The Impact of Corporate Governance on Risk Management for the Insurance Industry in Saudi Arabia Firms

Abstract

This study examines the relationship between corporate governance and risk management in the Saudi Arabian insurance sector, focusing on how governance mechanisms influence such key risk dimensions as insurance, credit, and liquidity. Despite significant regulatory reforms, the sector faces persistent challenges, including insufficient board independence, limited diversity, and inadequate risk management expertise, which hinder its ability to achieve sustainable growth and financial stability. The research addresses critical gaps in the literature in particular, the lack of empirical studies on governance and risk management in the Saudi context, the under-exploration of advanced analytical techniques, and the insufficient examination of such governance dynamics as board diversity, CEO characteristics, and risk committee expertise. The study leverages a robust dataset comprising 270 annual reports and 4,620 observations from publicly listed insurance firms in Saudi Arabia, spanning a 10-year period (2014–2023). Advanced machine learning models including generalized linear models, random forests, gradient boosting machines, and deep neural networks are employed to analyze the interplay between governance attributes and risk outcomes. Feature importance analyses, including Shapley additive explanations (SHAP) values and force plots, are used to interpret model predictions and identify the most influential governance factors. These techniques provide granular insights into how individual features, such as board independence, risk committee expertise, and firm characteristics, contribute to risk predictions. Key findings reveal that board independence, risk committee expertise, and composite corporate governance are the most influential factors in mitigating insurance, credit, and liquidity risks. Firms with higher proportions of independent directors and well-qualified risk committees exhibit stronger risk oversight and lower risk exposure. Additionally, such firm characteristics as size, profitability, and leverage play a significant role in shaping risk profiles, while CEO duality and tenure have minimal direct impacts on risk outcomes. The study also highlights the moderate influence of gender diversity on governance effectiveness, although nationality diversity and board shareholding show limited direct effects. The research makes several significant contributions. First, it advances the existing literature by providing empirical evidence on the relationship between governance mechanisms ii and risk management in the Saudi insurance sector a context that has received limited scholarly attention. Second, it offers practical insights for industry stakeholders, emphasizing the importance of strengthening board oversight, enhancing risk committee expertise, and fostering diversity to improve governance frameworks. Third, it provides actionable recommendations for policymakers and regulators to align governance practices with international standards, thus helping ensure the sector’s resilience and sustainable growth. Finally, the study aligns with Saudi Arabia’s Vision 2030 objectives by exploring how governance and risk management practices can support economic diversification, financial stability, and sustainable development. In sum, this thesis bridges critical gaps in the literature and provides a roadmap for enhancing governance and risk management in the Saudi Arabian insurance sector, ensuring its competitiveness and alignment with global best practices. The use of advanced analytical techniques, including SHAP values and force plots, underscores the methodological rigor and practical relevance of the study.