RIYADH, 17 March 2005 — Saudi Arabia’s biggest insurance firm said yesterday it welcomed steps to open its sector to greater competition but warned too many companies may have been granted permission to operate in the Kingdom.
“It’s a move that we welcome. We’re probably going to get a smaller slice of a much bigger pie,” said Ali Al-Subaihin, CEO designate of Company for Cooperative Insurance (NCCI), in an interview with Reuters.
Last week Saudi Arabian General Investment Authority (SAGIA) issued licenses to 13 companies to provide insurance services.
Finance Minister Ibrahim Al-Assaf said a further 33 licenses may be issued later. Subaihin said some of the companies who successfully bid for licenses may struggle.
“The market size does not warrant that many companies at this stage,” he said. “They will have a difficult time unless something phenomenal happens like the introduction of new mandatory insurance legislation.”
Medical and motor insurance will be in particular demand over the coming years, he said.
“These are the most difficult claims to manage because there is a constant flow of them. It will take time (for new firms) to set up the infrastructure to handle these lines.”
Subaihin estimated the Saudi insurance sector is worth around SR5 billion ($1.33 billion) and could rise to SR30 billion over the next decade as the market matures.
“The potential for this market is great as there are lots of assets and people here that are not insured,” he said.
Formerly state owned NCCI currently dominates the market which is mostly made up of commissioning agents rather than stand-alone underwriting companies.
SAGIA said the total capitalization of the 13 new ventures is SR2.4 billion and they will offer 25 to 40 percent of their shares to the public. A royal decree and permission from the Trade Ministry is needed before they can start operating.
Some of the new companies are joint ventures between Saudi investors and established foreign insurance providers such as Britain’s BUPA and France’s AGF.
“The fact there are so many companies applying for licenses shows the amount of liquidity in the market,” he said. “There is a lot of cash around looking for investment opportunities. This is evident on the stock market and in the real estate sector.”
High oil prices have boosted Saudi Arabia’s economy. The world’s biggest oil exporter has seen state revenues rocket in the last two years.
Subaihin said his firm is prepared for the challenge posed by the new competitors, which industry sources say could be up and running by the end of the year. “Our size, experience and financial strength will give us a big advantage,” he said.
NNCI’s net profits for 2004 rose to SR187.7 million from SR44.9 million in 2003.