Consolidation spree in the Saudi insurance sector continues

The Saudi Central Bank, the insurance sector regulator, has been urging many companies to strengthen their financial position and seek consolidation

  
Saudi Riyal rolled in sacks back on the table Islamic economy concept.

Saudi Riyal rolled in sacks back on the table Islamic economy concept.

Getty Images/ imran kadir photography

It has been over a year since I addressed this important trend in the Saudi insurance sector. Since then, companies have already revealed their mergers and others have made announcements through memorandums of understanding, while others are still exploring their options of potential targets.

To me, the insurance sector is becoming second nature, almost 15 years since BMG’s first initial public offering transaction. In addition to taking a dozen companies public, we are currently engaged in merger and acquisition mandates with several companies.

The Saudi Central Bank, the insurance sector regulator, has been urging many companies to strengthen their financial position and seek consolidation.

Also, there is a study of a new law that will increase the capital requirement. Once it comes into effect, this new directive will automatically force small companies to merge to meet this requirement or maybe invite global companies to acquire small local ones.

The Saudi insurance sector is still fragmented. During 2020, the top eight insurance companies represented 75 percent of the insurance market’s gross written premiums. Bupa and Tawaniya combined accounted for over 50 percent of total market premiums.

As an update on market dynamics, the merger between MetLife AIG ANB and Walaa became effective in March 2020 as the first merger in the insurance industry.

The merger between Solidarity and Aljazira Takaful was completed this February, and the merger discussions between Gulf Union and Al Ahlia entered into force last December.

Last but not least, Enaya and Amana have already announced their intention to merge with discussions in progress and at an advanced stage.

In the investment banking arena, consolidation in any sector should provide benefits and a positive impact on the bottom line.

In the Saudi insurance sector, benefits include improving the merging company’s capital, reducing general and administrative expenses, diversification of the insurance product base, increasing and diversifying the customer base, the ability to benefit from the merging company’s relationships and its current and future sales channels.

In my opinion, nobody doubts the potential growth of the Saudi insurance sector after the consolidation spree.

There are around 30 companies listed on Tadawul right now. By 2023, this number is expected to drop to 15.

With Vision 2030’s giga-projects and dozens of other infrastructure megaprojects, there is more insurance business for fewer companies.

The Saudi insurance consolidation trend will keep its path in the next few years and will ultimately put this important financial sector on course for sustainable growth and profitability, not only for a few companies but for all players.

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

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