The Council of Economy and Development Affairs (CEDA) launched a new programme on Wednesday called "Financial Sector Development 2020" as part of the Saudi Vision 2030 initiative. The programme sets rising mandatory insurance penetration targets in the Kingdom, both in the medical and motor segments. 
 
Our take: This is a very positive and long-awaited step, as it shows commitment from the government to enforce mandatory insurance for the uninsured motor and medical segments. However, we note that the programme’s targets are ambitious and the details on implementation of this programme are still unavailable. The targets outlined in the programme suggest that the government wants to ensure under-penetration in the current addressable market for medical (15.2mn as per Bupa’s presentation) is closed by 2020 and motor insurance penetration increases to 75% by 2020 (vs. 45% currently). This reinforces the attractive motor volume growth story in Saudi Arabia. In the ST, though, we believe the sector will continue to face challenges, with rising no-claim discounts and competitive pressure weighing on motor pricing, while expat exodus coupled with weak volumes would dent medical growth prospects. With that said, we believe starting from 4Q18, we will see an improvement underpinned by rising penetration in the motor segment and demand from women drivers. On the medical side, there are currently 3.1mn uninsured private-sector employees based on Bupa’s 4Q17 presentation, which, when covered on a mandatory basis, will provide some needed volume growth to the medical segment. Our top picks in the sector are Tawuniya, Malath and Bupa.
 
The key milestones of this programme are:
 
      Enforcement of mandatory motor and medical insurance: The programme sets rising targets for insurance penetration to: i) 75% by 2020 for motor through enforcing mandatory insurance coverage of all vehicles in KSA; and ii) 45% by 2020 for medical through enforcing medical insurance on uninsured private-sector employees, particularly SME workers. The programme also targets the introduction of protection and property insurance requirements for mortgages. Based on the document’s estimates, enforcement of penetration will lead to doubling the market size from an estimated SAR38bn in 2017 (9M17 annualised) to a target of SAR75bn by 2020. SAMA will coordinate with the Ministry of Interior and the Ministry of Health to rewrite the insurance control law and tighten its supervision to enforce mandatory motor insurance for all vehicles and raise medical coverage to all private-sector employees.
 
      Insurance coverage for gov’t property and vehicles: All government property and vehicles will be fully insured on a mandatory basis to encourage the private sector to follow.
 
      Push for consolidation in the sector: Besides enforcement of insurance across the board, the programme aims to enhance the existing regulatory environment to drive consolidation and strengthen solvency of Saudi insurers through tighter supervision. The programme wants to facilitate insurance M&A by enhancing existing M&A regulations and clarifying/easing the process of winding up companies in order to have fewer but larger, stronger and better capitalised insurers.
 
      Improvement of the existing insurance regulatory frame: This would be done through setting up clearer and more comprehensive insurance regulations in line with global standards and reallocating responsibilities to reduce the existing overlaps in mandates (for instance between SAMA and CCHI). 

Rajae Aadel, Shabbir Malik