The Insurance Authority Announces Transition to Risk-Based Capital Framework
In a significant step toward strengthening the resilience of the Saudi insurance sector and advancing the promises of the National Insurance Sector Strategy, the Insurance Authority has announced the transition to a Risk-Based Capital (RBC) framework, effective 1 January 2027. The framework will serve as the adopted standard for measuring the solvency of insurance and reinsurance companies, replacing the currently applied framework. This step aligns with the National Insurance Sector Strategy's objective to enhance sector efficiency and sustainability in the Kingdom, while reinforcing the role of the insurance sector in achieving the objectives of Saudi Vision 2030.
The Insurance Authority's statement explained that transitioning to the Risk-Based Capital framework will enable insurance companies to make more agile and informed decisions while maintaining capital levels commensurate with the nature and scale of the risks they face. This will strengthen confidence in the sector by enabling companies to manage and retain risks more effectively and fulfil their financial responsibilities toward investors and policyholders. The flexibility provided by this framework also supports greater diversification of insurance companies' investments, contributing to the development of financial sector's activities.
The RBC framework introduces a new feature to raise capital through issuance of subordinated debt, which on one hand will create more options for insurance sector to meet capital requirements in line with business growth, and on the other hand it will foster investor participation in the insurance sector.
This transition further reflects the growing maturity of the local insurance market and its readiness to adopt advanced regulatory frameworks that support financial stability and sustainable economic growth. This will also strengthen the regulatory framework and establish the necessary enablers to support the National Insurance Sector Strategy's objectives and one of its most important promises relating to increasing the Risk-Based Capital from SAR 25 billion to SAR 50 billion by 2030 in line with projected business growth.
The statement confirmed that the Risk-Based Capital framework is broadly aligned with global best practices for capital requirements in the insurance sector, such as the Solvency II regime adopted 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-planned transition, the Insurance Authority has taken several accompanying regulatory measures, most notably conducting four simulation exercises over the past years, with the 5th exercise done at YE2025, to test the standard formula and assess the expected impact of this transition on the overall solvency position of the sector. These efforts also included extensive consultations with the sector, contributing to enhancing the comprehensiveness and technical quality of the framework.
The parallel implementation phase begins in 2026, during which companies are required to calculate solvency levels under the new framework alongside the current framework, based on the guidance manual issued by the Insurance 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.
The Insurance Authority emphasized the importance of all relevant stakeholders, including boards of directors, developing a deep understanding of these changes and their strategic implications. In coordination with Risk, Finance and Underwriting functions of insurance companies, Actuaries are expected to play an active role during this phase by organizing internal workshops to help analyze the financial, operational, and strategic impact of the new framework, ensuring a structured and effective transition.
The Insurance 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.