The profit-generating activities of Al Rajhi Co for Cooperative Insurance (ART) are expected to support the company's capital adequacy over the next two years, says S&P Global Ratings (S&P).
The global credit rating agency’s base-case scenario assumes net combined ratios of 95%-97%, with investment income from the insurer’s large fixed-income portfolio to further support profitability.
In a commentary, S&P says it expects net profits of SAR300m ($80m) to SAR400m per year over 2024-2026. In addition, S&P expects ART to maintain its zero-dividend policy over the next two years to support its planned growth.
S&P also expects ART's revenue growth to remain significant over the next two years. S&P said, “We anticipate growth of about 50% in 2024, before moderating to about 10%-15% in 2025-2026. We expect this growth to come from all lines of business, notably motor, medical, and protection and savings. We note that the Saudi market is expanding rapidly, thanks to rate increases on retail lines, expected increased enforcement of coverage of uninsured vehicles, and various megaprojects under Saudi's Vision 2030 programme.”
Ratings affirmed
S&P Global Ratings affirms ART’s 'A-' insurer financial strength and 'ksaAAA' Saudi national scale financial strength ratings. The outlook on both ratings is ‘Stable’.
The stable outlook indicates S&P’s expectation that, despite the anticipated material business growth over 2024-2026, ART should retain capital adequacy at least in line with the agency’s '99.80%' confidence level, with the insurer's operating performance remaining in line with the base-case scenario.
At end-2023, ART's capital adequacy was in line with the '99.95%' confidence level. Due to the company's material planned business growth over 2024-2026, S&P expects capital adequacy to decline such that it aligns with the '99.80%' confidence level. S&P gives ART full credit for the contractual service margin and risk adjustment, together totalling SAR246m or about 14% of total shareholders' equity at year-end 2023.
S&P also expects ART to benefit from its relationship with Al Rajhi Bank, particularly in distribution and cross-selling. ARB currently owns 35% of the insurer.