JEDDAH: Following a series of rights issues during 2014 and 2015, many local insurers are now actively choosing to operate at a stronger level of capitalization than in the past, according to a top rating agency.
“We believe gross premiums in Saudi Arabia could rise by nearly 25 percent in 2015, principally fueled by tariff increases, to over SR35 billion ($9.3 billion) for the full year,” said a press release from Standard and Poors Ratings Services.
“We expect the third quarter and 2015 year-end results to confirm the generally improving earnings trend of the past 18 months,” it stated.
“There are still no signs of any of the 34 companies in Saudi Arabia’s crowded insurance sector attempting to overcome legal and financial impediments to mergers and acquisitions,” said the agency.
“Although performance varies considerably among the 34 companies, Standard & Poor’s Ratings Services considers that the general trend is a positive one, encompassing improving tariffs, increasing earnings, enhanced capitalization, and growing total premium volumes,” said the report.
The S&P team explained they they expect the sector’s full-year 2015 gross premiums to be about 25 percent higher than those in 2014, largely because of price increases on the main insurance lines — group medical and motor.
“Growing demand for insurance in the near term, combined with regulatory encouragement of highly prudential “actuarial pricing” after the price war of 2012-2013, means that Saudi Arabia’s insurers are showing few signs of being affected by the fall in oil prices, though the subject of oil revenues remains a central concern at sovereign and macroeconomic levels,” said the report.
“Oil prices may have fallen well below $50 per barrel over the past 12 months — they routinely reached $115 per barrel (Brent Index) in mid-2014 — but Saudi insurers write relatively little commercial or industrial risk business, and retain less,” the report pointed out.
“Consequently, we consider that the strong growth in sector premiums is likely being driven by the demographics of an expanding population. There are some 30 million to 20 million Saudi nationals, plus 10 million foreign workers and dependents, who increasingly require insurance cover for their possessions and travel,” said the S&P report.
“Additionally, many local employers are now offering their Saudi staff access to the same group medical cover that is compulsory for their foreign colleagues,” it added.
Nearly all Saudi insurers are experiencing clear earnings benefits from the improved pricing environment in their single, domestic market.
The often underpriced business written during the 2012-2013 price war is running off and the more attractive margins on more recent business are emerging as profit. This takes time in Saudi Arabia because insurers typically hold sizeable unearned premium reserves and it is compulsory, but often technically redundant, to hold bad and doubtful debt provisions on all premium income deferred by more than 90 days from contract inception, S&P added.
Total results for H2 2015 are likely to comfortably exceed the SR183.2 million of post-tax comprehensive earnings reported for H1 2015, although performance will continue to vary greatly from company to company, according to S&P.
“Many insurers have told us that they have seen robust rate rises of 15 percent — 20 percent or more in 2015. Of Saudi Arabia’s 34 local insurers, 21 reported positive comprehensive net income for the first half of 2015 totaling SR602.0 million, while 13 reported cumulative first half losses of SR418.8 million,” added the report.
In most cases, those companies reporting losses despite the increasingly attractive pricing environment are relatively recent start-up companies such as MetLife, AIG & ANB Cooperative Insurance Co., which commenced active trading in 2014, or health insurance specialist, Saudi Enaya Cooperative Insurance Co., which became operational in 2013 but only wrote SR36.3 million of gross premiums during the first half of 2015.
In such cases, the high fixed costs, charges, and taxes associated with operating in Saudi Arabia will continue to consume pretax income until business volumes and margins rise sufficiently to help generate an overall profit. That said, internal operational and administrative issues have also affected some companies, leading to losses at several longer-established insurers, where the underlying book f business could normally be expected to generate robust earnings in current market conditions.
The report said that Tawuniya, BUPA Arabia, and MedGulf booked a full 52.4 percent of all the premium written in Saudi Arabia during the first half of 2015.
Over the same period, the top 15 insurers wrote SR16.2 billion or 85.2 percent of the sector’s total gross premiums of SR19.0 billion. Little premium was left for the sector’s other 19 companies.
