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Saudi Arabia: Insurers face headwinds as drop in claims from lockdown seen as temporary

the Kingdom of Saudi Arabia faces many challenges after benefiting from the reduction in claims in the first half of the year due to the lockdown caused by the Coronavirus in the country.

Insurance claims decreased 9% in the first half of 2020, compared to the corresponding period of the previous year, resulting in 31 active primary insurance companies in Saudi Arabia reporting a more than 1.6-fold increase in revenue total net for this period.

"Future claims and lower premiums are likely to erode some of the windfall gains for Saudi insurers for the rest of the year," said Mohamed Ali Lundy, Moody's associate vice president in Dubai. "The country's Insurance Regulatory Authority has directed insurance companies to extend auto policy coverage during the lockdown period, which means that insurance companies will have to cover existing policyholders for two months for free." .

Insurance companies also offer steep discounts to customers without claims in an effort to maintain the auto business. Additionally, some medical procedures that were suspended during the lockdown will likely be rescheduled, leading to more health claims for the remainder of the year.

This will lead to lower written premiums or higher claims on auto and medical insurance, which will lead to higher loss rates on the two largest lines of insurance in the Kingdom of Saudi Arabia.

Saudi insurance companies are also facing a slowdown in economic growth, exacerbated by falling oil prices, which will reduce demand for non-mandatory insurance. This will intensify competitive pressure and influence prices. And interest rate cuts, along with weak equity markets and potential falls in real estate values, will reduce investment income for Saudi insurance companies.

Additionally, Saudi insurance companies face a possible increase in minimum capital requirements. This organizational change, along with future accounting changes, will encourage consolidation, according to Moody's.