Saudi insurance sector eyes more mergers and acquisitions

Analysts said the Saudi insurance market is set to witness consolidation with mergers and acquisitions (M&A) gaining pace during 2021. (Social media)
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Updated 17 April 2021

Saudi insurance sector eyes more mergers and acquisitions

  • Government assistance shielded sector from the coronavirus disease (COVID-19) pandemic’s impact

RIYADH: The Kingdom’s insurance sector closed the financial year 2020 on a high note with the aggregate net profit of local insurance firms, except for the Saudi Indian Company for Cooperative Insurance, rising to SR1.443 billion ($0.38 billion) in Q4, an increase of 47 percent year-on-year, according to data compiled by the financial news service Argaam.

There were 13 insurers recording higher profits in 2020, led by the Mediterranean and Gulf Insurance and Reinsurance Co., which surged 1,081 percent, the Saudi Arabian Cooperative Insurance Co., which increased 545 percent, and the Gulf General Cooperative Insurance Co. which saw net income up 397 percent.

The sector finished out the tough year on a high note mainly thanks to government support. 

KPMG said while the pandemic triggered disruption for most industries, the Saudi government intervened and provided relief by opting to pay for the treatment of all COVID-19 patients. 

The audit, tax and advisory services firm found that the cumulative net profit after zakat and tax touched a high of SR1.32 billion in the first nine months of 2020, an increase of 96.1 percent year-on-year. Argaam’s figures also found that the total gross written premiums (GWPs) of Saudi-listed insurance companies increased by 3 percent year-on-year to SR38.28 billion in 2020. 

There were 18 insurance firms out of 29 reporting an increase in GWPs last year, led by Aljazira Takaful Taawuni Co., which was up 80 percent year-on-year. 

Saudi insurers reported SR23.5 billion in net claims last year, down from SR24.7 billion a year previously. Net incurred claims accounted for around 76 percent of GWPs in 2020, the data showed.

Analysts said the Saudi insurance market was set to witness consolidation with mergers and acquisitions (M&A) gaining pace during 2021.  The Saudi Central Bank (SAMA) in January reiterated the need for insurance companies to look at M&A deals since the sector was a key driver of the Kingdom’s economy and a pillar of the Financial Sector Development Program, one of 12 executive programs launched by the Council of Economic and Development Affairs to achieve the objectives of Saudi Vision 2030.

HIGHLIGHTS

• The Kingdom’s insurance sector closed the financial year 2020 on a high note with the aggregate net profit of local insurance firms, except for the Saudi Indian Company for Cooperative Insurance, rising to SR1.443 billion($0.38 billion) in Q4.

• The total gross written premiums (GWPs) of Saudi-listed insurance companies increased by 3 percent year-on-year to SR38.28 billion in 2020.

• Saudi insurers reported SR23.5 billion in net claims last year, down from SR24.7 billion a year previously.

The recent mergers between insurance firms were positive indications that the central bank’s plans for the sector were moving in the right direction, said SAMA Gov. Fahad Al-Mubarak during the honoring of Aljazira Takaful Taawuni Co. and Solidarity Saudi Takaful Co. following their merger.

SAMA will continue to encourage insurance companies to look at potential mergers in order to achieve the goals set out as part of the Vision 2030 programs, Al-Mubarak said. 

The sector recently witnessed a number of agreements and mergers, including between Walaa Cooperative Insurance Co. and Metlife AIG ANB Cooperative Insurance Co., and between Al-Ahlia Insurance and Gulf Union National.

Talal Bahafi is chief market officer at Marsh Saudi Arabia, which is part of the global financial services group Marsh & McLennan. He said the Kingdom’s insurance sector was likely to see more consolidation in 2021, driven by insurers looking to streamline costs, boost efficiency and increase optimization.

