Global insurance companies should capitalize on Saudi Arabias consolidation trend

With 32 insurance companies listed on Tadawul, the Saudi insurance market is overcrowded and faces challenges. The chronic challenges include a low capital base, a scarcity of qualified staff and limited market awareness, especially about life insurance. These obstacles could be converted into opportunities by encouraging business consolidation in this sector.

Business consolidation refers to the combination of several business units or different companies into a single, larger organization. It is used to improve operational efficiency by reducing redundant personnel and processes.

For many years, I have been dealing with two regulators - the Saudi Arabia Monetary Authority (SAMA) and the Capital Market Authority - as part of BMG Financial Group’s advising and arranging mandates for IPOs, rights issues and merger and acquisition transactions.

SAMA’s supervisory team, which is headed by Abdullah Al-Tuwaijri, has been encouraging and incentivising the Saudi insurance sector to consolidate in order to strengthen its operational and financial performance.

To date, there has only been one successful merger transaction. In March, Walaa Insurance Co. announced a resolution to merge MetLife AIG ANB with Walaa Insurance Co. where the assets and liabilities of MetLife have been transferred to Walaa.

Other consolidations in the pipeline include: Aljazira Takaful with Solidarity Saudi Takaful Co., Gulf Union Cooperative Insurance Co. with Al-Ahlia Insurance Co. and ATC with Chubb Arabia.

These announcements were made public after receiving board resolutions to initiate merger discussions based on share swaps. Going forward, the consolidation trend will dominate the insurance market in Saudi Arabia and signs suggest that this trend will continue for years to come.

The growth potential of the Saudi insurance market growth is known to many key players. The big differential in the Kingdom is the demographic. Furthermore, the Saudi insurance market is still considered to be one of the lowest-penetrated in the region.

In line with the Vision 2030 reform plan where the insurance sector is an important pillar of the Kingdom’s financial system, in my opinion, there are still opportunities in this sector. Although some global insurance companies that entered the Saudi market have not yet realized their optimum investment objectives. I expect these companies can turn challenges into opportunities. I advise these global companies to lobby their respective boards to seriously consider joining the consolidation trend by merging or acquiring other companies with the long-term strategic objective of maximizing their market value.

Basil M.K. Al-Ghalayini is the chairman and CEO of BMG Financial Group