“We do not expect the business breakdown to change much in 2015 and 2016, compared with 2014. In 2014, medical insurance comprised 51.6 percent of the sector’s GPW and 60.2 percent of net premium written, and motor accounted for 26.3 percent of gross and 31.2 percent of net premiums. Thus, these two lines together represented over 90 percent of all net retained business in Saudi Arabia. In our view, primary insurers will continue to cede most of their commercial and industrial exposure to international reinsurers, given the attractive rates and commissions available in the current soft reinsurance market,” S&P said.
Tariff increases and new business to boost Saudi insurance sector
Tariff increases and new business to boost Saudi insurance sector
Saudi PIF on track to reach $2tn in AuM, 2nd-largest globally by 2030
RIYADH: Saudi Arabia’s Public Investment Fund is set to be ranked second among the world’s sovereign wealth bodies by 2030 with $2 trillion in assets under management, according to monitoring organization Global SWF.
A report from the firm forecasts PIF will more than double its current AuM value of $925 billion by the end of the decade, and rise from its 2024 ranking of sixth among global state-owned investor funds.
According to projections from the institute, PIF’s AuM in 2030 will represent 10.5 percent of the global sovereign wealth funds’ total assets, which are set to reach $19 trillion, as it rises from sixth place
Diego Lopez, founder and managing director at Global SWF, said: “Capital attracts capital — so international financial institutions are attracted in partnering with a player with such a huge balance sheet and role in the economic development.”
According to the report, to achieve its ambitious goal of reaching $2 trillion by 2030, the PIF will depend on a combination of strategies. These include oil revenue allocations, which refer to the portion of the Kingdom’s oil earnings transferred to the PIF, debt issuance, and returns generated from its investments.
“Saudi Arabia needs to make its capital base sustainable, diversified and resilient to lower levels of oil prices,” Lopez told Arab News.
“That means raising debt, as PIF has been doing, and eventually raising equity through subsidiaries that can act as asset managers — we see this working very well in Abu Dhabi with Mubadala Capital, Lunate, etc,” he added.
According to the report, the PIF’s 10-year annualized return from 2013 to 2022 stood at 6.9 percent, outperforming the sovereign wealth fund average of 5.7 percent annually.
In 2024, the global economy showed resilience despite geopolitical risks and market uncertainties, with global GDP growth projected at 3.2 percent, slightly improving to 3.3 percent in 2025, according to the OECD.
The International Monetary Fund forecasts a subdued five-year outlook of 3.1 percent, reflecting weaker growth in China, Latin America, and the EU. Developed markets are facing slower growth due to tightening monetary policies, while developing economies maintain greater stability.
Central banks, led by the US Federal Reserve, began easing rates in 2024, responding to reduced inflationary pressures. According to the report, as the global economy adapts, sovereign wealth funds are increasingly focused on capital preservation and stimulating foreign direct investment, with those in the Middle East and North Africa region entering a new phase of growth.
Saudi Arabia offers robust economic expansion fueled by diversification initiatives and ambitious mega-projects like NEOM, the Red Sea Project, and Qiddiya.
PIF’s investments are strategically positioned to capitalize on these high-growth areas, making it a gateway for investors seeking exposure to dynamic emerging market opportunities.
GCC sees greater international attention
According to the report, global sovereign wealth funds have, for the first time, surpassed $13 trillion in assets under management, with capital heavily concentrated in two key regions — the Gulf Cooperation Council, holding 38 percent of the total, and Southeast Asia at 10 percent.
Interest in these powerful global investors remains strong, the report said, drawing heightened international attention to the GCC, a region with fewer than 60 million residents.
Previously named the “Region of the Year” by Global SWF, the GCC has seen a wave of global asset managers and bankers establishing local offices to capitalize on burgeoning opportunities. According to the report, the GCC-Southeast Asia axis is expected to continue driving growth across the sovereign wealth landscape.
PIF represented 7.11 percent of MENA’s sovereign wealth funds’ AuM, with assets totaling $925 billion.
Leading the rankings is Abu Dhabi Investment Authority at $1.11 trillion, followed by Kuwait Investment Authority with $969 billion.
Global sovereign wealth fund investments totaled $136.1 billion across 358 transactions in 2024. The “Oil Five” — ADIA, ADQ, PIF, QIA, and Mubadala — maintained their dominance, together accounting for 60 percent of the total investment value, amounting to $82 billion. As a result, they secured positions among the top 19 dealmakers of the year.
