Allianz and Bupa in Saudi Arabia

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1.1 Preamble

Specific attention to the need for corporate governance (CG) in the Kingdom of Saudi Arabia (KSA) increased after a financial crisis hit the capital market in 2006. Listed insurance companies, conforming to the rules and regulations of the CMA[1] and SAMA[2], started implementing a CG framework, as well as reporting on the development of the implementation process.

KSA’s insurance sector is growing into one of the largest in the region, with gross written premiums (GWPs) totalling over SAR 36B[3], underwritten by 35 listed insurance companies. However, a considerable number of those companies have suffered large-scale losses, which in some cases, has led SAMA to prevent them from underwriting any new business.

A recent case of the failure of a listed Saudi insurance company, Weqaya Takaful, involved it losing more than 159% of its allocated capital. It was therefore suspended by SAMA and the CMA. A more comprehensive CG framework evidently needs to be implemented in the Saudi insurance industry. In fact, the continuous failure of insurance companies has exposed flaws in the current SAMA and CMA CG framework. These flaws consist of a lack of proper CG enforcement, minimal compliance with and adherence to regulations, and the absence of risk management practices within insurance firms. These are possible factors behind such failure.

1.2 Subject Matter and Objectives of the Research

This dissertation presents a study on CG practices in listed insurance companies in KSA; its key objectives being:

To discuss the CG practices of listed Saudi insurance companies, highlighting recent improvements to CG regulations within the Saudi stock market.

To discuss the impact of CG practices on financial performance of listed insurance firms in Saudi Arabia.

To identify the role of SAMA and the CMA in presenting and enforcing the current CG framework; particularly in the areas of compliance, transparency and disclosure, and risk management.

To identify factors that lead to low performance of the insurance industry in Saudi Arabia.

To propose the best solution for promoting performance of the insurance companies in the country.

This research has depended on secondary data, especially reports from the Board of Directors (BoD), as well as market announcements published during the period 2009-2016.

Research Question

How does poor corporate governance contribute to poor performance of insurance firms in Saudi Arabia?

What are the best solution to the current issue of poor corporate governance and performance of insurance industries in Saudi Arabia?


Many insurance companies in Saudi Arabia encounter intensified competition due to an increase in the number of service providers. However, several factors determine how the companies will succeed. One such factor is poor governance, whereby leaders have a high level of self-interest without caring for other stakeholders. Due to poor corporate governance, majority of employees become dissatisfied, leading to provision of poor services to consumers, a factor that drives majority away. Many organizations in Saudi Arabia do not realize how poor corporate governance affects their performance. Hence, this research intent to address this issue and identify a lasting solution.

Research Methodology

The research is based on analysis of secondary data collected from different sources that include marker announcements and Board of Directors reports from 2009-2016. The first step was to collect relevant and reliable sources of information. The search criteria involved using key words such as corporate governance, insurance industry, low performance and improved performance. From the search, 25 articles with reliable information were collected. The second step involved identifying the articles to be used for the research. Therefore, the inclusion criterion was based only on those articles discussing information on the relationship between corporate governance and performance of insurance company. Besides, articles that used experimental procedures to collect data were considered for this study. Furthermore, those with properly explained examples were also included in the study. On the other hand, articles published before 2009 were not used for the study. In addition, those without adequate references to support the data collected were eliminated from the study.

Chapter 2: Saudi Arabia’s Insurance Market

2.1 Saudi Insurance Market Figures

GWPs increased by 19% in 2015, reaching SAR 35.6B[4]. Health insurance maintained its position as the largest contributor to the insurance market that year, with a market share of 53.32% of total GWP, while motor insurance posted a 28.89% market share for the same period[5]. The remaining percentage was made up of several products, detailed in the following Figure.

Figure 1: The Saudi insurance market portfolio by product type

(Source: Insurance Sector Report 2015, Al-Bilad Capital)

2.2 The Regulatory Framework in Listed Insurance Firms

The Saudi insurance market is mainly covered by two government regulatory bodies: the Saudi Arabian Monetary Agency (SAMA) and the Capital Market Authority (CMA).

2.2.1 The Saudi Arabian Monetary Agency (SAMA)

According to Zeitun (2014), the Saudi Arabian Monetary Agency (SAMA) is the Central Bank of Saudi Arabia and has the mandate to regulate performance of all financial institutions in the country. It was founded in 1952 as a government entity. Its main function is to control, regulate and monitor the banking sector and insurance companies. Through the Insurance Supervision Unit, SAMA supervises the activities of insurance companies, including CG aspects.

