Saudi Arabia is expected to see an increase in mergers and acquisitions (M&A) within its insurance sector as the GCC region enters a significant consolidation phase, said Mohammed Ali Londe, Vice President - Senior Analyst at Moody’s Ratings. 

The region saw 10 M&A transactions completed or underway over the past 12 months.   

“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. 

Consolidation allows insurers to diversify their product offerings, expand distribution network and broaden customer base while creating operational synergies. 

In addition, M&A facilitates faster new markets and revenue growth compared to organic expansion, he said. 

However, Londe cautioned that the positive effects on creditworthiness may take time to emerge due to short-term challenges, including operational integration, customer retention, as well as alignment of strategies and corporate cultures. 

The GCC insurance market remains significantly fragmented, with nearly $40 billion premium shared between around 190 competing insurance companies. 

The top five insurers in each market typically account for around 50% of the premium volume, leaving the remainder divided among smaller companies, Londe said. 

Consolidation will create winners and losers, with smaller insurers who cannot find acquirers being forced out of the market over time, he added. 

Meanwhile, the sector is increasingly becoming attractive to strategic investors such as banks, sovereign wealth funds, and wealthy individuals. 

In Saudi Arabia, the Public Investment Fund is currently in the process of acquiring a 23% stake in Saudi Reinsurance Company, which will provide the insurer with a capital injection of SAR 267.3 million ($73 million). 

“Stake building by such investors can provide insurers with additional capital and improve their overall financial flexibility,” Londe said. 

GCC insurance revenue grew 15% year-on-year in 2023, led by Saudi Arabia, with a 23% increase. 

“This growth is making the sector more attractive to investors, improving its ability to raise capital and support M&A,” Londe stated. 

(Editing by Brinda Darasha; brinda.darasha@lseg.com)