“The last 12 months have brought about significant changes to the insurance market in the GCC (Gulf Cooperation Council), in terms of capacity and pricing,” Bahafi told Arab News. “We expect these conditions to persist throughout 2021 and for organizations to continue to face more challenging trading conditions. It is important for organizations to adapt to these shifts by renewing their focus on building resiliency and rethinking their risk management strategies. This will, in turn, ensure they have an insurance program in place which matches the risk appetite of their business.” The Clyde & Co Insurance Growth Report 2021 said the Middle East insurance sector would see increased M&A activity this year.

According to the law firm’s report, M&A insurance deals in the Middle East and Africa rose by 166.7 percent in 2020, the biggest growth across all regions.

S&P Global Ratings, in its latest report on the GCC insurance sector, said it expected to see growth in Saudi Arabia due to regulatory initiatives. 

In the GCC it expected its ratings on insurers to remain broadly stable in 2021 owing to robust capital buffers, despite ongoing economic uncertainty relating to the pandemic.

Meanwhile, the rate of Saudization in the insurance sector has reached 75 percent compared to 35 to 40 percent in the past, according to Abdullah Al-Tuwaijri, SAMA’s director general of insurance supervision.

Al-Tuwaijri, who made the remarks during a session of the Economic Growth Forum, added that the high Saudization rate indicated the sector was capable of creating more job opportunities for citizens.

Related


How the pandemic helped 3D printing became mainstream

Updated 13 May 2021

How the pandemic helped 3D printing became mainstream

  • Demand in the Kingdom is coming from critical sectors, such as oil, gas, defense, and utilities

JEDDAH: The global uncertainty created by the coronavirus disease (COVID-19) pandemic was a challenging time for many industries. However, for some, such as Zoom or Amazon, it was a blessing in disguise and a catalyst for accelerated growth.

The 3D printing sector also saw a rapid surge in demand.

Dubai-headquartered Immensa Technology Labs reported that its business grew by nearly 400 percent in 2020, as global supply chains were disrupted, and operators scrambled to find an alternative.

“The pandemic was probably one of the biggest propellers for this technology, the year of COVID-19 is the year that 3D printing grew up and became mainstream,” CEO and founder of Immensa, Fahmi Al-Shawwa, told Arab News.

“3D printing saved the day,” he said, adding: “Whether it was in the medical sector, where we started producing components for hospitals to utilize, or things as big as old refineries, where there had been components that failed, and they could not resource the spare parts, we produced them.”

As one of the biggest markets in the region, Saudi Arabia was an obvious target for expansion. In April, Immensa was the first company in the Kingdom to be awarded an additive manufacturing — or 3D printing — license by the Saudi Ministry of Investment.

Immensa launched into the Saudi market in November through its acquisition of two Saudi 3D printing startups, Shakl3D and LayLabs. Shakl3D was established in 2016 and LayLabs two years later. By combining with Immensa, the larger entity is aiming to scale globally and target opportunities in Europe and North America.

“By acquiring their existing setups and investing in what they have started, we can expedite the development of the industrial 3D-printing sector in the Kingdom and provide both teams with the international platform of Immensa,” Al-Shawwa said.

HIGHLIGHTS

● In April, Immensa was the first company in the Kingdom to be awarded an additive manufacturing — or 3D printing — license by the Saudi Ministry of Investment.

● Immensa launched into the Saudi market in November through its acquisition of two Saudi 3D printing startups, Shakl3D and LayLabs.

● The company has also acquired a 10,000 square foot industrial facility in Dammam and is planning to establish a network of other 3D printing hubs across Saudi Arabia.

The company has also acquired a 10,000 square foot industrial facility in Dammam and is planning to establish a network of other 3D printing hubs across Saudi Arabia.

3D printing is a production method in which materials such as plastic or metal are stacked in layers to create products. It is also known in the industry as additive manufacturing or rapid prototyping.

Immensa is focused on industrial 3D printing, making mechanical and functional parts for the oil and gas, utilities, power, and water treatment sectors. Al-Shawwa is planning to expand the company’s reach to other sectors and industries.

“We already have our plastics and polymer machinery up and running,” he said, adding that its “metal facility will be operating in the coming weeks.”