2.2.2 The Capital Market Authority (CMA)

The CMA was founded in 2004 by Royal Decree (M. 30). It is a government organisation reporting directly to the Prime Minster (Capital Market Authority, 2006). Capital Market Law, established in 2003, organises and manages all practices on the Saudi stock market, including those involving insurance companies.

Chapter 3: The Case of Weqaya Takaful

4.1 Case Brief

Weqaya Takaful is a recent case of failure in the Saudi insurance sector. The company was established in 2010, but only announced net profit at the end of 2012. However, its profits dropped dramatically in 2013. It justified this by citing a rise in reported claims and an increase in technical reserves for the actuaries appointed to satisfy SAMA’s requirements[6]. In March 2014, Weqaya’sBoD recommended increasing company capital by issuing SAR400m as preferred stocks, in order to remedy the situation. In July2014,Weqayathen announced that its financial statements for 2013 and the first quarter of 2014 were not reliable[7], as they were missing material facts which had negatively affected the company. Figure 4 below provides a brief company description.

*Until April, 2016 The Company could not declare its annual financial information for 2013, 2014 and 2015

Figure 4: Major incidents at Weqaya Takaful

(Source: TADAWUL. Available at: [last accessed: 13 June, 2016])

Moreover, in August 2014, the company received an official letter from SAMA, prohibiting the firm from accepting any new business or renewing any current business, as it had failed to provide SAMA with the mandatory plan for rectifying its deteriorating financial position. As a result, the company was unable to release any financial statements (quarterly or annual) for nearly two years, keeping stakeholders - especially minority shareholders - in the dark. Despite this, the company’s stock was still tradable during this period, with no action from the CMA.

Further to the above, in April 2016, the BoDannounced their mass resignation, accusing SAMA of abusing its power and causing the company to fail by prohibiting it from engaging in any new or renewed business for two years. Prior to this, in May 2015, SAMA had brought legal action against the Company’s BoD, based on its breaches of the law and regulations and in order to protect other stakeholders.

On 12 June, 2016, Weqaya Takaful’s BoD withdrew its threat of resignation and pledged to meet SAMA’s requirements for increasing the company capital, instead of issuing preferred stocks. The company’s stock was still suspended and the company was beset with uncertainty.

4.2 Case Analysis

As an analysis of the above case, there are three questions of primary importance:

§ What is the role of the risk management and compliance functions in preventing failure, keeping the BoD updated and providing SAMA with transparent reports on the company’s situation?

§ What is SAMA’s role in preventing failure and could SAMA’s actions drive Weqaya towards failure?

§ What is the rationale behind the CMA keeping the company’s stock tradable, despite the company being unable to publish any financial reports for two years?

With regard to the role of the risk management function, based on SAMA’s regulations, the BoDand senior company management are responsible for establishing and monitoring a risk appetite framework that includes both quantitative and qualitative measurements, along with key risk indicators (KRI). Thus, with any deviation from the formalised risk appetite, the status of the deviation and its impact, together with the mitigation plan, should be reported to the senior management and in critical cases, to the BoD. The following Figure illustrates the role of risk appetite in preventing risk.

Figure 5: An example of an insurance company’s risk appetite dashboard

In the case of Weqaya, there is no evidence that the BoDor senior management formalised such an appetite to prevent risk, as no risk management reports were published or mentioned within the problematic period and the company failed to mention the role of risk management and compliance functions in its annual reports.

With regard to the relevant BoD, their 2013 report indicated that some members had sold their shares and left the company during the problematic period. In particular, four major shareholders, holding 17% of the company’s shares, sold them during the year of the report, without giving any reasons[8]. This could indicate that some of the Board members had benefited from their positions and traded their stock based on inside information, which was unavailable to other stakeholders[9].

The above reveals poor CG practice, particularly in relation to transparency and disclosure, whereby neither SAMA nor the CMA explicitly mentioned the incident in their announcements. It therefore raises a question about the level of protection provided for shareholders who are not privy to such inside information. Moreover, the company did not fully disclose its compliance with CG regulations, although this is required by the CMA[10]. Stakeholders, particularly minority shareholders, can only obtain such information at the GAM, where they must specifically ask about the company’s business affairs.

In addition, the published BoDreports[11]

reveal that its members represented a majority in the Board sub-committees and therefore dominated the voting (see Figure 6, below).

