Saudi Arabia: 2 more insurers hold talks on possible merger
Source: Middle East Insurance Review | Nov 2020
Saudi Enaya Cooperative Insurance and Amana Cooperative Insurance are holding talks about a potential merger.
The insurers said in separate statements to the Tadawul stock exchange that board approval had been granted to begin “initial discussions” about a merger, but this does not necessarily mean a deal will happen, reported The National.
“In the event that an initial agreement is reached on the merger, a non-binding MoU will be signed with Amana Cooperative Insurance Company to assess the feasibility of the merger of the two companies,” Saudi Enaya said in its statement.
A merger between the pair would create an insurer with a market capitalisation of about SAR1.24bn ($330.7m) based on Tadawul closing prices on 5 October.
In Saudi Arabia, there is a push factor for smaller companies to merge as regulators have indicated that minimum capital requirement for primary insurance companies will increase to SAR500m, from SAR100m at present, although no date has been set for this increase to be implemented.
Financial statements for 2019 and for the first six months of 2020 showed that currently only seven of the kingdom’s active insurers had a total equity in line with the higher capital requirement, although a further six could easily meet the higher threshold either through retained profits or capital injections, said Moody’s Investors Service.
“However, the remainder would face significant shortfalls,” the rating agency said. It expects these smaller insurers either to consolidate through mergers or to enter run-off and eventually exit the business. M
SAR1 = $0.27