Recent mergers in the insurance sector show that the Saudi central bank's (SAMA) plans for the industry are moving in the right direction, said the bank's Governor, Dr Fahd bin Abdullah Al-Mubarak.
He said that the kingdom saw three insurance mergers in the past year, the most recent being that of Aljazira Takaful and Solidarity. This merger was preceded by that of Walaa Cooperative Insurance with MetLife AIG ANB Cooperative Insurance, and that of Gulf Union Cooperative Insurance with the Al-Ahlia Cooperative Insurance.
Fierce competition in the crowded regional insurance sector is encouraging underwriters to merge in order to improve profitability, operational efficiency and financial strength.
SAMA says that it will continue to encourage mergers and acquisitions of insurance companies to achieve Vision 2030 goals, the most important of which is the Financial Sector Development Programme, Dr Al-Mubarak said.
The development of the financial sector includes an initiative to encourage and facilitate mergers in the insurance sector, aimed at sustaining the sector’s growth, stability and sustainability, and increasing its contribution to GDP.
Another merger being discussed
Meanwhile, Arabian Shield Cooperative Insurance has entered a memorandum of understanding with Alahli Takaful (ATC) to begin a reciprocal due diligence process and negotiate the final terms of the potential merger, according to a statement lodged with the Saudi stock exchange, Tadawul.
The two companies agreed on a non-binding basis that ATC will merge into Arabian Shield and ATC shareholders will receive newly issued shares of Arabian Shield in exchange for every share they hold in ATC.
The future merged entity will continue to be called Arabian Shield Cooperative Insurance and all of ATC’s employees will be absorbed into Arabian Shield, with no involuntary redundancies.