The Company for Cooperative Insurance (Tawuniya), among Saudi Arabia's top three insurers in terms of insurance revenue and profits, has a Fitch Ratings calculated net income return on equity that improved to 34% (annualised) in 1H24 (2023: 18%, 2022: 10%), supported by strong underwriting performance and resilient investment income.
In addition, Tawuniya's Fitch-calculated non-life combined ratio improved to around 92% in 1H24 (2023: 96%, 2022: 97%), due mainly to prudent pricing. Fitch expects growing business volumes and Tawuniya's ability to maintain strong underwriting discipline despite competition, to help maintain its very strong financial performance over the medium term.
Fitch views medical claims inflation and stiff price competition, mainly in the motor insurance market, as key risks affecting the industry's underwriting performance. However, Tawuniya mitigates these risks by prudent risk selection and pricing.
Ratings outlook revised to ‘Positive’
Fitch has revised Tawuniya’s outlook to ‘Positive’ from ‘Stable’ and affirmed its Insurer Financial Strength (IFS) Rating at 'A' (Strong).
The revision of the outlook reflects Tawuniya's improving financial performance driven by strong profitable growth and prudent underwriting standards which, if sustained over the next 12 to 24 months, could lead to an improvement in Fitch’s assessment of Tawuniya's financial performance and earnings. Fitch expects the company's disciplined pricing to mitigate the risks of stiff competition and to support underwriting performance and capital accumulation over the medium term.
Simultaneously, Fitch has affirmed Tawuniya's National IFS Rating at 'AAA(sau)'. The outlook is ‘Stable’.
Tawuniya's ratings continue to reflect the insurer's strong company profile, capitalisation and reserve adequacy.
Aside from improving financial performance, other rating drivers for Tawuniya are:
Strong Company Profile: Fitch's view of Tawuniya's company profile reflects its significant operating scale, leading business franchise within its sector and strong competitive advantages. Tawuniya is the largest insurer in Saudi Arabia, based on gross written premiums (GWP), and recorded a 29% increase in GWP in 2023 to SAR18.5bn ($4.9bn) on considerable growth in motor and medical insurance lines. Tawuniya's competitive positioning is also helped by its 26% state ownership through the General Organisation for Social Insurance, a government-owned entity.
Fitch regards Tawuniya as a well-diversified insurer in the country by product lines. This assessment is supported by growing contributions from the motor, and property and casualty (P&C) segments to Tawuniya's GWP, despite material concentration in medical insurance, which is in line with the industry due to its compulsory nature. In 2023, Tawuniya launched Meena Healthcare Company, a health provision business aimed at achieving vertical integration within its medical insurance business.
Strong Capitalisation and Leverage: Fitch's view on Tawuniya's capitalisation reflects its Prism Global Model score of 'Strong' at end-2023. Considerable business growth and the resultant increase in premium and insurance reserve risk charges may pressure the Prism score if not supported by adequate growth in available capital. However, Fitch believes the strong and improving earnings will continue supporting the score over the medium term. Its solvency ratio was above the regulatory minimum. Tawuniya's financial leverage ratio was zero and unchanged at end-2023, which supports our assessment of strong capitalisation and leverage.
Strong Reserve Adequacy: Tawuniya sets its reserves at best-estimate levels based on continual evaluation of historical results and expectations of claims experience. The majority of Tawuniya's policies are short-tailed, which helps limit the impact of significant adverse claims experience on reserve adequacy.
Strong Reinsurance Protection: Tawuniya cedes a large majority of risks pertaining to the P&C segment to reinsurance counterparties, providing adequate protection against major loss events while contributing towards lower earnings volatility. Fitch views the credit quality of Tawuniya's reinsurance panel as strong and its exposure to catastrophe risk as low.