Insurance Law

KSA Insurance M&As: Recent Developments & Expected Impacts

On the 2nd of September 2021, a royal decree was issued in the KSA which outlined several changes to the current Insurance Law. Whilst some of these were less consequential and natural outcomes of the rebranding of the Saudi Arabian Monetary Agency to the Saudi Central Bank, an important change noted was the increased minimum capital requirement or MCR.

This has increased from SAR 100m to SAR 300m with an apparent alignment period of 3 years (extendable). Note that this MCR is likely not the same as the paid up capital that an insurer reflects on the balance sheet. It is likely the MCR from a solvency point of view as calculated within quarterly SAMA submissions i.e. this accounts for inadmissible assets, which in some instances can be large.

The increased MCR is likely to have a detrimental impact on middle to small sized companies. Whilst a handful of these subset are already in merger and acquisition (M&A) discussions that may reduce or negate the need for additional capital injections, the remainder are highly likely to follow this same course of action.

To date there have been several successful M&As with a growing number in the pipeline. These are shown in the table below:

Acquirer & 2020 GWP

in SAR Millions

Target & 2020 GWP

in SAR Millions



Walaa (1,472)

Metlife AIG ANB


Q1 2020

Gulf Union (557)

Al Ahlia (181)


Q4 2020

Aljazira Takaful (234)

Solidarity Saudi (337)


Q1 2021

GIG Kuwait

AXA Cooperative (1,417)


Q3 2021

Amana (330)

Saudi Enaya (166)

Binding agreement signed


Arabian Shield (553)

Ahli Takaful (248)

Binding agreement signed


Walaa (1,472)

SABB Takaful (202)

MoU signed



Should all transactions currently in progress be successfully completed before 2021 then the market would have witnessed 6 companies exit within a span of 2 years. This reduces the stress on these merged entities in meeting the increased MCR. Over and above the official announcements above, there are expected to be other unofficial discussions which may materialise into MoUs and non-binding agreements before the end of 2021.

There is thus a strong likelihood that of the current 27 companies listed, there may be less than 20 left by the end of Q2 2022. With the increased MCR, this number could fall further to below 15 over the next 18 months.

Such consolidation is envisaged to create economies of scale by eliminating smaller weaker players and increasing the efficiency of newer, large players that potentially benefit from a wider geographical presence, diversified product offering and underutilised distributional channels. Nevertheless the newly formed entities will navigate through strong headwinds of regulatory change and a difficult competitive environment.

Most notable among the regulatory reporting changes is the imminent implementation of IFRS 17, the new accounting reporting standard that will be adopted from 1 January 2023 in the KSA and globally. The specific changes of the standard are just as significant as the cost of aligning with the standard itself. The upskilling of existing staff, additional human resourcing requirements and IT infrastructure supplementation are just 3 areas where significant investment is needed for all companies looking to simply meet minimum compliance requirements.

For middle to small companies and even some merged entities, the cost of compliance will be a necessarily heavy load to bear and so proper business planning should be undertaken to understand the feasibility of the going concern.  To this end there have been some companies which have increased their paid up capital in the last 12 months, potentially in preparation for these upcoming challenges.

The competitive climate exacerbates this pressure as the market is heavily dominated by 2 large players, namely Bupa and Tawuniya. The drastically uneven distribution of premiums will not be remedied by M&As as the operational scale achieved by large players affords a competitive bargaining position and cost base efficiency that cannot be matched in the near term.

This has led these 2 companies to account for 83% of the 2020 net profits of the insurance industry. Middle to small entities guilty of the usual price warfare on retail lines with high acquisition costs will likely not survive with this historic approach and will have to find new ways to compete.

The outlook for the industry is a concern, particularly for the insurers that cannot achieve a suitable scale. The aforementioned market pressures are unlikely to be forgiving and will require renewed business forecasting over the next 5 to 10 years, especially on an IFRS 17 basis.  Larger players will see increased acquisition opportunities but may also choose to be patient in witnessing the inevitable disappearance of former competitors. Smaller players will be keen to secure suitable merger partners in order to weather the storm with the comfort of a larger capital base. Either way, the next 2 years will likely see a material change in the competitive landscape.

05th Oct 2021, By Shivash Bhagaloo