UNDERWRITING RISK VOLATILITY AND SOLVENCY SUSTAINABILITY: A DYNAMIC PANEL ANALYSIS OF SAUDI INSURANCE COMPANIES (2018–2024)

Abstract

Underwriting risk volatility constitutes a pivotal determinant of solvency sustainability in insurance markets governed by risk-based supervisory systems. From the perspective of operations management theory, such volatility may be interpreted as a manifestation of process variability within operational systems, thereby affecting both systemic stability and the robustness of capital structures. This study employs firm-level panel data from Saudi insurance companies spanning 2018 to 2024, analysed through a dynamic panel estimation technique, specifically System GMM, to account for persistence in capital levels, potential endogeneity, and adjustment behaviour over time. The empirical results demonstrate that fluctuations in underwriting risk impose a statistically significant and economically substantive adverse influence on solvency sustainability. Solvency ratios display notable yet partial persistence, indicating that capital adjustment occurs progressively rather than through immediate self-correction mechanisms. Furthermore, the analysis reveals a non-linear threshold pattern, whereby the erosion of capital intensifies once volatility exceeds tolerable bounds. In addition, reliance on reinsurance is found to alleviate the negative consequences associated with underwriting variability, thereby supporting the role of risk transfer arrangements as organisational stabilisers. Concurrently, enhancements in risk-based supervisory frameworks implemented after 2020 are shown to intensify the linkage between underwriting volatility and solvency performance. Collectively, these findings contribute to the advancement of operations and production management literature by linking process variability concepts with risk-based capital structures and the evolving context of regulatory reform. Empirical insights drawn from a transitioning emerging insurance market highlight the critical necessity of maintaining operational rigour alongside regulatory coherence to ensure sustained capital resilience under conditions of uncertainty.