Regulatory update: Saudi reinsurers to have priority on reinsurance cessions

As part of the ongoing strategy to enhance the insurance sector in the Kingdom of Saudi Arabia (“KSA”), the Insurance Authority (“IA”) has recently issued new rules on reinsurance cessions. The IA, which is responsible for overseeing and regulating the country’s insurance sector, aims to enhance market stability and ensure compliance with its evolving regulatory framework.

Under the new rules, which take effect on 1 January 2025, local insurers will be required to offer at least 30% of their reinsurance cessions to domestic reinsurers for all classes of business before seeking coverage from international reinsurers. In practice, local insurers will first have to approach licensed domestic reinsurers, giving them the right of first refusal on the cessions. Presumably, and subject to further clarification on the implementation of the new rules, should these domestic reinsurers decline, local insurers can then seek reinsurance from foreign markets.

This change is expected to have a significant impact on the financial landscape for domestic reinsurers in the region. Following the announcement, The Saudi Reinsurance Co., a leading regional reinsurer, has already indicated that it expects the new regulations to boost its reinsurance revenues in KSA by more than 5%, with the impact expected to be reflected in the company’s earnings as early as the first quarter in 2025.

The new rules provide domestic reinsurers with an opportunity to capture a larger share of the reinsurance market, strengthening their financial position and market presence. This development aligns with KSA’s broader goal of economic diversification and reducing reliance on foreign entities and revenues from the oil and gas industries. By encouraging the retention of more reinsurance activity within the country, the new rules are expected to support the growth of the local economy and contribute to the expansion of local financial services.

For local insurers, these changes could result in stronger relationships with domestic reinsurers, fostering a more integrated approach to risk management. However, international reinsurers may face greater competition, as they will, presumably, only be able to access the remaining 70% of cessions after local players have exercised their right of first refusal. At the same time, there may be opportunities for international reinsurers to collaborate with domestic reinsurers to offer more comprehensive solutions, while ensuring compliance with the new rules.

Overall, the regulatory update is set to drive increased collaboration between local insurers and reinsurers, enhance the capacity of domestic reinsurers, and shift the dynamics for international reinsurers in the region. As the market adjusts to these changes, stakeholders will have to reassess their strategies to capitalise on emerging opportunities and navigate the evolving regulatory landscape. The implementation of the new rules is an ongoing process, and as the industry adapts, further details and clarifications are anticipated to emerge.