Regulatory changes and a strong economy are driving mergers and acquisitions, encouraging consolidation in the insurance industry.
The insurance sector in the Gulf, particularly in the United Arab Emirates and Saudi Arabia, the GCC’s main insurance markets, is undergoing rapid evolution. The continued rise in insurance premium volume indicates that the market is steadily moving towards maturity in terms of growth and regulations, said Suresh Nair, CEO of Gargash Insurance.
In 2022, the Middle East and Africa insurance market witnessed 24 M&A transactions. Notable mergers included Wataniya International Holding with Dar Al Takaful and Salama’s acquisition of Aman’s non-life portfolios in the United Arab Emirates. The recent approval for Sukoon Insurance (formerly Oman Insurance) to acquire ASCANA (Arabian Scandinavian Insurance) also exemplifies the strategic nature of such mergers, enhancing product offerings and market presence. Sukoon, which is among the top three insurers in the UAE, has emerged stronger after its consolidation drive. Previously, Sukoon had also acquired the life insurance portfolio of Assicurazioni Generali in the United Arab Emirates, as well as that of Chubb Tempest Life Reinsurance.
“Sukoon, formerly Oman Insurance, lacked Sharia-compliant insurance products. By acquiring Scandinavian Arab Insurance, Sukoon now has a Takaful division, enabling a wide range of products for its consumers,” Nair noted.
Another important deal with regional impact was the integration of National Life & General Insurance Company (NLGIC) and RSA Middle East, forming a new regional brand, Liva. Motivated by the ambition to build a multiline insurer, this move reflects the transformative nature of strategic alliances.
Emphasizing the natural progression of consolidation, mergers and acquisitions in a maturing industry, Nair cited competition, rising costs and rising regulatory standards in the UAE. “As markets mature, there is a relative increase in costs and revenues come under pressure. Regulatory authorities are guiding the UAE market towards global financial stability, world-class standards and greater customer protection, what drives insurance companies to raise reporting standards and transparency. The implementation of IFRS 17, effective January 1, 2023, stipulates, among other things, more detailed reporting of revenues and cash flow positions, with an increased requirement to maintain the solvency of the capital. These factors may contribute to an increase in overall cost for some companies. “As the thresholds for economic operation increase along with market competition, it is natural to expect an increase in mergers and acquisitions and consolidation activity.”
The GCC has comparatively low insurance penetration rates, ranging from 0.9% in Qatar to 2.9% in the UAE, compared to an average of 7% in some older, more mature markets. Recent regulatory measures such as mandatory health insurance for residents and unemployment insurance have contributed to increased insurance penetration in the UAE. However, significant growth potential remains untapped in the GCC market.
Discussing the impact of M&A and consolidation on insurance brokers and consumers, Nair says it is a win-win situation. Consolidation would help make the merged/acquired entities financially stronger, which in turn will translate into a stronger balance sheet, ability to invest in advanced technologies and product development. This raises customer offering levels and service standards, benefiting both the industry and consumers.
As of 2021, the UAE has one of the strongest countries. insurance markets in the Gulf region. More than 60 insurance companies operate in the UAE, including 12 Takaful insurance companies. Both life and non-life insurance segments contribute significantly to the growth of the sector. Despite global economic challenges, the UAE insurance market has demonstrated resilience and continues to experience steady growth. In the first half of 2023, the industry’s total revenue increased by 15% to Dh14 billion, recording pre-tax profit growth of around six percent. The GCC insurance CAGR stands at around 4.3% over the period 2019-2024, according to an industry report by Alpen Capital. Compared to mature markets where a 1% growth rate is considered the norm, “the growth of the GCC market presents a good opportunity for international players to consider entering the GCC market through mergers and acquisitions,” he noted. Nair.
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