Figure 6:BoD representation in the Board sub-committees at Weqaya Takaful


Figure 6shows poor CG practice, as the BoDis meant to supervise the company’s activities, including those of its Board committees. In this situation, BoDmembers mainly supervise themselves and each other. Furthermore, the Chairman of the Board is also the Chairman of the investment committee, despite being involved in managing the company’s investments[12].

Furthermore, it is unclear whether SAMA ever received any detailed reports on the company’s critical situation. The fact that SAMA suspended the company without an immediate plan to rectify the critical situation and eventually published a plan for all the stakeholders could be seen as one reason for failure. Moreover, it could indicate how the level of protection provided for stakeholders, particularly minority shareholders, is affected by the generally low degree of transparency in Saudi-listed insurance firms. In this case, SAMA did not require the company to notify its stakeholders of its deteriorating situation at the time, or of the large-scale selling off of its shares by members of the BoD, as described above.

In addition, SAMA rejected the company’s request to increase its capital, as the company had failed to meet its requirements. In such situations and based on the CG practices, the stakeholders should be notified, with clarification of the reasons behind the action. Besides, SAMA announced it had rejected the company’s proposed plan for raising capital, but this plan was never announced to other stakeholders.

Moreover, all listed companies are required by the CMA to publish quarterly and annual reports describing the company’s status, mainly in financial terms. Weqaya Takaful, however, was unable to produce any reports for over two years. Nevertheless, the CMA did not suspend stock from being traded and neither was the issue clarified for all stakeholders. Therefore, a number of individuals bought stock without realising the company’s critical situation. Most of the minority shareholders were therefore shocked to discover the company’s losses had reached 159% of its capital and it would be suspended by the CMA.

Aside from this, the CMA did not clearly fulfil its role in defending the stakeholders’ rights. It suspended the stock and referred to the Bureau of Investigation and Public Prosecution[13]over the suspicious activities of two members of the respective BoD. However, the company’s stakeholders were still suffering as a result of the suspended stock and needed to know the reasons for the suspension.

The case also reveals that stakeholders are exposed to a variety of sources of information on the status of Saudi-listed insurance firms; for example, financial statements are published through the CMA and in BoDreports. SAMA also supervises listed insurance firms and publishes announcements on legal and regulatory governance. A third government entity, the Council of Cooperative Health Insurance (CCHI)[14] supervises health insurance in listed insurance firms and has the right to suspend companies which fail to comply.

Chapter 4: Causes of Poor Corporate Governance and the Recommended Solutions

Poor corporate governance is the primary reason to why Saudi Arabian insurance companies have recently shown poor performance. Evidently, poor corporate governance has subsequently led to low market liquidity on Saudi’s insurance market and that has in turn affected the performance of Saudi Arabian Insurance companies. What low market liquidity implies is that there has been frequent fluctuation in prices which has caused instability in pricing of insurance services amongst most Saudi Arabian insurance companies. Poor market strategies adopted by various insurance companies in Saudi Arabia are the reason to the frequent variations in market prices of insurance services, thus, lack of liquidity on the insurance market. Poor corporate governance which is witnessed through lack of liquidity on the Saudi Arabia’s insurance market has indeed affected the performance of majority Saudi Arabia’s insurance companies.

Another way poor corporate governance has led to poor performance in Saudi Arabian insurance companies is that the latter has promoted poor decision making. From this point of view, there have been cases of disagreements between corporate officials over certain decisions in most of Saudi’s insurance companies. That being the case, these insurance companies have found it hard to focus on their mission and achieve their purpose. And that has been a hindrance in their performance. Fact is that, poor corporate governance implies poor administration which may include divisions in the corporate board over the purpose of the firm which at the end affects performance. Well, for business firms, efficient performance is ensured through effective decision making by the firm’s management.

Also, poor corporate governance has led to reduced revenues and that implies poor performance in Saudi Arabia’s insurance companies. Various Saudi Arabian insurance companies have witnessed subsequent reduction in profits and revenues even after adopting new market policies and strategies. The corporate board often plays a significant role in the corporate governance framework of a firm, and that includes ensuring better performance through revenue maximization. Well, in the case of Saudi Arabian Insurance companies, various corporate boards do not take seriously the procedure of monitoring managerial performance and that has largely accounted to under performance in these companies. Underperformance has thus affected market performance which is justified by reduced revenues.

Various factors are associated with poor corporate governance. For instance, based on Saudi Arabia's insurance market, elements that are likened to poor corporate governance may include poor financial performance, concentrated ownership structure and the behaviour of corporate boards to focus on long-term investments over short-term investments among many more other factors. Such factors apart from being associated with weak corporate governance have as well have contributed to poor performance in Saudi Arabia's insurance companies.

