|14 April, 2019

Consolidation in UAE's insurance sector on cards

M&As are inevitable to happen in the UAE and the GCC 

M&As are inevitable to happen in the UAE and the GCC insurance sector.

M&As are inevitable to happen in the UAE and the GCC insurance sector.

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Mergers and acquisitions (M&As) will inevitably happen in the UAE's overcrowded insurance and Takaful industry but individuals holding larger stakes in the companies are willing to sell at a much higher price which is not attractive for the buyers, according to industry executives and analysts.  

"M&As are inevitable to happen in the UAE and the GCC. Usually, banks start - which has already happened in the GCC - and then the insurance sector follows. We have already seen some mergers and acquisitions taking place recently in Bahrain," said Fareed Lutfi, secretary-general, Emirates Insurance Association.

While talking to Khaleej Times on the sidelines of a conference recently, he disclosed that there are rumours that some M&As are in the pipeline.

Vasilis Katsipis, general manager, market development for Mena, South and Central Asia, AM Best, said there are several reasons that hamper local insurers and Takaful firms from consolidation.

"Firstly, all the insurance companies, or majority of them, belong to individuals who have many other businesses. Insurance is only a small part of what they do. Therefore, it is not a high priority for them either in terms of liquidating assets or in terms of spending time.

"Secondly, there are lot of businesses where owners want to sell them but their selling price is not meeting the buyers' requirements. That has been the case for several year. Since it is not a burning issue for majority shareholders, M&A doesn't materialise," Katsipis said.

Echoing Fareed Lutfi's views, he said if it were banks, mergers would have happened years ago.

Katsipis noted that if it is purely for financial reasons, then the market will see some activity in terms of consolidation in the next two years.

Commenting on the insurance sector's performance, he said industry did well last year, based on good investment returns but the turnover of the industry was not increased and that should be a matter of concern for the market.

"Topline is not going to move too much, so we are unlikely to see big growth rate this year. The profitability is going to be okay, but not brilliant," he added.

Safder Jaffer, managing director of Milliman, highlighted that the UAE and regional market is largely under penetrated.

"We are seeing flat growth in the region with auto and medical insurance dominating most of the companies' profits. There are too many players but we have not seen many progress in terms of consolidation," he said during the World Takaful & Insurtech Conference held recently in Dubai.

"There is intense competition and the firms are fighting for the same place with conventional players. Lack of long-term view of profitability by shareholders, low interest rate environment and lack of expertise continue to be a main challenge for companies," he added.

Jihad Faitrouni, CEO of Dubai Islamic Insurance & Reinsurance Company (Aman), called for closing the gaps and leakages and controlling mismanagement in the companies in order to improve efficiency and reduce cost.

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