Saudi insurers plan merger as consolidation grows

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• Insurance sector grew 27% in 2022
• Central bank encourages more M&A
• Health and motor insurance drive growth

The board of Al Sagr Insurance Company has backed a proposed merger with rival Gulf Union Ahlia Insurance Company as increased claims and rising regulatory costs spur consolidation among insurers in Saudi Arabia.

A circular sent to shareholders of Al Sagr shareholders, seen by AGBI, concluded the offer from Gulf Union is “fair and reasonable” after carrying out due diligence with the assistance of financial advisors Al-Inma Investment Company.

The board of directors said they “unanimously recommend” the approval of the merger transaction.

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• Rising costs spur Saudi insurance duo to merge
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The value of merger and acquisition deals with any Middle East and North Africa involvement reached $32 billion during the first six months of 2023, down 34 percent, according to data compiler Refinitiv – the lowest first half total since 2017.

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. 

Under the latest proposal, all assets and liabilities will be transformed into the new Gulf Union Ahlia Insurance Company in exchange for Gulf Union issuing over 16 million ordinary shares with a nominal value of SR10 per share for the benefit of Al Sagr’s shareholders.

The circular says 1.15 shares will be issued in Gulf Union for every share owned in Al Sagr Insurance Company.

The completion of the merger transaction is conditional on obtaining the approval of the extraordinary general assembly of both companies, Al Sagr said in a filing on Saudi Stock Exchange.

Gulf Union has a market capitalisation of SR520 million compared to Al Sagr’s SR236 million, according to the bourse website.

If the offer is accepted the shareholders of Al Sagr Insurance Company will become owners of 26 percent of the capital of the new merged company.

Gulf Union has submitted an application to the Capital Market Authority to increase its capital for the purpose of the merger, the circular added.

Arabian Shield Cooperative Insurance Company announced in June it will acquire Alinma Tokio Marine Co through a share swap agreement that will lead the latter firm to delist from Saudi’s bourse.

Last year, the sector saw two mergers, between Walaa and Sabb Takaful and Arabian Shield and Alahli Takaful. 

The Saudi Central Bank said in May that the insurance sector in the kingdom grew by 27 percent in 2022.   

It said total gross written premiums in 2022 stood at SR53 billion, up from SR42 billion, with health and motor insurance driving the increase.   

Health insurance, which remained the largest line of business, grew by nearly 27 percent. 

The report added that the overall insurance sector recorded a net income of SR689 million last year compared to a net loss of SR47 million in 2021. 

The central bank last year issued several new rules to develop the sector related to comprehensive motor insurance, domestic workers contract insurance and a decision by the Council of Ministers to include more professions on the mandatory medical malpractice insurance. 

The report noted that the insurance industry’s contribution to non-oil GDP rose by 0.2 percent to 2.1 percent.