The Saudi Central Bank (SAMA) has issued a circular directing the implementation of a new reinsurance cession mechanism in the local market.
The mandatory cessions, with effect from 1 January 2023, will be at least 20% in 2023, 25% in 2024, and 30% in 2025, for all reinsurance treaties (proportional and non-proportional).
The objective is to increase the insurance sector’s contribution to the local market in covering risks.
In a statement lodged with the Saudi stock exchange Tadawul, Saudi Re — the only locally incorporated reinsurer in the Saudi market — says that the new regulation would increase the company’s written premiums from the Saudi market by more than 5% of the total GWP (based on 2021 financial-year results).
The reinsurer expects the positive impact of the SAMA decision to start to be shown in the financial results of the company in the first quarter of 2023.
Mr. Fahad Al-Hesni, managing director and CEO of Saudi Re, told the local media that the new requirement will enable the Saudi market to increase the retention of insurance premiums locally, reinvest them locally, and reduce dependence on foreign markets. "This enhances the sector’s contribution to the GDP in addition to creating additional job opportunities in the insurance sector,” he added.
Commenting on Saudi Re, he said, "The company has succeeded in expanding to global markets and has achieved a presence in more than 40 markets, but the Saudi market is the main market for the company, from which it derives a competitive advantage as it specializes in reinsurance in the Kingdom."
He said that the cession mechanism would enhance the opportunities for the company's expansion abroad because of the boost given by the comparative advantages the reinsurer enjoys in the Saudi market.