Global Arab Network | Saudi insurance markets withstand regulatory restructuring and the global economic downturn

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Saudi insurance markets withstand regulatory restructuring and the global economic downturn

Global Arab Network - - Maha Karim

Thursday, 30 April 2009 13:01

In the spring of 2009, uncertainty remains the dominant theme for insurance companies and banks across the Gulf Cooperation Council (GCC) region, as it does internationally, Standard & Poor's Ratings Services noted in a report, titled "Insurance Markets In Saudi Arabia In The Wake of Regulatory Restructuring And The Global Economic Downturn."

Even within the GCC, however, Standard & Poor's detects a widespread belief that the Kingdom of Saudi Arabia (KSA) and its financial institutions have been less affected by the downturn than most of its neighbors, and that recovery will likely come more quickly there than elsewhere. Meanwhile, the ongoing flow of Initial Public Offerings (IPOs) on the Tadawul Stock Exchange in Riyadh in 2009--including the April IPOs of insurers Al Rajhi, Weqaya, ACE Arabia, and AXA Cooperative to raise a cumulative Saudi Arabian riyal 260 million (approximately $69 million) of new capital--indicate that Saudi investors still have considerable liquid assets with which to support attractive business propositions.

In our opinion, it is testament to the underlying strength of the national economy and to the quality of both management and regulation that no Saudi-based insurers or banks have succumbed to serious financial difficulties during the current economic turmoil, though some of the nonbank investment houses have experienced some pressures. Meanwhile, deposit rates at local banks have remained low, indicating that liquidity has been satisfactory and confidence maintained.

This is despite a collapse in the oil price from its 2008 peak of around $150 per barrel down to current levels just below $50, and the astonishing 56.5% fall in the Tadawul All Share Index (TASI) during the 2008 calendar year or, more starkly, a fall of 63.5% from the TASI's Jan. 12, 2008, high of 11,697.01 and fourth quarter low of 4,264.52. Nevertheless, the fundamental strength of KSA's economic base throughout this period of boom and bust is indicated by Standard & Poor's consistent, very strong 'AA-/Stable/A-1+' sovereign credit ratings on the country.

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