What’s new: The Council of Cooperative Health Insurance (CCHI) has issued a timeline for enforcement of medical insurance on Saudis working in the private sector. CCHI stated that private medical will be enforced from January 2019 and finalised by December 2019. According to Bupa’s 2Q18 presentation there were 2.2mn under/uninsured Saudi people in the medical insurance addressable market.
 
Our view: Positive for medical insurers. We were factoring in a more gradual enforcement rate for uninsured Saudis in our 2019 GWP outlook and CCHI’s tighter enforcement timeline (12 months) comes as a positive surprise. We estimate that just the enforcement on Saudis (private sector) could add 20% to medical GWP in 2019. During the first 9M18, medical GWP was up 5% Y-o-Y, as higher medical rates due to CCHI’s new table of benefits and pass-through of medical inflation helped offset the negative impact of expat exodus on volumes. Separately, a new contract from Saudi Electricity Company (SEC) amounting to SAR570mn (3% of sector GWP) will come under the private medical insurance mandate in 2019. The enforcement of Saudis working in private sector and inclusion of the SEC contract augurs well for medical insurance in the Kingdom in 2019.
 
Which insurers should benefit: Bupa is the largest medical insurer (market share 46% 24%), however it is not going to be a key beneficiary of enforcement on this segment as these new policies are likely to come from the low-end SMEs, which is not Bupa’s main client base. However, we note that Tawuniya, ARCCI, Medgulf, and Malath are some of the large players in the medical segment and are likely to benefit from this development. 
 
Investment view: We prefer Bupa and Malath, our top picks amongst Saudi insurers under coverage. Both names delivered a strong GWP trajectory in 3Q18, despite a tough operating environment, reinforcing our view on its solid underwriting capabilities. Bupa stands out from the crowd helped by its medical leadership and premium product offering. Malath’s focus on comprehensive and retail/SME segments by leveraging its digital capabilities is a key competitive advantage as it is contributing to a Y-o-Y improvement in its loss ratio and GWP growth. Tawuniya’s loss in 3Q18 shows that the claims from the mispriced medical policies underwritten last year continue to come through. We have a Neutral rating on Tawuniya. 

 Rajae Aadel, Shabbir Malik