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INSURANCE(YoY), despite growth in revenue. In 2008, NCCI’s profits declined 87% YoY to SR67mn.Although, gross written premium and net premium earned grew 23% and 16% YoY respectively in2008, loss in investment portfolios and competition from the recently licensed companies impactedthe bottom line. Stringent Government regulations on investments such as limiting investment inequity to not more than 15% of total investments to limit downside risks associated with thevolatility of the equity markets are helpful. Nevertheless, a weak financial market is likely to affectthe value of their investment portfolio in the near term.Exhibit 107: Revenue of companies, 2005 – 2008 (SR mn) Exhibit 108: Profitability (%) of companies, 2005 – 20082,80050402,400302,00020101,6002005 2006 2007 200802005 2006 2007 2008Source: Tadawul, ReutersNCCI is the only dominant player operating in KSASource: Tadawul, ReutersNCCI is the only dominant player operating in KSAFollowing the Government’s decision to liberalize the insurance sector in 2006, the sectorexperienced significant growth in 2007. Furthermore, the Government’s phased introduction ofcompulsory health insurance for expatriates in 2006 reflected positively on the sector index.However, plummeting equity markets in KSA in 2008 impacted the valuations of the companiesin this sector. In 2008, P/B multiple contracted because of a weak equity market while P/Emultiples remained high mainly due to a steeper decline in earnings vis-à-vis the share price.For instance, as of 31 December 2008, NCCI’s P/B and P/E and multiple stood at 1.6x and25.2x respectively, compared with 4.1x and 14.3x respectively in 2007. As illustrated below,most of the KSA insurance companies, barring NCCI and the Gulf Union Co-operativeInsurance Co., had negative RoE in 2008.Exhibit 109: P/E of NCCI, 2005–08RoE (%)40200-20-40NCCI (as on 31 Dec2008)Gulf UnionAl-AhliaWalaaMedgulfSAICOACIGMalathNCCI (as on 31 Dec2007)ATCSaudi IndianSALAMASABB TakafulAllianz SF0 2 P/B 4 6Source: Reuters, Bloomberg, Tadawul, NCBC ResearchSize of the bubble represents market cap. as on 31 Dec 2008JUNE 2009SAUDI ARABIA FACTBOOK72