This marks a significant rise from $74 billion in both 2023 and 2022, $41 billion in 2021, $39 billion in 2020, and $28 billion in 2019, reflecting the accelerating investment momentum of these sovereign wealth giants.
While some Gulf sovereign wealth funds leaned toward emerging markets, including their domestic economies, developed markets remained the dominant choice for most global sovereign investors.
Saudi Arabia’s PIF, Abu Dhabi’s ADQ, and Qatar’s QIA exhibited a preference for emerging markets, reflecting their strategic focus on regional and high-growth economies.
PIF investments
According to the report, a significant factor driving the PIF’s growth is its projected boost in domestic spending to $70 billion annually by 2025.
The fund’s investment strategy is focused on high-growth sectors, including infrastructure, digitalization, AI, and renewable energy.
Among the top 15 largest global investments by sovereign wealth funds in 2024 was PIF’s $3 billion acquisition of a 51 percent stake in Saudi Arabia’s TAWAL and $2.16 billion of a 40 percent stake in Selfridges in the UK.
Other significant investments for the PIF include a 15 percent stake in Heathrow Airport for $1.8 billion.
According to the institute, the largest deals are consistently pursued by a select group of funds known for their substantial firepower and risk appetite. This group includes the top 10 spenders, with the GCC’s “Big 5” leading the way.
Mubadala emerged as the leading sovereign investor in 2024, deploying $29.2 billion across 52 deals, a 67 percent increase from the previous year. It was followed by GIC at $26.6 billion, CPP with $21.1 billion, PIF at $19.9 billion, and ADIA at $17.1 billion.
PIF has also ventured into artificial intelligence and space, co-investing in Databricks and launching Neo Space Group to advance Saudi Arabia’s satellite industry.
These initiatives reflect the fund’s commitment to positioning Saudi Arabia as a leader in global digital and technological innovation.
PIF saw a 24 percent decline in its US equity portfolio, the report said. At the beginning of 2024, the fund sold shares in 18 companies worth nearly $13 billion, including pandemic-era investments like gaming giant Activision Blizzard, cruise leader Carnival, and entertainment company Live Nation, which yielded strong returns.
According to Lopez: “The sale of the listed equities was about monetizing a huge upside from their purchase during covid, rather than about decreasing the overseas portfolio.”
The expert noted the importance to recognize that while PIF’s domestic portfolio may be growing relative to its international holdings, the overall assets under management continue to expand, with significant investments being made outside the Kingdom.
PIF has also made significant investments in the electric vehicle sector, despite facing challenges with earlier ventures.
In 2019, PIF divested from Tesla but doubled down on Lucid Motors, placing a major bet on the EV manufacturer.
This strategic move has required substantial funding, including $2.8 billion in 2024 alone. Despite the financial commitment, PIF remains focused on its long-term vision for Saudi Arabia, supporting Lucid’s growth with a manufacturing facility in King Abdullah Economic City.
In January, Lucid Motors became the first global automotive company to join the Kingdom’s “Made in Saudi” program, reinforcing the country’s push to strengthen its industrial capabilities.
The program also supports Vision 2030’s goals of attracting investments, boosting non-oil exports, and creating sustainable jobs, while positioning Saudi Arabia as a hub for innovation and manufacturing in the EV sector.
PIF’s debt financing
On Jan. 6, PIF announced the completion of its inaugural $7 billion murabaha credit facility, supported by a syndicate of 20 international and regional financial institutions.
This Shariah-compliant financing structure is part of the fund’s medium-term capital raising strategy, aimed at diversifying its funding sources to support transformative investments both globally and within Saudi Arabia.
According to another report published by Global SWF in January, PIF’s use of debt financing mirrors a growing trend among sovereign wealth funds and public pension funds, which have raised around $700 billion over the past two decades.
Despite strong credit ratings from Moody’s and Fitch, PIF faces pressure from surging domestic investment in giga-projects like NEOM and Qiddiya, with annual funding needs expected to rise from $40 billion in 2023 to $70 billion by 2025.
Sustaining investor confidence will depend on its ability to manage financial obligations and execute Vision 2030 goals.
