Price competition remained intense in the Saudi Arabian medical and motor insurance markets throughout 2024, says Fitch Ratings. However, the global credit rating agency expects The Company for Cooperative Insurance's (Tawuniya) underwriting discipline and scale benefits to help maintain the insurer's very strong financial performance over the medium term.
Fitch has affirmed Tawuniya’s Insurer Financial Strength (IFS) Rating at 'A' (Strong). TheoOutlook is ‘Positive’. Simultaneously, Fitch has affirmed Tawuniya's National IFS Rating at 'AAA(sau)'. The outlook on the National IFS Rating is ‘Stable’.
The affirmations reflect Tawuniya's leading business franchise in Saudi Arabia, strong and improving financial performance as well as strong capitalisation and leverage, says Fitch.
The ‘Positive’ outlook on Tawuniya's IFS Rating reflects a likely upgrade in the next 12 months, if Tawuniya consolidates its Prism Global model score within the 'Strong' category, while maintaining its financial performance at current levels, underpinned by robust, profitable growth and prudent underwriting standards.
Fitch lists several major drivers of Tawuniya’s ratings. They include:
Strong, Improving Financial Performance: Tawuniya's Fitch-calculated net income return on equity (ROE) improved to 25% in 2024 (2023: 18%, 2022: 10%), supported by strong underwriting performance and resilient investment income. Its Fitch-calculated non-life combined ratio improved to 94% in 2024 (2023: 96%, 2022: 97%), supported by prudent pricing.
Strong Capitalisation and Leverage: Tawuniya's Prism score was 'Strong' on a pro-forma basis at end-1Q25, driven by strong growth in earnings. At end-2024, it marginally declined to the high end of the 'Adequate' category from 'Strong' at end-2023, as growth in premium and asset risk charges outpaced increases in available capital, reflecting strong growth in insurance revenue and an increased allocation to equity investments.
Fitch expects Tawuniya's Prism score to be maintained in the 'Strong' category, supported by strong earnings. However, excessive business growth or higher allocation to riskier investments may pressure the Prism score, if not supported by adequate capital growth. Tawuniya's solvency ratio remained above the 100% regulatory minimum at end-2024. Tawuniya has no financial debt, which Fitch sees as supportive of the company's strong capital position.
Leading Franchise in Saudi Arabia: Fitch's view of Tawuniya's company profile reflects its large operating scale and leading business franchise. It is the largest insurer in Saudi Arabia by gross written premiums (GWP) and recorded an 8% increase in GWP in 2024 to SAR19.8 billion, supported by growth in medical and property and casualty (P&C) lines. Tawuniya's leading competitive positioning is also helped by its 26% state ownership through the General Organisation for Social Insurance, a government-owned entity.
Well Diversified by Product Lines: Fitch regards Tawuniya as a well-diversified insurer by product lines compared to its peers in the Saudi Arabian insurance market. This assessment is supported by the company's growing diversification into motor and P&C lines, despite a material concentration in medical insurance, which is in line with the industry due to its compulsory nature.
Strong Reinsurance Protection: Tawuniya cedes most risks pertaining to the P&C lines to reinsurance counterparties, providing adequate protection against major loss events, while contributing to lower earnings volatility. Fitch views the credit quality of Tawuniya's reinsurance panel as strong and its exposure to catastrophe risk as low.
Fitch expects that counterparty risks for both Tawuniya and the broader insurance market may increase following the government's requirement for insurers to allocate 30% of reinsurance cessions to local reinsurers, granting them the right of first refusal. However, the increase is unlikely to be material as the credit rating agency expects most cessions to be with highly rated global reinsurers.