Poor Financial Performance

Poor financial performance is likened to corporate governance in various ways. From a generalized perspective, poor economic performance has an impact on the management and the overall board. In that case, any financial decision made either by the administration or the board influences the corporate structure or framework an organization. While considering the situation for Saudi Arabia's insurance companies, there has been disagreement over certain financial decisions more so on the idea of investors or financing subsequent insurance related projects. Such disputes are as a result of poor corporate governance. Worst, they have affected the performance of companies on the insurance market. Well, due to poor financial performance there have been abnormal reductions in revenues. Poor financial performance thus infers poor profitability and above all, poor management and control of managerial performance.

Concentrated Ownership Structure

Another factor associated with poor corporate social responsibility is concentrated ownership structure that is prevalent in most of Saudi Arabia’s insurance companies. The ownership structure or framework of insurance companies in Saudi Arabia is family ownership. Such an arrangement may seem efficient, but it is less flexible and limited to family members (Dahar 2018, p.7). That being the case, control and monitoring of relevant and significant practices include finances and management of managerial performance in these family-owned firms become a problem. Concentrated ownership structure has affected the performance of most of Saudi Arabia’s insurance companies due to policies that limit other crucial market functions associated with better performance on the Saudi Arabian insurance market. Meticulously, the concentrated ownership structure has discouraged foreign investors who would have at least financed these companies in order to ensure increased market performance.

Short-Term behaviour

While other companies pursue short-term investments, corporate boards of various insurance companies in Saudi Arabia are concerned with long-term investments. Across multiple insurance markets that exist globally, companies have resolved to short-term investments whereas insurance companies based in Saudi Arabia have rested on long-term investments (Dahar 2018, p.5). The idea of overly focusing on long-term investments is associated with reduced corporate performance in that long-term commitments and engagements are often challenging to manage and sustain. Since sustaining long-term obligations tends to difficult, foreign investors have resolved not to invest in Saudi Arabian insurance firms, and that has compromised essential projects that are in progress, thus, reduced performance. Long-term commitments should be discouraged as they facilitate bias in insurance projects under development.

Poor leadership

Poor leadership likened to poor accountability and management has been highly associated with poor corporate governance in Saudi Arabian Insurance companies. Well, when there exists good administration, there are never disagreements when making significant decisions. In the case of Saudi Arabia, this has not been the situation; various corporate officials have had to argue on important matters including the purpose of their respective companies (Al-habshan 2017, p.9). The consequences of being in such contentions are poor management and control of managerial performance which at the end affects performance negatively. Productive and pleasant leadership patterns should be adopted for good performance.


Corruption among corporate officials is also another concern associated with poor corporate governance. According to (Alsahlawi and Ammer 2017 p.19), the concentrated ownership structure has heightened cases of corruption among board members of most Saudi Arabian insurance companies. The results of bribery have been poor financial performance, and above all, violation of regulations and policies the govern insurance firms on Saudi Arabia’s insurance market. From this point of view, such activities have negatively affected the performance of a large number of Saudi Arabian insurance companies.

Solutions and Recommendations

Policies, Work Plans and Regulations

The Capital Market Authority(CMA) which was created in 2003, is a corporate governance framework that exercises executive and legislative powers passing and adopting legislations which support validity and reliability of the Saudi Arabian Market’s valuation mechanism. In meeting its objectives, the CMA as the corporate governance authority, it should lay down policies, work plans and regulations necessary to achieve their goals as stipulated during its adoption. This is to underpin market confidence, integrity and efficiency therefore promoting economic growth and financial stability. The Saudi Arabian Insurance Company, Allianz Saudi Fransi Cooperative Insurance Company considers that a good governance is critical to the company’s success.

Formulation and Implementation of rules and regulations necessary for effective regulations

The laws passed by the legislature or by Royal Decree and the experts in government agencies and private sector experts are developed and implemented by the Capital Market Authority. The rules and regulations passed by the CMA include: corporate governance regulations, Investment fund Regulations, Market conduct regulations, merger and acquisition regulations, Real estate Investment fund Regulations, Listing rules, Corporate governance Regulations, Authorized persons regulations and Anti-Money Laundering and Counter-Terrorist Financing Rules.

Adjournment of stock exchange actions

This can be done on stock exchange actions for designated periods of time. The Saudi Stock Exchange (SSE) was established in 1984 due to the growing awareness and interests of the public in stocks and stock trading which also was due to the Saudi Arabian corporations planning to switch from national to public ownership. Therefore the Saudi Stock Exchange responds to the launch of other stock exchanges in neighbouring countries i.e. Jordan and Kuwait.

