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The experience of the last two years changed the perspective of the insurance industry for customers around the globe, both in terms of the available products and services. There was increased demand from the customers for digital solutions to cater to their needs in the face of challenges posed by the lockdown. These trends were also witnessed in Saudi Arabia where digitally advanced insurance companies were able to capitalize on their advantages as customers continue to expect more seamless and increase digital interactions with their service providers.

Insurance companies in the Kingdom have attained a continuous growth in the top line in recent years and the momentum continued in 2021 wherein the aggregate gross by the end of Q3,2021 amounted to SAR31.81 billion, showing an increase of 7.7% in gross written premium (GWP) as compared to Q3 2020. The growth was reported in most categories, with the motor and medical segments continuing to be the biggest contributors of GWPs, constituting in aggregate 79% and 81% of GWPs and net underwriting income of the insurance industry for the period ended 30 September 2021. The similar trend is expected for the full year of 2021.

The insurance industry observed a decline in loss ratios in the mid of 2020, which was primarily in a motor and medical heavy industry that experienced a steep decline in relevant claims due to lockdowns and delays in discretionary medical treatments. However, analysis shows that the loss ratios in 2021 have moved back to the pre-pandemic rates and stood at 80.9% as of Q3 2021 as compared to 73.7% as of Q3 2020.

The impact of increasing loss ratios had a direct effect on the net profit after and tax which witnessed a decline of 62.6% as compared to Q3 2020 and stood at SAR537.65 million as of Q3 2021 for the overall industry. The total assets and total equity of the insurance industry stood at SAR68.03 billion and SAR18.93 billion respectively, showing an increase of 5.4% and 4.9% as compared to 31 December 2020. This represented annualized return on equity of 3.8% as of Q3 2021 as compared to 7.9% as of 31 December 2020 and annualized return on assets of 1.1% as of Q3 2021 as compared to 2.2% as of 31 December 2020.

Digitalization, new risks and new customer demands are fundamentally changing the insurance industry.

In today’s environment, digitalization, new risks and new customer demands are fundamentally changing the insurance industry. Accordingly, it is becoming imperative for insurance companies to consider data analytics, artificial intelligence (AI) and other means of digital transformation to stay ahead of the curve.

The risks of falling behind is growing larger than other business risks, while companies also need to be aware of an evolving ESG perspective of stakeholders, whether those are regulators, investors or customers.

Overall, global insights from our recent CEO Outlook–with insights from 129 insurance CEOs from around the world–demonstrate an extensive and optimistic theme of growth, where prospects are over 60% for every sector over the next three years. It also indicates that insurance CEOs believe that half of the growth is initiated from organic growth strategies while the other half is dominated by mergers and acquisitions (M&A). On the other hand, regulatory and task risks come first in recognizing the greatest threats to organizational growth. Most of the survey respondents agree that increasing investment in disruption detection and innovation processes is the best action to take for pursuing growth.

On the IFRS front, when insurers apply IFRS 17 insurance contracts for the first time, they could face operational complexities and one-time accounting mismatches between insurance contracts and financial assets in the comparative information they need to present.

The International Accounting Standards Board has published a narrow-scope amendment that aims to provide insurers with an option to present comparative information about financial assets using a classification overlay approach on a basis that is more consistent with how IFRS 9 will be applied in future reporting periods.

This publication further includes a detailed analysis of the financial performance of 28 insurance companies in Saudi Arabia in the third quarter of 2021, divided under two sections, based on the size of GWP. We hope you find this edition insightful for your organization.