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|05 December, 2018

BUPA and Tawuniya "set to gain market share" as Saudi insurance sector consolidates, analyst says

SICO bank prefers Bupa over Tawuniya, as both companies are set to gain market share

BUPA and Tawuniya "set to gain market share" as Saudi insurance sector consolidates, analyst says

Bupa Arabia for Cooperative Insurance Company (Bupa) and Company for Cooperative Insurance (Tawuniya) are on track to gain market share over smaller insurers, analyst says.

In a report published by Bahrain-based bank SICO, Nitin Garg, senior analyst, said: “Large players, with balance sheet strength, economies of scale and favourable business and customer mix have a significant edge over smaller insurers as the sector consolidates and should likely witness accelerated growth.”

Bupa and Tawuniya are the two largest insurance companies on the Saudi market in terms of market capitalisation, data from Eikon shows, with weights of 0.45 percent and 0.51 percent respectively in the Tadawul index.

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The two companies have accounted for 45 percent of the insurance sector’s revenue in the first nine months of the year 2018, according to Garg, who adds that the pair are “relatively immune to expat exodus as they operate in (the) premium corporate segment.”

Bupa announced a third quarter 2018 net profit attributable to shareholders of 19.6 million Saudi Arabian riyals ($5.2 million), compared to 13 million riyals for the same period last year.

Tawuniya recorded a net profit attributable to shareholders of 35.7 million riyals, compared to 16.7 million riyals for the same period last year.

Garg said in the report that SICO has initiated coverage on Bupa with a buy rating, owing to its “consistent track record and strong underwriting standards, which has enabled it to outgrow the health insurance market.”

It has set a target price on the stock at 85 riyals. It was last trading on Wednesday at 80 riyals.

SICO has initiated coverage on Tawuniya with a neutral rating, noting the following: “Tawuniya is re-pricing its under-priced portfolios, however, this will be gradual and likely take (a) few more quarters before the loss ratios stabilise. Moreover, the valuation risk reward is not compelling after the 30% stock rally from lows of SAR 48 on 14th October.”

The SICO target price is set at 65 riyals for Tawuniya. The stock was last trading on Wednesday at 63 riyals.

Garg added that expat exodus would lead the health insurance market to shrink in 2018.

On Wednesday, Bupa and Tawuniya gained  2.83 percent and 1.94 percent respectively, but failed to push Saudi Arabia’s stock market index to close in the green, as Tadawul edged 0.27 percent lower for the day.

Shares in Bupa have gained 29.65 percent so far in 2018, outperforming a Thomson Reuters index of Saudi insurance shares, which has dropped 8.96 percent during the year.

Shares in Tawuniya have dropped 33.26 percent since the start of the year. Ratings agency Fitch downgraded the company in late May to 'A-' from 'A', with a stable outlook.

According to Fitch, the downgrade has been driven by the company strengthening reserves by one billion riyals in the the fourth quarter of the year 2017, which resulted in an overall loss for Tawuniya in 2017 and a reduction in retained earnings.

“This led to a weakening of Fitch's Prism factor-based model (FBM) capital score to 'Adequate' at end-2017 (end-2016: 'Strong'). Fitch expects this reserve strengthening to be one-off in nature and believes that Tawuniya will return to underwriting profitability in 2018,” Fitch Ratings' report added.

Tawuniya registered a net loss of 146.5 million riyals for 2017, compared to a net profit of 800.9 million riyals in 2016.

Elsewhere in the region, Dubai’s index ended the day on Tuesday 1.63 percent lower, Abu Dhabi’s index closed 1.38 percent lower, Qatar’s index edged 0.12 percent lower, Oman’s index gained 0.39 percent, while Kuwait’s index added 0.39 percent and Bahrain’s index dropped 0.28 percent.

By 15:33 GST, Egypt’s blue-chip index EGX 30 was trading 0.49 percent lower.

(Reporting by Gerard Aoun; Editing by Michael Fahy)

(Gerard.aoun@refinitiv.com)

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