While markets currently support PIF’s sovereign-backed debt, delays or disruptions could strain resources and affect its ambitious agenda, making its financing strategy critical for both national economic transformation and global sovereign investment trends.
However, PIF’s diversified funding strategy, coupled with its ability to attract global partnerships, positions it as a transformative force capable of reshaping Saudi Arabia’s economic future and reinforcing its role as a leading driver of global investment innovation.
Oil Updates — crude jumps on concerns about more sanctions on Russia and Iran
LONDON: Oil prices surged on Friday and were on track for a third straight week of gains as traders focused on potential supply disruptions from more sanctions on Russia and Iran.
Brent crude futures gained $2.50, or 3.3 percent, to $79.42 a barrel by 3:48 p.m. Saudi time, reaching their highest in more than three months. US West Texas Intermediate crude futures advanced $2.39, or 3.2 percent, to $76.31.
“There are several drivers today. Longer term, the market is focused on the prospect for additional sanctions,” said Ole Hansen, head of commodity strategy at Saxo Bank. “Short term, the weather is very cold across the US, driving up demand for fuels.”
Ahead of US President-elect Donald Trump’s inauguration on Jan. 20, expectations are mounting over potential supply disruptions from tighter sanctions against Iran and Russia while oil stockpiles remain low.
This could materialize even earlier, with US President Joe Biden expected to announce new sanctions targeting Russia’s economy before Trump takes office. A key target of sanctions so far has been Russia’s oil industry.
The US weather bureau expects central and eastern parts of the country to experience below-average temperatures. Many regions in Europe have also been hit by extreme cold and are likely to continue to experience a colder than usual start to the year, which JPMorgan analysts expect to boost demand.
“We anticipate a significant year-over-year increase in global oil demand of 1.6 million barrels a day in the first quarter of 2025, primarily boosted by ... demand for heating oil, kerosene and LPG,” they said in a note on Friday.
Meanwhile, the premium on the front-month Brent contract over the six-month contract reached its widest since August this week, potentially indicating supply tightness at a time of rising demand.
Inflation worries are also delivering a boost to crude oil prices, said Saxo Bank’s Hansen. Investors are growing concerned about Trump’s planned tariffs, which could drive inflation higher. A popular trade to hedge against rising consumer prices is through buying oil futures.
Oil prices have rallied despite the US dollar strengthening for six straight weeks, making crude oil more expensive outside the US.
SABIC, Almarai, SEC able to absorb fuel price hike: S&P Global
RIYADH: Major Saudi companies, including chemical company SABIC, dairy firm Almarai, and Saudi Electric Co., are well-positioned to handle the impact of higher fuel and feedstock prices introduced on Jan. 1, according to a new report.
Released by capital market economy firm S&P Global, the analysis reveals that those corporates will be able to absorb the marginal increase in production costs by further improving operational efficiencies as well as potentially via pass-through mechanisms.
This came after Saudi Aramco increased diesel prices in the Kingdom to SR1.66 ($0.44) per liter, effective Jan. 1, marking a 44.3 percent rise compared to the start of 2024. The company has kept gasoline prices unchanged, with Gasoline 91 priced at SR2.18 per liter and Gasoline 93 at SR2.33 per liter.
Despite the hike, diesel prices in Saudi Arabia remain lower than those in many neighboring Arab countries. In the UAE and Qatar, a liter of diesel is priced at $0.73 and $0.56, respectively, while in Bahrain and Kuwait, it costs $0.42 and $0.39 per liter.
“For SABIC and Almarai, the increase in feedstock prices will not affect profitability significantly. In the case of utility company, SEC, additional support will likely come from the government if needed,” the report said.
The capital market economy firm projects that SABIC will continue to outperform global peers on profitability.
“We don’t expect the rise in feedstock and fuel prices to materially affect profitability, since the company estimates it will increase its cost of sales by only 0.2 percent,” the report said.
It further highlighted that SABIC is considered a government-related entity with a high possibility of receiving support when needed.
The report also underlines that Almarai anticipates an additional SR200 million in costs for 2025, driven by higher fuel prices and the indirect effects of increased expenses across other areas of its supply chain.
“We believe Almarai will continue focusing on business efficiency, cost optimization, and other initiatives to mitigate these impacts,” the release stressed.
