The insurance market in Saudi Arabia risks greater market share concentration, according to a Standard & Poor's Ratings Services report.

The report, entitled "Saudi Arabian Insurance In the Third Quarter of 2013: Will The Winners Take All?", also stated that the size and efficiency of a small number of large Saudi insurers will remain a competitive advantage that should see them steadily increase both their earnings and market share.

These dominant insurance companies are likely to see their financial strength stabilise or even improve, following the enforcement of actuarial pricing, which was introduced by the principal regulator, Saudi Arabian Monetary Agency (Sama), earlier this year, said the report.

 The directive, which states that all Saudi Arabia-based insurers must apply actuarial pricing to their motor and medical policies, locks what should be reasonable profit margins into the business these large players will be writing in the second half of 2013, it said.

This will, however, leave many smaller, often loss-making local insurers under an increasing obligation to consider their diminishing list of strategic options.  Unless they can lower their cost base, their relative lack of economies of scale means that some smaller insurers risk being priced out of the market if they rigorously apply actuarially-based tariffs.

"The promotion of the new, prudent pricing regime by Sama indirectly risks further entrenching the competitive advantages of the largest players in an insurance market that is already dominated by a small number of large companies," said Standard & Poor's credit analyst, David Anthony.

As a result, there may be a greater impetus for consolidation among some smaller, loss making players.  For some of these entities, merger, ideally with a stronger peer, must be a serious consideration, something that the authorities are known to be keen to promote.

Further changes could include aggressive cost reductions to help justify lower pricing and maybe a concession or two from the regulators to help the sector as a whole.  

"With consumers spending little on insurance compared with international standards, there is good potential for further growth in premiums as more people and more companies require additional protection for an ever greater panoply of objects and activities," said Anthony. - TradeArabia News Service