Financial Review

Despite the ease of pandemic restrictions in 2021, the health insurance sector witnessed great uncertainties stemming from the continued prospects of claims deferrals, rising medical inflation, as well as increased competitive dynamics around pricing.

In a year marked by deteriorating loss ratios and contribution figures for the overall health insurance sector, Bupa Arabia managed to grow its GWP in 2021 by 9% to SR 11.4 billion and generated a resilient SR 731 million of profit before Zakat and tax.

Statement of Operations (12 Months) 2017
SR ’000
2018
SR ’000
2019
SR ’000
2020
SR ’000
2021
SR ’000
Gross Written Premiums (GWP) 7,732,961 8,566,648 10,410,868 10,447,353 11,382,194
Net Earned Premiums (NEP) 7,672,314 8,150,242 9,371,291 10,734,482 10,617,715
Total revenue 7,830,146 8,348,460 9,630,246 10,979,020 10,920,727
Gross claims paid 6,428,617 6,708,524 7,655,078 8,262,050 9,073,926
Net Claims Incurred (NCI) 6,405,003 6,788,985 7,749,297 8,719,928 9,046,569
Total expenses 874,137 985,317 1,101,461 1,355,282 1,085,110
Surplus from insurance operations 503,919 487,272 668,341 801,410 583,469
Shareholders' net income before Zakat and income tax 500,614 525,431 712,654 823,669 730,701
Loss ratio 83.50% 83.30% 82.69% 81.23% 85.20%
Earnings per Share (EPS) 4.18 4.39 4.97 5.83 5.23

The drop in profits was driven primarily by increase in loss ratio to 85.2% (397 bps increase from 2020) as a result of claims deferrals following the ease of lockdown restrictions. Nonetheless, the Company managed to contain such negative impact on contribution due to a 20% optimization in operating expenses, mainly driven by the drop in expensed acquisition costs resulting from the premium deficiency reserves booked in 2020. Moreover, bad debt provisions dropped by 24% as a result of record collection performance of more than SR 12.5 billion, the highest in the Company’s history. Results were further supported by record investment income, which increased by more than 23% given strong local equities performance.

Summary of Financial Position

Assets 2017
SR ’000
2018
SR ’000
2019
SR ’000
2020
SR ’000
2021
SR ’000
Cash and cash equivalents 229,884 290,413 665,709 633,251 960,758
Term deposits 3,945,383 4,715,281 5,063,976 2,796,547 3,093,720
Investments 1,721,690 1,621,491 1,840,832 6,029,446 5,703,773
Prepayments and other assets 170,528 202,985 276,643 85,086 113,254
Premiums receivable – gross 1,013,656 1,119,902 1,886,564 1,542,567 1,992,656
Allowance for doubtful premiums receivable -142,674 -169,231 -197,187 -222,524 -231,356
Premiums receivable – net 870,982 950,671 1,689,377 1,320,043 1,761,300
Reinsurer's share of unearned premium 5,146 6,320 20,625 20,108 27,935
Reinsurer's share of outstanding claims 1,030 3,014 5,190 7,936 15,036
Deferred policy acquisition costs (DAC) 71,076 118,323 134,022 68,214 201,042
Amount due from insurance operations
Goodwill 98,000 98,000 98,000 98,000 98,000
Tangible and Intangible assets (prev. furniture, fittings and equipment) 133,497 138,516 225,686 265,977 249,664
Accrued Interest on statutory deposit 5,121 6,882 10,820 13,806 14,885
Statutory deposit 80,000 120,000 120,000 120,000 120,000
Deferred tax asset 0 25,552 30,216 37,941 39,735
TOTAL ASSETS 7,332,337 8,271,896 10,181,096 11,496,355 12,399,102

Bupa Arabia’s total assets have seen a steady growth, reflecting its strong and expanding business activities. Total assets in 2021 increased by 7.9% vs 2020, reaching over SR 12.4 billion. This is evident in the premiums receivable balance, which increased by more than SR 440 million given strong underwriting results. The reallocation from investments to term deposits reflects the latest developments in interest rates environment with several rate hikes anticipated in 2022.

Liabilities and Surplus 2017
SR ’000
2018
SR ’000
2019
SR ’000
2020
SR ’000
2021
SR ’000
Unearned Premiums (UEP) 3,091,079 3,428,131 4,376,219 4,023,331 4,709,555
Outstanding Claims Provision (OCP) 1,341,536 1,472,681 1,627,708 2,109,319 2,111,455
Reinsurance balance payable 39,613 50,636 54,413 4,873 25,397
Accrued expenses and other liabilities 212,067 367,204 545,028 816,062 882,393
Amount due to shareholders' operations
Policyholders' share of surplus from insurance operations 138,581 139,755 168,454 200,391 190,060
Accrued Zakat and income tax 148,704 199,784 274,709 317,199 236,610
Accrued interest on statutory deposit 5,121 6,882 10,820 13,806 14,885
Amount due to related parties 33,586 41,095 78,848 108,521 33,723
Total liabilities 5,010,287 5,706,168 7,136,199 7,593,502 8,204,078
Total equity 2,322,050 2,591,280 3,044,897 3,902,853 4,195,024
Total liabilities and equity 7,332,337 8,297,448 10,181,096 11,496,355 12,399,102

Total liabilities grew by SR 611 million in 2021 reaching over SR 8.2 billion, due to the increase in unearned premiums, while total equity grew by SR 292 million to reach SR 4.2 billion, supporting a strong solvency position well above regulatory thresholds.

