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| 11 September, 2018

CORRECTION: A rebound in Saudi insurance shares fails to push the Saudi index into positive territory on Tuesday

Insurance firms outperform on Tadawul, analysts say sector to grow

CORRECTION: A rebound in Saudi insurance shares fails to push the Saudi index into positive territory on Tuesday

(A correction to the final paragraph was made to clarify that a number of markets closed for the Islamic New Year holiday).

The two top-performing shares on the Saudi Arabian stockmarket on Tuesday were both insurance companies as the sector gained more attention from investors.

Mediterranean and Gulf Insurance and Reinsurance Company (MedGulf) Saudi Arabia jumped to its daily 10 percent limit in early trading, reaching 15.2 riyals.

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On August 16, the Capital Markets Authority of Saudi Arabia (CMA) approved the company’s request to increase its capital to conduct a 400 million Saudi riyal ($106.7 million) rights issue. (Click here to read more).

The company's extraordinary general meeting approved doubling the company’s capital to 800 million riyals via a rights issue for 40 million new shares, according to a statement published on Tuesday in Arabic on Tadawul.

The market's other major gainers were Company for Cooperative Insurance, which added 5.97 percent, and Gulf Union Cooperative Insurance, which gained 4.11 percent.

Amer Saqfelhait, AVP trading manager at Al Mal Capital, described some of the positive and negative catalysts for the insurance sector.

For motor insurance, Saqfelhait said that “traffic violations have been hiked aggressively, which will be positive in eliminating reckless driving habits and consequentially lead to a lower accident rate”.

“In addition to that, lifting the ban on women driving is a key catalyst and will lead for substantial Gross Written Premium growth. And finally, the introduction of the "Taqdeer" initiative will reduce claim pricing inefficiencies and benefit motor insurers,” he added.

Taqdeer is a new scheme that facilitates managing, operating and organising the process of assessing damages incurred by car accidents.

As for health insurance, “Health care cost inflation might negatively impact margins, and recent results show a mixed performance among insurers.”

“Privatisation of the healthcare sector is a key long term catalyst for health care insurance providers.”

The Saudi market closed 0.17 percent lower on Tuesday despite the increase in insurance shares, with the index mostly weighed down by industrials and consumer stocks.

 “Saudi’s insurance sector is bound to grow within the coming 2 years on the back of reforms which will grow the market’s size significantly. The main focus at the moment is the decision which will allow women to drive in Saudi, which will give insurance companies access to more customers seeking policies at a premium due to their nature as first time drivers,” Issam Kassabieh, senior financial analyst and head of research at Menacorp Finance, said.

“This step will offset the earlier contraction in the general and moto insurance markets that took place in 2017 due to a slowing economy and weakened consumer purchase power. Other regulatory reforms in the region focusing on healthcare insurance will also play a big role in the coming year,” he added.

Elsewhere in the region, Dubai's index dropped 0.58 percent, Abu Dhabi's index added 0.13 percent, and Qatar's index gained 0.42 percent. Markets in Kuwait, Bahrain, Egypt and Oman were closed for the Islamic New Year holiday.

(Writing by Gerard Aoun; Editing by Michael Fahy)

(gerard.aoun@thomsonreuters.com)

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