Saudi insurance firms are ready for consolidation

Insurance companies have seen their growth plans thwarted by the massive drop in oil prices that began in the summer of 2014.

The Saudi Arabian insurance market is likely to experience consolidation this year as lacklustre industry growth on account of a flailing economy leads to mergers and acquisitions, according to S&P Global Ratings.

“The Saudi insurance market is likely to see only modest growth at best in 2017, largely fuelled by the authorities’ pursuit of motorists and employers that have so far not taken out the cover required under Saudi law,” said David D Anthony, a London-based credit analyst at S&P.

“We think 2017 may be defined by mergers and acquisitions, as the sector finally starts to ­consolidate.”

Domestic gross premium written in Saudi Arabia for 2016 is estimated to have been 35.8 billion Saudi riyals (Dh35bn), a 0.5 per cent growth rate from the previous year, the rating agency said.

Like many other businesses, insurance companies have had their growth plans thwarted by the massive drop in oil prices that began in the summer of 2014. Oil has lost 60 per cent of its value since then.

Saudi Arabia, the world’s biggest oil exporter, relies on sales of crude to fund more than 75 per cent of its budget and the deficit was understood to be between $80bn and $100bn in 2016.

The Saudi budget deficit widened to 14.8 per cent of GDP in 2015 from 2.3 per cent in 2014, according to ratings agencies.

Still, it’s not all dark and gloomy and since November oil prices have been on the rebound and the IMF, cheered by measures the Saudi Arabian government has taken to rectify its economy, expects the country to experience economic growth of 2 per cent in 2017 from 1.2 per cent in 2016. It’s not just in Saudi Arabia where insurance companies have been feeling the heat.

In the overcrowded UAE insurance market there has also been speculation that mergers and acquisitions may heat up in the industry following the combination of National Bank of Abu Dhabi and FGB, the two biggest banks in Abu Dhabi.

And even though the insurance industry is going through a rough patch, there is hope for the under-penetrated sector and analysts including those at the consultancy firm PwC are, however, upbeat about long-term growth.

PwC has said the insurance market in the Middle East has significant growth pot­ential, with an average insurance take-up of just 0.3 per cent in life insurance and 1.1 per cent in non-life insurance.

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