Saudi Arabia’s Insurance Sector Braces for Consolidation Amid Regulatory Pressure and Rising Costs

Saudi Arabia’s insurance industry is poised for significant consolidation as smaller firms struggle to cope with tightening capital requirements and intense price competition, according to a new report from Fitch Ratings.

The international ratings agency expects a rise in mergers and acquisitions as regulatory reforms and operational pressures reshape the sector. Many smaller insurers are now in talks with larger firms in a bid to strengthen their capital base and ensure long-term survival.

“This consolidation wave will ultimately be credit positive for the industry,” Fitch said, “but the short-term impact will include increased compliance costs and margin pressure.”

The changes follow the establishment of the Saudi Insurance Authority in November 2023, which assumed regulatory oversight from the Saudi Central Bank and the Council of Health Insurance. The move is part of a broader effort to modernize and stabilize the sector under Saudi Vision 2030.

Despite the growing pains, the insurance market continues to expand. KPMG’s Saudi Arabia Insurance Overview 2025 revealed a 16.9 percent year-on-year increase in total revenue in Q3 2024, driven by compulsory health coverage, motor insurance, and booming property development.

Health insurance, which makes up about 60 percent of the market, saw a 13.6 percent increase in revenue during the same quarter. Motor insurance premiums rose by more than 20 percent, buoyed by robust vehicle sales. Meanwhile, property and casualty insurance posted similar growth thanks to the Kingdom’s large-scale construction activity.

However, profitability remains under strain. Medical inflation — driven by rising costs of healthcare services, labor, and technology — has eaten into margins. Fierce competition continues to keep prices low, making it difficult for insurers to improve their combined ratios.

Fitch reported that of the 10 largest insurers in Saudi Arabia, only six reported underwriting profits in the first quarter of 2025 — and several of those were marginal. The remaining four posted underwriting losses, highlighting the operational pressures even large players face.

Motor insurance, the second-largest segment after health, continues to suffer from aggressive pricing, especially for compulsory third-party policies.

Adding to the complexity, a new regulation effective January 2025 requires insurers to cede 30 percent of their reinsurance to domestic firms. The measure is aimed at strengthening the local reinsurance market, though it may temporarily increase counterparty risk due to local reinsurers’ smaller capital reserves.

Fitch concludes that consolidation will be essential to creating a more resilient and competitive insurance market in Saudi Arabia — one better equipped to support the Kingdom’s Vision 2030 economic transformation.