Mediterranean & Gulf Insurance & Reinsurance (MedGulf) has recorded SAR733.97 million (US$195.7 million) in accumulated losses at 30 June 2017, accounting for 73.4% of its capital, the company said in a statement to Saudi bourse, Tadawul. This followed accumulated losses of SAR294 million at 31 March 2017.
Due to the continued decline in the financial performance of the company, its management does not expect to meet solvency margin requirements by 2018 as previously planned and has communicated this to the SAMA.
MedGulf said that it is in the process of revising its business plan, which management believes is expected to gradually improve the company’s financial position and increase its solvency margin.
The insurer incurred net losses of SAR417 million for the second quarter and of SAR93 million for the first quarter of 2017. The second quarter losses were due to a 60.5% drop in net premiums and an increase in bad debt provisions of SAR358 million, the insurer said when it filed its second quarter financial results in mid-August. It said SAR142 million of the provisions were made for related party receivables, SAR126 million for reinsurance receivables and SAR90 million for additional policyholder receivables.
Also, a lower profit from shareholder investments during the quarter was attributed to a 54.8% in special commission income as well as lower profits from available-for-sale investments.
The Saudi insurer will be subject to the Capital Market Authority’s rules governing listed companies with accumulated losses of more than 50% of their capital.
In early August, MedGulf received a letter from SAMA, warning of legal procedures against the insurer if it did not rectify irregularities in its accounting or if it delayed disclosing financial statements.
The company has announced that it would call for an Extraordinary General Meeting to approve the reduction of capital to offset accumulated losses. The capital reduction will be subject to the approval of the authorities and shareholders.
MedGulf also said that it would aim to increase income and net profit by adopting a clear credit policy and activate debt collection.
Solvency margin
On 30 March 2016, SAMA issued a letter to MedGulf that highlighted the company’s deteriorating solvency margin and demanded rectification measures be taken.
The insurer was not able to meet the solvency margin requirement by 30 September 2016 as had been instructed by SAMA and had not submitted a final approved plan that would turn things around.
On 27 December 2016, SAMA issued another letter binding the company to provide an approved plan to meet the requirement of solvency margin by 18 January 2017 and take necessary measures to ensure the rights of policyholders.
The detailed plan was provided to SAMA in the first quarter of 2017.
During the second quarter, the accumulated deficit increased to SAR734 million, which resulted in further deterioration in the solvency margin of the company. M
SAR1 = US$0.27