Fitch Ratings has affirmed Al Sagr Cooperative Insurance Company's Insurer Financial Strength (IFS) Rating at 'BBB' and National Long-Term IFS Rating at 'A+(sau)' and removed them from Rating Watch Negative (RWN).
The Outlook on both is Negative.
The removal of the RWN reflects Al Sagr's implementation of remedial actions to address governance concerns raised by Insurance Authority (IA), the Saudi regulator, in February 2025, enabling the resumption of compulsory motor business sales that had been suspended earlier in the year.
The affirmation of ratings reflects the insurer's strong capitalisation and small size in the Saudi insurance market. The Negative Outlook reflects weakened financial performance and the residual risk that governance issues may not be fully addressed.
Key Rating Drivers
Compulsory Motor Business Sales Resumed: Al Sagr's corporate governance has improved following the implementation of remedial actions that enabled the resumption of compulsory motor policies sales in June 2025. IA had suspended sales earlier in the year, citing regulatory compliance and governance deficiencies. The suspension temporarily weighed on premium volumes, while the insurer continued to service compulsory motor policies. We do not expect the franchise to be materially affected by the suspension. We expect Al-Sagr to complete all remedial actions requested by the IA.
Small Saudi Insurer: Fitch's assessment of Al Sagr's company profile reflects the insurer's small operating scale and franchise. It had a market share of less than 1% in Saudi Arabia at end-2024. Its gross written premiums increased sharply to SAR602 million in 2024 from SAR472 million in 2023, supported by market wide volume increases. We expect the company's premium growth to moderate in 2025, reflecting the temporary suspension of compulsory motor sales earlier in the year.
Despite its small size, Al Sagr is a reasonably diversified insurer by product lines. At end-2024, Motor accounted for 50% of gross written premiums, followed by medical at 39%, and property and casualty lines at 11%. The company has taken actions to improve its pricing and underwriting policies, following a period of poor performance up to 2022, supporting our assessment of its business risk profile.
Volatile Financial Performance: Al Sagr reported a sharp deterioration in underwriting performance at end-1H25, after strong improvements in 2023 and 2024, with combined ratios of 112% (end-1H25), versus 93% (both at end-2024 and end-2023). The company posted a net loss of SAR33.3 million in 1H25, compared with a net profit of SAR32 million in 2024. The deterioration was driven by industrywide margin pressure and intense price competition in 1H25, with the temporary suspension of compulsory motor sales also weighing on earnings.
Tough competition in the motor and medical insurance markets is a major risk for Saudi insurers. We expect management's focus on underwriting profitable lines to help mitigate these pressures, but we also expect performance to remain volatile over the rest of 2025, given its small market share and, consequently, its limited ability to drive pricing trends in the domestic market.
Strong Capitalisation and Leverage: Al Sagr had a Prism Global score of 'Extremely Strong' at end-2024, versus 'Very Strong' at end-2023, following a SAR160 million rights issue in July 2024. As a result, its solvency ratio also improved, to 272% from 104%, over the same period. The solvency ratio remained strong, at 214%, at end-1H25, reflecting a strong capital base. Fitch expects Al Sagr to maintain a solvency ratio in line with its target of 200% over the medium term. The company's financial leverage ratio was zero at end-1H25, supporting our assessment of its capitalisation and leverage.
Good Reserving Practice: The majority of Al Sagr's policies are short tailed, which helps limit the impact of large negative claims development on reserve adequacy. The company establishes its reserves at best-estimate levels, based on regular evaluations of historical performance and anticipated claims experience.
Adequate Reinsurance Protection: Al Sagr's reinsurance protection is adequate, driven by the good credit quality of counterparties and low exposure to catastrophe risk. The company retained about 97% of its motor and 93% of its medical insurance premiums in 2024. Conversely, it cedes over 50% of its property and casualty premiums. This is in line with the retention or cession levels of other Saudi insurance companies. The insurer's reinsurance arrangements provide adequate protection against major loss events and support earnings.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Failure to maintain good financial performance, as reflected in a combined ratio consistently above 100%
Failure to maintain adequate corporate governance on a sustained basis
Significant deterioration in capitalisation
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
The Negative Outlook will be revised to Stable if Al-Sagr's financial performance improves, as reflected in a combined ratio sustainably below 100%, alongside the successful and sustained resolution of corporate governance issues
Strong and sustained underwriting performance
Sustained improvement in company profile, indicated by a large improvement in market share and franchise, while maintaining a strong capital position
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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