According to Mohammed Ali Londe, Vice-President-Senior Analyst at Moody’s Ratings, as the Gulf region enters a major consolidation phase, Saudi Arabia is anticipated to witness a rise in mergers and acquisitions (M&A) within its insurance sector.
Over the previous 12 months, 10 M&A deals were completed or in progress in the region.
“We regard M&A as generally credit positive for the sector as it enables insurance groups to achieve economies of scale, enhancing solvency and profitability,” he said, as reported by Zawya.
Insurers can create operational synergies, diversify their product offerings, and increase their customer base and distribution network through consolidation.
He added that compared to organic expansion, M&A enables quicker revenue growth and new market penetration.
“The short-term issues, such as operational integration, customer retention, and strategy and corporate culture alignment, could delay the emergence of the positive effects on creditworthiness,” Londe warned.
The GCC insurance market is still fragmented, with about 190 competing insurance companies sharing a premium of almost USD 40 billion.
“About half of the premium volume is usually split among the top five insurers in each market, with the remaining portion going to smaller businesses,” Londe added.
According to the Vice-President-Senior Analyst at Moody’s Ratings, there will be winners and losers from consolidation, with smaller insurers who are unable to locate acquirers eventually being driven out of the market.
In the meantime, banks, sovereign wealth funds, and affluent individuals are finding the industry more alluring as strategic investors.
To give Saudi Reinsurance Company a capital boost of SAR 267.3 million (USD 73 million), the Public Investment Fund in Saudi Arabia is presently in the process of purchasing a 23% stake in the company.
“Stake building by such investors can provide insurers with additional capital and improve their overall financial flexibility,” Londe noted.
In 2023, GCC insurance revenue increased by 15% year-over-year, with Saudi Arabia leading the way with a 23% increase.