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Jun 2020

Saudi Arabia: COVID-19 to accelerate insurance mergers

Source: Middle East Insurance Review | Jun 2020

The fallout from the COVID-19 crisis will accelerate the ongoing M&A discussions in the Saudi insurance sector, said Mr Adel Al Eisa, media spokesman for insurers at the Saudi Arabian Monetary Authority (SAMA).
 
There have been ongoing discussions between several insurers to merge their operations, and the outbreak of COVID-19 would spur them to further expedite the process, Mr Al Eisa said in an interview with Al-Arabiya TV.
 
He added that the closure and lockdown of businesses have significantly reduced the number of motor accidents, but sales of insurers have dropped severely as well, even as insurers offer 60% to 70% discounts on motor policies. He expects companies’ profits to be largely affected this year. 
 
In March, the market witnessed the completion of the first merger in the Saudi insurance sector, bringing together Walaa Cooperative Insurance and MetLife AIG ANB Cooperative Insurance. More mergers could be in the pipeline with a number of operators exploring the possibility.
 
A number of insurers have been suffering for a while now as losses have eroded a sizeable part of their capital in recent years. Over the past few years, three operators (Sanad, Weqaya and Wafa) have suspended their operations, reducing the number of active operators in the kingdom from 34 to 31.
 
Saudi Arabia’s insurance sector is fragmented with 10 players controlling around 80% of the market’s GWP. SAMA is seeking to raise the minimum capital requirements for insurers, which would encourage consolidation in an overcrowded marketplace.
 
Last year, the aggregate premium income for 29 insurers reached SAR36.7bn ($9.8bn) against SAR33.9bn in 2018, recording an increase of 8.3%. Profit (before zakat) for the 29 players in 2019 grew by over 105% to SAR1.28bn from SAR620m in the preceding year. In 2018 and 2017, the market premium income contracted by 4.1% and 1%, respectively. M 
 
SAR1 = $0.27
 
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