The most important responsibility of the SSE in relation to the corporate governance framework is overseeing and it should enforce the corporations to hold General Shareholder meetings (GSMs) and also through these meetings, the SSE should ascertain the shareholders that they are accorded their rights as guaranteed by law. It should guarantee equity of listing requirements, impartial and fair transactions, transparency requirements to be met by firms, Resolve disputes between board and shareholders.

Granting of flotation of security

Security as a role of corporate governance is handled in various levels of the corporate governance framework. The SSE resolves disputes between shareholders and the board which is the same role as the Capital Market Authority (CMA) which has its listing rules. The CMA is a semi-governmental body governed by a board of members to must possess high qualification and serve a five year term. It monitors the disclosure of information connected to security and listed companies. The Allianz Saudi Fransi Cooperative Insurance Company admits to comply with the new laws and Regulations issued by local authorities including the CMA. Supervisory, regulatory and enforcement authorities should have the resources, privilege and integrity of fulfilling their duties in a professional and objective way.

Transparency and efficiency in Markets

The corporate governance framework should achieve the objectives by ensuring transparent and efficient markets, This is by being consistent with the rule of law, and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities. As a rule, each organization is required to form a committee of non-executive members as an audit team. The framework should develop vital principles for external auditors who review reports of the stock exchange, brokerage companies, investment funds and listed companies.

Transparency allows understanding of the relation between corporate governance, economic growth and for the same case of the Saudi Arabian financial stability situation. This increases understanding and use of effective implementation policy for a better corporate governance. As a way to improve corporate governance, the framework should be developed with a view to its impact on overall economic performance; integrity and incentive state it creates for market participants also considering efficiency and transparency of the market.

Disputes resolution

The role of the corporate governance on resolution of security disputes; in Saudi Arabia the Committee for the Resolution of Securities Disputes (CRSD) and the securities and conflict appeal committee perform relevant roles in the implementation of corporate governance. The CRSD is a quasi-judicial committee composed of several legal advisors with expertise in Islamic, financial and legal transactions, capital market laws and the interpretation of the financial contracts. The Committee for the Resolution of Securities Disputes has jurisdiction to hearing disputes such as public cases brought against parties who refuse to comply with provisions of the CML with its implementation regulations, private cases against groups in authority also claims by parties against complex regulations implemented by the Capital Market Authority board or the Stock exchange. This is a way of confidence incorporation into the organizations or businesses in the Kingdom of Saudi Arabia. The shareholder are guaranteed security therefore the corporate governance should ensure the shareholder’s rights are safeguarded and also put into practice through the several methods by either attending meetings, criticizing and voting for their board and put across their views. The Saudi Stock Exchange also should take charge in such situations.

Shareholders protection

Rights and protection of the shareholders is accorded by the CGR. It entails shareholders rights such as proportional share of corporate assets when liquidated, right to dispose off their shares according to their preference, attendance of general shareholders meetings and also contribute on decisions, oversee activities of board of directors and criticize, right to file responsibility claim in a liability action against board members, access to information without prejudicing the corporations benefits and also without going against the CML regulations and implementations. Legal framework

The Quran consists of basic principles that emphasize the sharia law which is the fundamental source of law in Saudi Arabia. These laws address the economic affairs and stipulate that the government owns all natural resources. The judicial bodies of Saudi Arabia and disputes resolution bodies are reorganized by the law, hence creating specialized courts such as commercial, criminal and labour courts. In order to improve corporate governance, the government should develop a communication channel with specialized institutions both local and international which normally takes part in corporate governance of publicly traded companies.

Promoting and overseeing implementations of corporations' self-regulation of their corporate governance policies. The Corporate Governance Department (CGD) regulates and monitors companies in order to ensure improvement in corporate governance, CGD works hand in hand with the committee for the Resolution of Securities Disputes (CRSD) which always provides solutions to the disputes brought in book by the private or actions brought by investors groups in authority.

Policies, Work Plans and Regulations

The Capital Market Authority (CMA) which was created in 2003, is a corporate governance framework that exercises executive and legislative powers passing and adopting legislations which support validity and reliability of the Saudi Arabian Market’s valuation mechanism. In meeting its objectives, the CMA as the corporate governance authority, it should lay down policies, work plans and regulations necessary to achieve their goals as stipulated during its adoption. This is to underpin market co

January 19, 2024

Corporations Middle East

Subject area:

Company Saudi Arabia

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