As part of its overall strategy, the CEO said he is planning a big investment drive in the Kingdom. “Over the next three years, I think we will be investing significantly.”

According to Statista, the global 3D printing market was valued at around $13 billion in 2020 and is forecast to grow at a rate of 26 percent per annum between 2022 and 2024.

At the same time, in its latest report issued late last year, research firm UnivDatos Market Insights said the 3D printing industry in the Middle East and North Africa was valued at $521.4 million in 2018, which is expected to rise to $1.374 billion by 2025.

“Globally, the adoption of 3D printing is growing at around 30 percent per year. I think what we are going to see in Saudi Arabia is it growing by more than four times that, of 150 to 200 percent per year,” Al-Shawwa said.

Demand in the Kingdom is coming from critical sectors, such as oil, gas, defense, and utilities. These sectors pave the way for other sectors, as other industries are slowly adopting the technology in areas like tooling and injection molding, he explained.

The company boasts eight full-time engineers in Saudi Arabia, with plans to increase that to over 20 this year. Al-Shawwa said one of the reasons for their focus on Saudi Arabia was the availability of local engineers.

“The pool of talent in Saudi Arabia is phenomenal,” Al-Shawwa said.

“One of the reasons why we are shifting to Saudi because we don’t have to rely on expat talents. You can actually rely on local talent.”

Al-Shawwa envisions Immensa eventually becoming a Saudi-American company in the next five years. Its primary base will be in the Kingdom, servicing the rest of the Gulf, which has been the company’s main focus market for the last two years. However, it has recently expanded to the US, which will focus on clients in Asia and northern Europe.


Oil industry spending cuts hammer services firm CGG

Updated 13 May 2021

Oil industry spending cuts hammer services firm CGG

  • A recent pick up in oil prices helped Europe’s major energy companies to post big increases in first quarter earnings

GDANSK: French oil services group CGG posted a 71 percent plunge in first quarter core profit on Wednesday, reflecting a year of drastic spending cuts by the oil industry in the pandemic and sending its shares sharply lower.

In a call with analysts, CEO Sophie Zurquiyah said the quarter had been slow as expected, but predicted more spending in the second half of 2021, noting a resumption of commercial business and contract awards in March and higher oil prices.

“I believe we will see the need for our clients to increase their activity to not only catch up on the work postponed from 2020, but also to compensate for the depletion of their existing reservoirs,” she told analysts in a call.

Zurquiyah confirmed the firm’s 2021 targets.

A recent pick up in oil prices helped Europe’s major energy companies to post big increases in first quarter earnings.

That could bode well for CGG, which cut jobs and sold out of businesses last year as companies such as BP, Total, and Equinor slashed spending.

The Organization of the Petroleum Exporting Countries (OPEC) on Tuesday stuck to its prediction of a strong recovery in world oil demand in 2021, as growth in China and the US counters the coronavirus crisis in India.

OPEC and its allies, known as OPEC+, agreed in April to gradually ease oil output cuts.

CGG posted a first quarter core profit of $36 million, while its multi-client business — which offers seismic data and geological studies — had just one active project in offshore Brazil. Its stock was down over 9 percent at 0725 GMT, the worst performer on France’s SBF 120 index.


SoftBank joins top earners with $37bn Vision Fund profit

Updated 13 May 2021

SoftBank joins top earners with $37bn Vision Fund profit

  • SoftBank has hiked its committed capital in the second fund to $30 billion from $10 billion

TOKYO: SoftBank Group Corp. on Wednesday reported a record fourth quarter 4.03 trillion yen ($36.99 billion) Vision Fund unit profit from an investment gain on Coupang, putting it among the world’s biggest earning firms a year after an unprecedented loss.

Group net profit was 4.99 trillion yen ($45.88 billion) in the year ended March, beating the $42.5 billion made by Warren Buffett’s Berkshire Hathaway Inc. in its last business year.

It also compares with a 962 billion yen loss a year earlier after teetering tech bets depressed the value of Softbank’s portfolio.

