By: Mahmoud Salah
Riyadh – Mubasher: Saudi insurance companies tended to carry out mergers, amid expectations that they will be 2017 characteristic of the sector.
Technical analyst Abdul Rahman Al Garboua attributed the tendency to mergers to week competition chances and the erosion of capital of almost half of the sector's companies, although insurance premiums grew in the last few years.
The insurance sector is suffering from a big competition gap as two firms acquire 45% of the market share of the sector, while nine firms acquire only 9%, Al Garboua told Mubasher.
He added that this divergence affected the small-sized companies' ability to achieve the required level of profits as a result for its inability to compete and take risks.
Saudi market leaders, Tawuniya and Bupa Arabia, achieved a combined market share of 44.7% in 2016, Standard and Poor's reported.
The agency added that 14 out of the 33 insurers that were operational in 2015 and 2016 reported net losses totaling SAR 707.7 million, while the remaining 19 firms posted SAR 1.75 billion profits.
Al Garboua noted that by the end of 2016, 18 firms were not able to offset their accumulated losses and some of these firms would encounter some difficulties in meeting the requirements of the financial solvency.
The analyst expected that the number of flagged KSA insurance companies for having high accumulated losses would rise from 4 to 14 companies after applying the new regulations next months on the firms of which accumulated losses reached 20% or more of their capital.
Moreover, technical analyst Nasser Abdul Hameed said that the insurance companies' losses are attributable to higher operational costs in the Kingdom, especially with the high price competition.
He added that the losses of the health and car insurance sectors are very high and range between 70% and 75% of the market.
The insurance penetration, which refers to the contribution of the insurance sector to non-oil GDP, hit 2% in 2016, Albilad Capital reported.
On the other hand, the insurance density rate — average insurance spending per capita — downward by about 2.5% (SAR 29) down to SAR 127,1 ($300) per person in 2016, from of SAR 156,1 ($308) per person during the previous year, the report added.
Al Garboua pointed out that the merger or acquisition options offer ideal strategic solutions for these companies to overcome the financial problems and establish strong entity can compete, expand and achieve profits.
The absence of the merging culture in the local market and the control over the property especially in the family firms restrain mergers in the kingdom, the analyst noted.
The analyst told Mubasher that the number of the current companies is more than the needed, as the market is still relying on the obligatory insurance products, which are the health and care insurances, that represent 84% of the market's volume.
Al Garboua said that the insurance sector needs policies that encourage mergers which achieve proportional advantages for the merging entities.
Translated by: Sara Ghali
