06/04/2026 05:05 AST
Saudi Arabia's Insurance Authority announced the transition to the mandatory implementation of the Risk-Based Capital, or RBC, framework starting Jan. 1, 2027, as the approved framework for measuring the financial solvency of insurance and reinsurance companies, replacing the current system.
The move marks a significant step toward strengthening the resilience of Saudi Arabia's insurance sector and delivering on the objectives of the National Insurance Sector Strategy, in line with efforts to enhance the sector's efficiency and sustainability and support the goals of Saudi Vision 2030.
In a statement, the authority said the shift to a risk-based capital framework will enable insurance companies to make more flexible decisions, while requiring them to maintain capital levels commensurate with the nature and scale of the risks they face.
This is expected to enhance confidence in the sector by improving insurers' ability to manage risks effectively and meet their financial obligations to investors and policyholders.
The flexibility offered by the framework is also expected to support greater diversification of insurers' investments, contributing to broader economic activity within the financial sector.
It will further allow companies to strengthen their capital through the issuance of subordinated debt instruments, providing additional options to meet capital requirements in line with business growth and encouraging greater investor participation in the insurance sector.
The transition reflects the maturity of the domestic insurance market and its readiness to adopt advanced regulatory frameworks that support financial stability and sustainable economic growth.
It also contributes to strengthening the regulatory environment and enabling the achievement of key targets under the NISS, including increasing available risk-bearing capital in the sector from SR25 billion ($6.67 billion) to SR50 billion by 2030, in line with expected industry growth.
The authority noted that the RBC framework is broadly aligned with global best practices for capital requirements in the insurance sector, such as the Solvency II regime in Europe, while being adapted to suit the characteristics and nature of the Saudi insurance market
The framework also promotes an advanced risk management culture within insurance companies, both at the strategic decision-making level and in daily operational activities, benefiting all stakeholders, including policyholders, shareholders, board members, senior executives, and employees.
To ensure a smooth and well-managed transition, the Insurance Authority has undertaken several regulatory steps, including conducting four quantitative impact studies in recent years to test the standard formula for calculating required capital, followed by a fifth study based on 2025 data to assess the expected impact of the transition on sector solvency.
The process also included extensive consultations with industry participants, enhancing the framework's comprehensiveness and technical robustness.
A parallel run phase will begin in 2026, during which insurance companies will be required to calculate solvency under both the new and current frameworks, based on the guidelines issued by the authority.
The authority has allowed companies the option to apply the standard formula or develop a full or partial internal model, subject to prior approval, emphasizing the importance of boards of directors and all relevant stakeholders being fully aware of these changes and their strategic implications.
It also expects appointed actuaries to play an active role during this phase by organizing internal workshops in coordination with risk, finance, and underwriting departments to assess the financial, operational, and strategic impact of the new framework, ensuring an orderly and effective transition.
The authority will continue to issue relevant guidelines and updates, while actively coordinating with insurance companies and all relevant stakeholders to support the success and sustainability of this transformation.
SPA
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