Statutory Payments and Payable to Regulatory Bodies:

Regulator Paid Paid Change Payable Payable Change
Description 2020
SR ’000
2021
SR ’000
2020 vs 2021
SR ’000
2020
SR ’000
2021
SR ’000
2020 vs 2021
SR ’000
ZATCA: Zakat and income taxes 92,777 187,515 94,738 317,199 236,610 -80,589
ZATCA: Value added tax (VAT) 566,620 591,517 24,897 25,326 88,148 62,822
ZATCA: Total 659,397 779,032 119,635 342,525 324,758 -17,767
SAMA: Levies 25,332 54,696 29,364 36,856 10,504 -26,352
CHI: Levies and license fees 54,602 162,586 107,983 69,774 21,009 -48,765
TOTAL: Levies and license fees 79,933 217,282 137,347 106,630 31,513 -75,117
CMA/Tadawul: Service and license Fees 1,214 1,221 7 0 0 0
GOSI 32,722 35,475 2,753 2,918 2.961 43
Total 33,936 36,696 2,760 2,918 2,961 43

The Zakat and Tax, Custom Authority of Zakat and Income Tax (ZATCA):

Total Zakat and income tax payments during 2021 were SR 187.5 million, of which SR 111.5 million was all Zakat, corporate income tax and withholding tax for the years 2008 through 2016 and 2018, SR 40.3 million was for the 2020 tax and Zakat returns and SR 35.7 million for 2021 advance tax.

Bupa Arabia paid SR 591.5 million in 2021 for VAT, with SR 88.1 million VAT payable at the end of the year. Additionally, SR 11.7 million was paid during 2020 for withholding taxes, and SR 7.4 million provided in the 2021 results was related to withholding taxes payable in 2022.

The SR 236.6 million provision for Zakat and Tax includes SR 107 million payable in 2022 for 2021 Zakat and tax returns, while the remainder is predominantly additional provisions for Zakat matters.

Saudi Central Bank (SAMA)

Total levies paid to SAMA during 2021 was SR 54.7 million, of which SR 8.3 million was for the fourth quarter of 2020 while SR 46.4 million as for the three quarters of 2021.

The SR 10.5 million payable amount for 2021 includes the normal provisioning for Q4 2021.

Council of Health Insurance (CHI)

Total levies paid to the CHI for 2021 was SR 162.6 million, of which SR 69.8 million was for the settlement of Q2, Q3 and Q4 levies of 2020, and SR 92.8 million was for the first three quarters of 2021.

The SR 21 million payable amount for 2021 includes the normal provisioning for Q4 2021

The General Organization for Social Insurance (GOSI)

Total 2021 payments to GOSI was SR 35.5 million, of which SR 2.9 million was related to 2020. An amount of SR 2.9 million was provided for, reflecting 2021 related GOSI commitments, which are payable in 2022.

Tadawul and the Capital Market Authority (CMA)

The Company paid SR 1.23 million to Tadawul/CMA during 2021, which included SR 400,000 for service fees, SR 821,150 for annual listing fees, and SR 17,250 for other fees.

Regulatory Penalties

During 2021, SR 80,000 penalty was paid to SAMA for the fine imposed for violating SAMA's supervisory and monitoring instructions .

Dividends and the Company’s Policy for the Distribution of Profits

The Company’s By-Laws state the following with respect to the calculation and distribution of profits:

  • The exclusion of Zakat and income tax.
  • That 20% of net profits are allocated to form a statutory reserve. The General Assembly has the authority to cease this transfer once the statutory reserve is equivalent to the paid-up capital of the Company.
  • Based on the Board’s recommendation, the General Assembly can also hold a percentage of the annual net profit to form a reserve and may allocate it to purposes of its choosing.
  • The balance shall be distributed as a first payment amounting to no less than 5% of paid-up capital to the shareholders.
  • The remaining balance shall be distributed to the shareholders as a share in the profits or transferred to the retained profits account.
  • The Board may issue a decision to distribute periodical profits to be deducted from annual profits as specified in point 4 above, and in accordance with the relevant regulatory rules issued by the concerned authorities.

In addition to that stated within the Company By-Laws, during 2017, the Company approved the following as an added Dividend Policy:

“In addition to the distribution of profits requirements, as reflected within the Company By-Laws (Articles of Association), the Company dividend policy is as reflected below:

To distribute any excess cash as dividends to shareholders subject to:

  • Maintaining a solvent position at the end of each quarter as per local laws and regulations, and,
  • Receiving the requisite regulatory and shareholder approvals for the dividend(s) wherever applicable, and,
  • Having accounted for the Company’s requirements in meeting its Capital Management Policy and relevant Risk Management Policies; policies that cover the business and investment requirements.”

Dividend History – Last Five Fiscal Years

Description 2016
SR ’000
2017*
SR ’000
2018
SR ’000
2019**
SR ’000
2020
SR ’000
Retained income (pre-Zakat and inc. taxes) 630,705 500,614 525,431 712,654 823,669
Dividend amount 120,000 160,000 180,000 0 408,000
Pre-Zakat and inc. taxes dividend pay-out ratio 19.0% 32.0% 34.3% N/A 49.5%
Number of shares in issue 80,000 80,000* 120,000 120,000 120,000
Saudi Riyals dividends per share 1.50 2.00 1.50 N/A 3.4
Percentage of dividend/year/quarter
distributed
100% 2017Q2 100% 2018Q2 100% 2019Q3 N/A N/A 100% 2021Q3

*At the time of the dividends issue, there were 80 million shares in issue. Bonus shares were issued during November 2018, one bonus share for every two shares held, using SR 400 million of the 2017 retained earnings, to increase Bupa Arabia’s share capital by 50%, resulting in 120 million shares in issue at 31 December 2018.

**No dividends were declared in 2020 due to the uncertainties surrounding COVID-19.