Arabian Shield Cooperative Insurance (ASC) managed to price the motor lines prudently, allowing it to generate underwriting profitability in 2024, notes Fitch Ratings.
ASC achieved this despite stiff competition in motor/medical branches in which price competition remained intense throughout 2024.
However, ASC’s medical line continued to incur underwriting losses during the year.
Fitch has affirmed ASC's Insurer Financial Strength (IFS) Rating at 'A-'. Fitch has simultaneously affirmed ASC's National IFS Rating at 'AA(sau)'. The outlooks are ‘Stable’.
The ratings reflect ASC's strong capitalisation and earnings as well as its large operating scale.
Fitch says that the key rating drivers for ASC are:
Growing business volumes: ASC's company profile reflects its well-diversified product mix across life and non-life insurance lines, alongside its moderate but expanding operational scale and franchise. In 2024, ASC reported a substantial 42% growth in gross written premiums (GWP), reaching SAR1.8bn ($479m). The improvement was driven by mergers and organic growth across all product lines. The insurer merged with Alinma Tokio Marine Insurance Company (ATMC) in November 2023 and Al Ahli Takaful Company (ATC) in January 2022.
Well-diversified product mix: Fitch views ASC's exposure to a wide-ranging product mix as supportive of its assessment of the company profile. Medical insurance accounted for 32% of gross premiums in 2024 (2023: 39%), closely followed by life insurance at 32% (34%), motor insurance at 19% (16%) and property and casualty (P&C) at 18% (11%).
Strong Capitalisation: Fitch regards ASC's strong capitalisation as one of its credit strengths. Fitch’s view on ASC's capitalisation reflects its 'Extremely Strong' Prism Global score at end-2024. The global credit rating agency expects the insurer to maintain a Prism score well above 'Strong' over the medium term, supported by very strong capital buffers. However, rapid business growth is likely to consume some of the available excess capital. In March 2025, ASC announced its board's decision to withhold dividend distribution for 2024, to preserve capital for growth, which Fitch believes will further support its capital buffers.
ASC's regulatory solvency ratio under the current capital regime was 222% (255%) at end-2024, exceeding both the regulatory minimum requirement and the market average. The insurer's financial leverage ratio was zero, which also supports Fitch’s assessment of its capitalisation and leverage.
Strong Financial Performance: ASC's steady earnings are supported by strong investment income. It reported a modest Fitch-calculated net income return on equity (ROE) of 4.4% in 2024 (2023: 4.9%). Fitch expects ASC's ROE to be in the mid-to-high single digits over the medium term, helped by its strong investment income, stable underwriting profitability from life insurance and plans to profitably grow its business. However, strong growth ambitions may pressure margins if products are aggressively priced to win market share, especially given the competitive nature of motor and medical insurance businesses in Saudi Arabia.
ASC's Fitch-calculated non-life combined ratio was strong at 99% in 2024 (2023: 100%), supported by solid profitability in the motor and P&C business lines, which offset underwriting losses in the medical line.
Fitch expects ASC's combined ratio to remain below 100% over the medium term, supported by its plans to uphold disciplined underwriting and pricing strategies. In addition, Fitch expects strong profitability in the life business to contribute to earnings diversification.
Strong Reinsurance Protection: ASC cedes a large majority of its P&C risk and nearly half of its life insurance risks to reinsurance counterparties, providing adequate protection against major loss events. Fitch considers the credit quality of ASC's 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 ASC and the market, but these risks are unlikely to be material as Fitch expects most cessions to be with highly-rated global reinsurers.