Investors in Saudi Arabia are betting insurance stocks will be key beneficiaries from lifting a ban on women driving in the Middle East’s biggest economy.
An index composed of 33 insurance stocks rose the most in three months, or 4 percent, in Riyadh on Wednesday to the highest level since March. The Company for Cooperative Insurance Ltd., or Tawuniya, increased the most in seven months, more than any other member of the Tadawul All Share Index.
The announcement is one of the most dramatic moves so far in the government’s bid to open up society amid a program to modernize its economy. The decision is part of a group of measures that includes the sale of shares of its state-controlled oil company Saudi Aramco in what could be the biggest initial public offering ever.
“Insurance firms with a focus on motor insurance, particularly Tawuniya, Al Rajhi Takaful and Walla, are key beneficiaries," said Shadi Salman, vice-president for research at Shuaa Capital in Dubai. Improvement in new car sales, or a reduction in the slowdown, is seen as “supportive of the segment’s premium growth,” he added.
The number of cars in Saudi Arabia is likely to increase at least 20 percent in the next ten years as a result of the decision, said Jaap Meijer, the head of research at Dubai-based investment bank Arqaam Capital Ltd. “We expect the increase to be gradual and increase overtime. Net loss ratios on female drivers is likely to be lower than men as well,” he said.
If premium differentials around the world are taken into consideration when Saudi firms estimate their contracts for the future female drivers, “premiums will actually be lower for women,” Shuaa’s Salman said. “Empirical evidence suggests they are in fact safer drivers than men.”
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