacity that is leaving the area.
Some of the traditional reinsurers have also withdrawn support from the companies in the region. Whenever companies see that there is rating pressure going downward they pull out of companies they have supported for many years.
Certainly other reinsurers presents challenges, but also opportunities and we have been working very closely with the market because it is still in transition. We have an experienced team with long-standing relationships in the market and we gained a strong rating from Standard and Poor’s at a challenging time.
Do Saudi Re’s ambitions go further than the Arab world?
Saudi Arabia is a cooperative-based market but Saudi Re can accept conventional business and the company operates throughout the Arab world.
Our intention is to actually move into neighbouring regions in the second phase of the business: India, Pakistan, Turkey, Malaysia, Indonesia.
We will not be looking at going outside those regions except that we might support takaful products in the western world.
Our shareholders are long-term players, who want to see success over time and not overnight.
Saudi Re also has interest in construction and property, while marine cargo has been a focus for us. However, we don’t say that we are targeting engineering or aviation – these are things which we will tackle when we have fully developed the know-how. Energy and life are also lines to be considered.
Is there a difference between the way international and regional reinsurers operate?
There is a difference. It’s a matter of how you mix with your clients. If you have a closer relationship, it makes a difference and you can put more time into a more mutually beneficial arrangement.
We also know that we are a regional player so we have visited a lot of the markets all around us to ensure that we get much closer to our clients than the international companies would. That is important in order to understand their risk and their true requirements.
Even the international companies are setting up here, particularly the brokers. The whole scene is changing, particularly in Saudi Arabia.
Saudi Re, a start-up reinsurance company based in Riyadh, was listed on the Riyadh Tadawul stock exchange in March 2008 and began underwriting in August 2008.
Its strategy is to diversify its exposures by initially focusing on proportional treaty business in Saudi Arabia, as well as elsewhere in the Middle East and North Africa, while also selectively writing facultative risks across the region.
The company gained a 'BBB+â€™ rating from Standard & Poor's in its inaugural assessment of October 2008, reflecting the company's expert and influential management team, its broadly based and supportive shareholders, its strong paid up capitalisation of Saudi riyals (SAR) 1 billion ($267 million), and the potential that the new company enjoys for rapid, sustainable growth, particularly in Saudi Arabia but also in neighbouring markets of the GCC and MENA region. The main offsetting factor in Saudi Reâ€™s rating was its status as a start-up and a lack of track record.