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18
September
2025
Our research analyst, Tryfonas Spyrou, has just initiated on Saudi Arabia’s’ Insurance companies. Note attached. Let us know if you would like to chat with him. Rasan IT looks super interesting.
In our view, the Saudi insurance sector is currently nearing the bottom of its cyclical phase while simultaneously undergoing a structural transition. Despite strong premium growth, underwriting results have weakened due to fierce price competition in motor insurance and rising claim costs in health insurance. As a consequence, sector-wide ROEs peaked in FY 2023-H1 2024 and have declined since, while the performance gap between the top three players (Tawuniya, Bupa, and Al Rajhi Takaful) and smaller peers has widened significantly. As a result, and coupled with poor sentiment for Saudi stocks, the insurance sector is in a c31% drawdown and it appears to be near a bottom. Meanwhile, we believe the sector is on the verge of multi-year consolidation, as regulatory capital requirements are set to become more stringent amid declining capital levels for small carriers. We think this is positive for the sector leaders and should result in a less cyclical market in the medium to long term, as competition becomes more rational.
We initiate on Tawuniya and Rasan IT with BUY ratings and on Bupa with a HOLD. In the near term, we believe Rasan is the best way to get exposure to the growing sector, while Tawuniya is the best play for the cyclical recovery.
Performance gap is widening, opportunity looms as a cyclical sector is near a trough: At H1 2025, underwriting profit across the sector was down c34% yoy, driven entirely by players outside the top 3, as the performance gap widened. Coupled with the prospect of lower investment yields, smaller players must soon react by raising prices to offset underwriting losses. We believe evidence of prices increases in motor and/or an improved sentiment on Saudi stocks should act as positive catalysts for the sector. Given the sector returned 146% (trough-to-peak) in the previous cycle, investors can capitalise on the upcoming recovery.
Tawuniya (BUY, TP SAR 154): market leader primed to capitalise: We like Tawuniya for its market-leading position and strong franchise and see it as the best placed to capitalise on the cyclical sector recovery in late 2025 and into 2026. The valuation is now attractive (14.3x FY 2026E P/E vs 18.2x 3-yr avg) as the market already appears to have priced in significant EPS downgrades, which we believe will be very modest.
Bupa (HOLD, TP SAR 162): premium to Tawuniya unjustified: As Saudi’s largest health insurer Bupa has historically delivered strong returns. However persistent medical inflation amid an increasingly more competitive market is resulting in margin compression. We expect more pressure on consensus FY 2025-26E EPS; but given the de-rating (16.1x FY 2026E P/E vs 19.8x 3-yr average), further downside is limited.
Rasan IT (BUY, TP SAR 112) profitable growth ahead: Rasan’s share price has outperformed insurance by c35ppts ytd. As a distributor, Rasan is immune to the sector’s margin pressure while benefitting from its structural growth. We believe its competitive position and growth potential remain underappreciated as its TAM expands. Rasan is also set to benefit from a cyclical recovery in motor insurance.
