Riyadh – Mubasher: Moody's Investors Service said on Tuesday the Saudi insurance industry faces various challenges after benefiting from reduced claims in the first half (H1) of 2020 due to the country's coronavirus-induced lockdown.

Insurance claims decreased an expected 9% in H1-20 on a yearly basis, leading to Saudi Arabia's 31 active primary insurers to report an increase of more than 1.6x in their aggregate net income for the period.

"Future claims and lower premiums will likely erode some of the one-off gain for Saudi Insurers over the remainder of the year," said an assistant vice president (AVP) at Moody's in Dubai, Mohammed Ali Londe.

He continued, "The nation's insurance regulator has directed insurers to extend cover on motor policies for the period of the lockdown, meaning that insurers will have to cover their existing policyholders for two months for free.”

Insurers are also providing significant discounts to customers with no claims in an attempt to retain motor business. Moreover, some medical procedures that were put on hold during the lockdown will likely be rescheduled. 

This will result in lower written premiums or higher claims in motor and medical insurance, hence, raising loss ratios in the kingdom’s biggest two insurance lines.

The Gulf nation’s insurers also face sluggish economic growth, intensified by lower oil prices. Interest rate cuts, combined with weaker equity markets and likely declines in real estate values, will also crimp Saudi insurers' investment income.

Furthermore, Saudi insurers face a likely rise in their minimum capital requirement. This, coupled with future accounting changes, will encourage consolidation, according to Moody's.