With regards to SEC, S&P said that an unrestricted and uncapped balancing account provides a mechanism for government support, including related to the higher fuel costs.
“We believe any increased fuel cost will be covered by this balancing account,” the report said.
The study further highlights that the marginal increase “could significantly affect wider Saudi corporations’ profit margins and competitiveness.”
The S&P data also suggests that additional costs will be reflected in companies’ financials from the first quarter of 2025.
“Saudi Arabia is continuing its significant and rapid transformation under the country’s Vision 2030 program. We expect an acceleration of investments to diversify the Saudi economy away from its reliance on the upstream hydrocarbon sector,” the report said.
“The sheer scale of projects — estimated at more than $1 trillion in total — suggests large funding requirements. Higher feedstock and fuel prices would help reduce subsidy costs for the government, with those savings potentially redeployed to Vision 2030 projects,” it added.
Lenovo to produce ‘Saudi Made’ PCs by 2026 following $2bn Alat deal closure
RIYADH: Chinese tech giant Lenovo is set to manufacture millions of computer devices in Saudi Arabia by 2026, following the completion of a $2 billion investment deal with Alat, a subsidiary of the Public Investment Fund.
First announced in May, the partnership has now received shareholder and regulatory approvals, paving the way for Lenovo to establish a regional headquarters and a manufacturing facility in the Kingdom.
The deal marks a significant step in aligning Lenovo’s growth ambitions with Saudi Arabia’s Vision 2030 goals of economic diversification, innovation, and job creation, the company said in a press release.
The factory will manufacture millions of PCs and servers every year using local research and development teams for fully end-to-end “Saudi Made” products and is expected to begin production by 2026, it added.
“Through this powerful strategic collaboration and investment, Lenovo will have significant resources and financial flexibility to further accelerate our transformation and grow our business by capitalizing on the incredible growth momentum in KSA and the wider MEA region,” Yang said.
He added: “We are excited to have Alat as our long-term strategic partner and are confident that our world-class supply chain, technology, and manufacturing capabilities will benefit KSA as it drives its Vision 2030 goals of economic diversification, industrial development, innovation, and job creation.”
Amit Midha, CEO of Alat, underscored the significance of the partnership for both Lenovo and the Kingdom.
“We are incredibly proud to become a strategic investor in Lenovo and partner with them on their continued journey as a leading global technology company,” said Midha.
“With the establishment of a regional headquarters in Riyadh and a world-class manufacturing hub, powered by clean energy, in the Kingdom of Saudi Arabia, we expect the Lenovo team to further their potential across the MEA region,” he added.
The partnership is expected to generate thousands of jobs, strengthen the region’s technological infrastructure, and attract further investment into the Middle East and Africa, according to the press release.
In May, Lenovo raised $1.15 billion through the issuance of warrants to support its future growth plans. The initiative, which was fully subscribed by investors, signals confidence in Lenovo’s strategic approach and its plans for global expansion.
The investment deal was advised by Citi and Cleary Gottlieb Steen & Hamilton for Lenovo, while Morgan Stanley and Latham & Watkins represented Alat.
Lebanon’s bonds climb as parliament elects first president since 2022
LONDON: Lebanon’s government bonds extended a three-month long rally on Thursday as its parliament voted in a new head of state for the crisis-ravaged country for the first time since 2022.
Lebanese lawmakers elected army chief Joseph Aoun as president. It came after the failure of 12 previous attempts to pick a president and the move boosts hopes that Lebanon might finally be able to start addressing its dire economic woes.
Lebanon’s battered bonds have almost trebled in value since September when the regional conflict with Israel weakened Lebanese armed group Hezbollah, long viewed as an obstacle to overcoming the country’s political paralysis.
Most of Lebanon’s international bonds, which have been in default since 2020, rallied after Aoun’s victory was announced to stand between 0.8 and 0.9 cents higher on the day and at nearly 16 cents on the dollar.
They have also risen almost every day since late December, although they remain some of the lowest priced government bonds in the world, reflecting the scale of Lebanon’s difficulties.
With its economy still reeling from a devastating financial collapse in 2019, Lebanon is in dire need of international support to rebuild from the war, which the World Bank estimates to have cost the country $8.5 billion.
