RIYADH: Saudi Arabia’s insurance sector is headed for a wave of consolidation as tougher capital rules and fierce price competition squeeze smaller players, Fitch Ratings said in a new report.

The agency expects mergers and acquisitions to accelerate as many insurers struggle to meet new capital requirements or remain profitable amid intense competition and rising costs.

The shakeout comes as the newly established Saudi Insurance Authority, which took over from the Saudi Central Bank and the Council of Health Insurance in November 2023, steps up efforts to stabilize and modernize the market in line with Vision 2030.

Several smaller insurers are already in talks with larger rivals as they look for ways to shore up their capital positions and ensure long-term survival.

“These measures will be credit positive for the sector in the long term,” Fitch said. “However, they will increase insurers’ regulatory compliance costs, particularly during implementation, adding to pressure on profitability in the short term.” 

Growth, but thin margins

The findings come amid a period of rapid change in the Kingdom’s insurance sector. Even with tighter regulations and competitive pressures, the industry remains a vital pillar of the Saudi economy, covering everything from health and motor to property and mega-project risks.

Despite these challenges, the insurance sector is still growing. According to KPMG’s “Saudi Arabia Insurance Overview 2025,” total revenue rose 16.9 percent year on year in the third quarter of 2024, driven by a boom in compulsory medical cover, increased motor vehicle activity, and the Kingdom’s property development surge.

Health insurance, which accounts for roughly 60 percent of the market, saw revenue climb 13.6 percent in the third quarter alone, thanks to mandatory employee cover.

Motor insurance premiums also rose over 20 percent amid a robust auto market, while property and casualty insurance posted 20 percent growth driven by large-scale construction projects.

Profitability remains a sticking point, however. Health insurance margins have been hurt by medical inflation — the rising costs of medical goods and services — which has pushed up claims payouts even as price competition remains fierce.

Arab News has previously reported on how medical inflation, fueled by technological advances, labor costs, and changing health needs, makes it difficult for insurers to improve their combined ratios.

Fitch noted that of the 10 largest insurers, six made an underwriting profit in the first quarter of 2025, but several did so only marginally. Four of the top 10 reported underwriting losses, showing just how challenging the environment remains for even the biggest players

While property, casualty and life insurance offerings remain generally profitable, medical coverage has weaker margins except at the largest insurers, according to Fitch. Motor insurance, the second-largest segment, continues to face aggressive pricing challenges, particularly for compulsory third-party coverage.

A significant regulatory shift is also underway. Starting from January, insurers must now cede 30 percent of their reinsurance to local firms. This move is designed to bolster domestic reinsurance capacity, but it may temporarily raise counterparty risks for insurers since local reinsurers typically have thinner capital bases.

Over time, however, the quota might help local reinsurers build scale and improve risk management, supporting a more resilient market that keeps premium income and jobs within the Kingdom.

Fitch sees consolidation as inevitable — and ultimately healthy — for the sector. As competition intensifies and regulators raise the bar, many smaller players will likely seek mergers or alliances to survive.

This, the agency says, should create a more stable and competitive insurance industry capable of supporting Saudi Arabia’s Vision 2030 transformation.