Taipei, 14 July 2008
Saudi Arabian Monetary Agency
Consumer Issues and Natural
Disasters: KSA regulator’s perspective
Presentation to the 44th Annual Seminar of the International Insurance Society
Overview of the Saudi Economy
Zoom on the Insurance Industry
Natural Disasters Risk Management in KSA
1
The Kingdom of Saudi Arabia occupies 80% of the Arabian
Peninsula and is flanked by the Arabian Gulf and the Red Sea
Kingdom of Saudi Arabia
Country Snapshot
Lebanon
 1,960,582 square kilometers
Syria
 13 provinces or mintaqat
Iraq
Jordan
 Population of 24.2 million of which 50% is
under the age of 20
Kuwait
Egypt
Qatar
UAE
Saudi Arabia
 2,640 km of coastline
 Common boundaries with Kuwait, Iraq,
Jordan, Yemen, Oman, the United Arab
Emirates and Qatar
 Life expectancy of 69 years
Oman
Yemen
Source: Saudi Arabian Monetary Agency, World Bank Country Database
 Literacy rate of 78%
 National language is Arabic
2
The Saudi economy remains highly dependant on Oil and Gas
although government initiatives are helping other sectors develop
Snapshot of the Saudi Economy
Gross Domestic Product by Economic
Sectors at Producer’s Values in Current Prices
(in Billion USD - 2006)
Economy Snapshot
Overall
 GDP = USD 357 Billion
 > 18,000 companies
 > 695,000 individual establishments
14%
Oil & Gas
174.9
(49%)
Non-Oil & Gas
182.1
(51%)
Government Services
9%
Financial Services
8%
Manufacturing
Wholesale &Retail
Construction
Communication
Agriculture
Other
5%
4%
3%
3%
4%
Banking Sector
 18 banks, 1,361 branches
Insurance Sector
 22 insurance companies (1)
(1) Number of insurance companies having obtained a Royal Decree, which constitutes one of the last steps of the licensing process
Source: Ministry of Economy and Planning, World Bank Database, ISD team analysis
3
The financial sector is regulated by the Saudi Arabian Monetary
Agency (SAMA) and the Capital Markets Authority (CMA)
Roles of SAMA and the CMA
Role of the Central Bank (SAMA)
Role of the Capital Markets Authority
Banking Supervision
Insurance Supervision
 Regulate and monitor the
activities of banks, e.g.:
– Conduct inspection of banks’
registers and records regularly
– Conduct on-site examination
and inspection programs
– Evaluate banks’ policies and
procedures
– Verify banks’ compliance with
laws and regulations
 Protect the general public from
unfair and fraudulent banking
practices
 Regulate and monitor full
disclosure of information
 Create an environment in which
policyholders can buy insurance
and have confidence that they will
be treated fairly
 Ensure the market is:
– Competitive to ensure
equitable prices
– Stable to minimize
unnecessary losses
– Efficient and effective so that
(1) insurers can invest and
disinvest under any
circumstance to maximize
opportunities and (2) fair and
transparent prices are available
to buyers and sellers and that
assets are priced as accurately
as possible
 Regulate and develop the capital
market
 Protect investors and the general
public from unfair and fraudulent
practices
 Achieve fairness, security, efficiency
and transparency in transactions
 Develop, regulate and monitor the
issuance and trading in securities
 Regulate and monitor the activities of
entities subject to the control of the
CMA
 Regulate and monitor full disclosure
of information
 Regulate proxy and purchase
requests and public share offerings
4
The Saudi insurance market grew significantly since 2002 and in
particular after the introduction of the insurance Law
Comments
Market Evolution
Gross Written Premiums
(2002 – 2007)
(USD Million)
Overall CAGR = 23%
 The introduction of the Law on Supervision of
Cooperative Insurance Companies late in 2003
served as a catalyst that facilitated the
development of the market.
+177%
2,289
87
+32%
1,850
58
+10%
Protection
& Savings
Health
General
977
827
226
593
2002
8
210
1,374
51
365
996
12
243
755
722
2003
2004
817
593
 The CAGR grew from 10% between 2002 and
2004 to 32% between 2004 and 2007.
1,199
 General and health insurance accounted for
60% and 36% of total GWP in 2007,
respectively.
31
957
2005
 The overall insurance GWP reached USD 2.3
Billion in 2007, compared to USD 0.83 Billion in
2002. This translates into a growth rate of
+177% and an overall Compounded Annual
Growth Rate (CAGR) of 23%.
1,384
 Protection and Savings insurance remained a
small market reaching USD 87 Million in 2007.
2006
2007
Source: The Annual Survey of the Saudi Insurance Market (2003), The Saudi Insurance Market Survey Report (2007), ISD Team analysis
5
The market continues to demonstrate growth potential due to
favorable economic conditions and compulsory motor and health
Market Penetration and Density
Growth
Insurance Penetration
(2005 – 06 – 07)
(% of GDP)
0.44%
0.02%
0.12%
0.53%
0.02%
0.17%
0.61%
0.02%
Protection
& Savings
0.22%
Health
 The market growth was driven by the demand
growth for general insurance and health insurance
which reflects, in large part, the enforcement of
compulsory health insurance regulations.
39%
0.30%
0.34%
0.37%
2005
2006
2007
Observations
 The Kingdom continues to enjoy solid underlying
growth drivers for the insurance market:
– Strong macroeconomic growth
General
– Young population
– Overall growth of the financial sector
Insurance Density
(2005 – 06 – 07)
(USD per Capita)
60
2
78
2
25
– Compulsory insurance classes
94
4
Protection
& Savings
34
Health
59%
16
42
2005
51
57
2006
2007
Source: The Saudi Insurance Market Survey Report (2007)
General
 Insurance penetration remains low compared to
other countries. Insurance penetration is defined as
Gross Written Premium as a percentage of Gross
Domestic Product (GDP). The level of insurance
penetration in Saudi Arabia was 0.44% in 2005 and
increased to 0.61% in 2007.
 Insurance density is defined as Gross Written
Premium per Capita. The insurance density
increased from USD 60 in 2005 to USD 94 in 2007,
an increase of 59%.
6
Saudi Arabia is exposed to several natural disaster risks
Description of Natural Disaster Risks in KSA
Risk
Description
Stampedes
 Risk of sudden panic followed by a rush of large crowds in confined spaces causing numerous
fatalities
Epidemics
 Risk of a widespread occurrence of disease that takes place in certain regions of the country
causing numerous deaths
Oil Fires
 Risk of major fire at oil excavation or refinement sites
Floods
 Risk of water overflow, which in Saudi can take place in the valleys surrounding Medina and
Makah
Earthquakes
 Risk of earthquake that is common to Saudi Arabia given its position in the Arabian Plate
Sandstorms
 Risk of windstorm that lifts up clouds of dust or sand, reducing visibility and causing a wide array
of accidents and damage
Droughts
 Risk of an extended period of water deficiency due to limited precipitation and severe hot weather
7
The largest natural disasters to hit Saudi Arabia in the last 20 years
amounted to thousands of fatalities
Natural Disasters in KSA in the Last 20 Years
Event
Date
Fatalities
Stampede - Stampedes taking place at the annual Hajj pilgrimage in Mecca
 1990, 2004, 2006
2,030
Epidemic - Rift Valley fever
 September 2000
85
Epidemic - Meningococcal disease outbreak occurs coinciding with
international travel during the Hajj
 March 2000
57
Fire - Fire caused by a gas leak near the Hawiyah natural gas liquids plant
 November 2007
40
Flood - Flood water gushing through the deep valleys around Medina,
resulting from a powerful storm during the final days of the Hajj
 January 2005
29
Earthquake - A 6.3 magnitude earthquake and 7,000 aftershocks caused
significant damage in the town of Haql
 1995
Total
Last 20 years
Source: The Office of U.S. Foreign Disaster Assistance / Centre for Research on the Epidemiology of Disasters International Disaster Database
Not Available
~ 3000
8
At the moment, SAMA requires insurance companies to address
natural disasters in 3 different ways
Arrangements for Insurers to Address Natural Disasters in KSA
Natural Disasters Arrangements
Description
1

