Wataniya Insurance Company's profitability is expected to remain strong despite competition, says Fitch Ratings.
The global credit rating agency notes that Wataniya's Fitch-calculated net income return on equity (ROE) was very strong, at 19% in 2024 (2023: 19%), supported by higher investment income and good underwriting performance. Its Fitch-calculated non-life combined ratio remained strong, although this slightly deteriorated to 96% in 2024, from 94% in 2023, due primarily to underwriting losses in the motor compulsory line caused by price competition. This was counterbalanced by strong underwriting profitability in comprehensive motor, property, casualty and other major business lines.
Ratings affirmed
Fitch has affirmed Wataniya’s Insurer Financial Strength (IFS) Rating at 'A-'. The agency has also affirmed Wataniya's National IFS Rating at 'AA(sau)'. The outlooks are ‘Stable’.
The ratings reflect the insurer's expanded operating scale, strong capital position and sound financial performance.
Aside from strong financial results, Wataniya’s key rating drivers include:
Good company profile: Fitch's assessment of Wataniya's company profile reflects its moderate but expanded operating scale and franchise. Its gross written premiums (GWP) increased by 14%, to SAR1.9bn ($506m), in 2024, mainly due to expansion in its motor insurance line. Fitch regards Wataniya as a reasonably well-diversified insurer in the country by product lines. Motor insurance contributed to 61% of GWP (2023: 59%), followed by property and casualty lines at 30% (33%) and term life insurance at 9% (8%).
The company does not have a licence to underwrite health insurance. The insurer specialises in commercial insurance, partly supported by its association with EA Juffali and Brothers, its majority shareholder, and has recently expanded its presence in retail motor insurance.
Strong capitalisation: Fitch's view on Wataniya's capitalisation reflects its 'Extremely Strong' Prism Global score at end-2024, unchanged from end-2023. The company's Prism score may decline with rapid business growth that could consume the excess capital. However, Fitch expects the score to remain at least 'Strong', supported by strong earnings. Its solvency ratio was above the regulatory minimum and its financial leverage ratio was zero, which supports our assessment of its capitalisation and leverage. Fitch expects regulatory solvency and financial leverage to remain supportive of ratings.
Prudent underwriting: Stiff price competition in motor insurance is a major risk facing Saudi motor insurers, according to Fitch. However, Fitch expects Wataniya's prudent underwriting to help it maintain underwriting profitability. The agency also expects lower volatility in the insurer's underwriting profitability compared with its peers, as it does not offer medical insurance, where price competition is particularly intense.
Strong reinsurance protection: Wataniya cedes a large majority of its property and life insurance risks to reinsurance counterparties, providing adequate protection against major loss events. Fitch considers the credit quality of its reinsurance panel to be strong and its exposure to catastrophe risk to be low. The government's mandate requiring insurers to allocate 30% of reinsurance cessions to local reinsurers, granting them the right of first refusal, may increase counterparty risks for the company as well as the market, but these risks are unlikely to be material as Fitch expects most cessions to be with reinsurers with strong credit quality.
Reserving in-line with peers: Most of Wataniya's policies are short-tailed, which helps limit the impact of large adverse claims experience on reserve adequacy. The insurer sets its reserves at best-estimate levels based on regular evaluation of historical results and expectations of claims experience. Its reserving methodology is in line with market standards.