Three more mergers being considered
Consolidation trend set to continue
Two more Saudi-listed insurers are exploring a potential merger as regulatory pressures spur consolidation in the local insurance market.
United Cooperative Assurance Company (UCA) and Arabia Insurance Cooperative Company (AICC) have signed a non-binding memorandum of understanding to assess the feasibility of the potential merger, the companies said in separate statements.
It follows a report by Fitch Ratings that predicted more mergers and acquisitions in Saudi Arabia’s insurance sector, “driven by new regulatory capital requirements and weak underwriting profitability on intense price competition”.
The companies will undertake due diligence, including financial, legal, tax, technical and actuarial reviews, as well as engage in preliminary non-binding discussions to define the terms and conditions of the merger.
The MoU would see AICC, which reported SAR1.7 billion ($450 million) total liabilities and equities for 2024, absorb UCA through a share-swap process.
UCA, which reported SAR920 million liabilities and equities last year, will increase its capital by issuing new shares to UCA shareholders. The deal is subject to government authorisation.
The merger would be the latest since the establishment of the Saudi Insurance Authority in 2023, which has increased regulatory pressure on insurers, particularly smaller companies.
In November 2023, Arabian Shield, one of the 10 largest listed insurance companies in Saudi Arabia, acquired Alinma Tokio Marine Company.
Fitch Ratings says that this trend is likely to continue, with larger companies acquiring smaller ones as more regulation comes into a market that is already characterised by extreme price competition.
“Insurers have come under increasing scrutiny following the establishment of the Insurance Authority,” says Graham Coutts, senior director of insurance at Fitch Ratings.
“The authority plans to introduce a risk-based capital regime by 2027 which is likely to drive further consolidation in the market.”
Fitch cites three additional mergers currently under evaluation, those of Liva and Malath, Salama and Saudi Enaya, and MedGulf and Buruj.
This trend could lead to a smaller number of more financially robust and technically sophisticated insurers. Consumers may have to pay more if pricing is done on a more sophisticated underwriting basis but would benefit from enhanced security and improved claims paying ability of the insurers.
Saudi Arabia is hoping to encourage more M&A deals across sectors to promote healthier businesses and competition.
Recent years have seen M&A deals increase, which consultancy PWC says is likely to continue, “particularly in high-growth sectors, as the market seeks to streamline operations by absorbing low-performing players and improving overall efficiency, while simultaneously building globally competitive companies”.
One in five Islamic insurers in Saudi Arabia and one in three of those in the UAE merged in recent years, in an environment of increased competition and stricter regulations on solvency capital requirements.
Although net profits in the sector reached a record $1 billion, competition and regulations, expected interest rate cuts from September and increasingly volatile capital markets could hurt 2025 earnings, says Emir Mujkic, a credit analyst at S&P Global Ratings.
The Saudi Central Bank is encouraging more M&A activity in the insurance sector to create fewer and stronger companies that are capable of meeting the objectives of Vision 2030.
