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Saudi central bank calls for M&A deals in the insurance sector

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Mergers and acquisitions can make sector more competitive and strengthen its financial position

The Saudi Arabian Monetary Authority (SAMA) has encouraged companies in the insurance sector to consider merger and acquisition (M&A) deals to reduce cost, increase efficiency and improve customer service, media reports said. The central bank believes mergers and acquisitions can make the sector more competitive and strengthen its financial position.

Citing the merger of Walaa Cooperative Insurance and Metlife AIG ANB Cooperative Insurance, and of Gulf Union National Cooperative Insurance and Al Ahlia Insurance as examples, SAMA has stressed that such deals can help improve the financial solvency of the companies involved in the deal.

Bader Alamoudi, senior country officer for JP Morgan Saudi Arabia told the media, “As in previous years, the financial sector has been one of the most active in terms of M&A activity in the region during 2020. The consolidation theme has created a ripple effect on other sectors, including energy, real estate etc., where we have started to witness heightened activity. I believe such activity will continue next year as well.”

Last year, SAMA imposed a ban on combining and insurance and reinsurance brokerage activities in the same firm. The decision stems from an attempt to boost stability in the insurance sector and add value to the Kingdom’s economic growth.

Major problems such as insolvency increased in the insurance industry after its liberalisation. For that reason, SAMA noted in a statement that the decision will further prevent ‘wrong practices’ in the industry. Currently, companies that combine both insurance and reinsurance brokerage activities have one year to restrict the practice.

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