Preparing a Natural
Disaster
Risk Management Plan

Insurance companies are required to set up a natural disaster
risk management plan prior to obtaining their license from SAMA
This plan includes developing a risk map to identify the exposure
to natural disasters by region, and setting policy prices in that
region accordingly
2
Transferring Natural
Disaster Risks

Insurance companies are required to include natural disaster
coverage in their reinsurance arrangements prior to obtaining
their license

Insurance companies are required to include natural disaster
reserves as part of their technical provision as per the insurance
Implementing Regulations
3
Reserving for Natural
Disasters
9
To ensure effective natural disaster risk management, SAMA aims
to play a cornerstone role at three different levels
Role of SAMA with Regard to Natural Disaster Risk Management
Description of the Role of SAMA
At the National Level

Help establish government programs and contingency
plans



Ensure solvency of market players
Ensure availability of natural disaster related coverage
Ensure the availability of natural disaster re-insurance


Educate/ build public awareness
Ensure affordability of natural disaster insurance products
 In association with all relevant
government authorities and services
At the Insurance Market Level
 With insurers, intermediaries, and
other service providers
At the Policyholder Level
 With insurance policyholders and the
general public as a whole
10
In the long run, SAMA is considering implementing one or several
additional natural disaster risk management approaches
Natural Disaster Risk Management Approaches
Approach
Description
 Assess the potential risks of a large-scale natural disaster across multiple locations,
allowing to gain valuable insight into risk exposure in complex scenarios
1
Modeling
2
Pooling
 Split the risks of natural disaster between several members of a pool
3
Funding
 Compensate natural disaster victims by taping into a pool funded by policyholders’
premium surcharges
4
Investment
5
Capital Adequacy
 Investing in natural disaster risk mitigation techniques (e.g., earthquake resistant
buildings)
 Maintain a high enough capital adequacy ratio to provide protection against natural
disaster risks
11
Thank you
for your attention…
12