“It’s clearly validation of Masa’s thesis,” Navneet Govil, Vision Fund’s chief financial officer, told Reuters in an interview, referring to company founder and CEO Masayoshi Son.

Market enthusiasm for tech stocks drove the public listing of SoftBank-backed e-commerce firm Coupang and used-car trading platform Auto1 Group and the rising share price of ride-hailing firm Uber during the quarter.

To sustain Softbank’s position among the global corporate elite, Son will have to replicate that fourth quarter performance with other yet-to-list companies in the Vision fund portfolio. Son has likened that to laying golden eggs.

Candidates including ride-hailing firm Didi, TikTok owner Bytedance and truck service platform Full Truck Alliance have strong revenue growth, healthy market share and a clear path to profitability, according to Govil.

These companies are “sizeable investments with significant value to be unlocked,” he said.

Much of Vision Fund’s gain, however, is on paper with the value of the portfolio locked up in the stock market amid concern over frothy valuations and a boom in special purpose acquisition vehicles (SPACs), which has drawn regulatory scrutiny.

The total fair value of the first $100 billion Vision Fund and the smaller second fund was $154 billion at the end of March, with SoftBank distributing $22.3 billion to limited partners.

SoftBank has hiked its committed capital in the second fund to $30 billion from $10 billion, reflecting the breadth of investment opportunities, Govil said.

Two of SoftBank’s highest profile bets, space sharing firm WeWork and ride-hailing firm Grab, have outlined plans to list via SPAC mergers, with Vision Fund reportedly in talks to use its own such vehicle to list portfolio company Mapbox. The Grab deal offers further upside for the Vision Fund should the transaction go through, Govil said.

The group’s trading arm, SB Northstar, is expanding deal making this week leading a $1 billion investment in acquisitive e-commerce firm THG.

SB Northstar and the broader group recorded a 233 billion yen loss on investments in listed stocks and derivatives as efforts to work cash reserves outside the Vision Fund sputter.

SoftBank has completed a 2.5 trillion yen buyback program launched last year, which pushed the stock price to two-decade highs in March. The end of the buyback pulls support at a time when shares are sliding in line with weakness in US tech stocks.


Global demand for diamonds rebounds

Updated 13 May 2021

Global demand for diamonds rebounds

  • Sales by the state-controlled company totaled $1.6 billion for the first four months of 2021

MOSCOW: Russia's Alrosa, the world’s largest producer of rough diamonds, said on Wednesday its April sales of rough and polished stones rose by 12 percent month-on-month to $401 million after demand for diamond jewelry strengthened in the main markets.

Global demand for precious stones has been recovering from the impact of the coronavirus disease (COVID-19) pandemic since the second half of 2020.

Sales by the state-controlled company totaled $1.6 billion for the first four months of 2021. At the height of the pandemic in April 2020, Alrosa’s sales were only $15.6 million. 

They rose to $357 million in March this year.

Alrosa, which competes with Anglo American unit De Beers, is gradually restoring its production after last year's 22 percent reduction. It plans to return to its usual annual output of 36-37 million carats within 2-3 years from 31-32 million carats in 2021.

Rough diamonds account for the bulk of Alrosa’s sales, although it polishes those of rare colors or of large size for sale in auctions.

“Our April sales were well supported by the successful results delivered by auctions of high-quality large rough, as well as by strong sales of polished diamonds,” Evgeny Agureev, its deputy chief executive, said in a statement.

A 100.94 carat stone called the Alrosa Spectacle — the largest polished diamond ever cut in Russia — will be auctioned by Christie’s in Geneva on Wednesday.


Japan steps up marketing push to win back Saudi tourists

Updated 7 min 59 sec ago

Japan steps up marketing push to win back Saudi tourists

  • The number of tourists from GCC countries who have visited Japan has doubled in the last five years

RIYADH: Prior to the onset of the coronavirus disease (COVID-19) pandemic, Japan had witnessed a surge in the number of tourists from Saudi Arabia, and the country’s tourism board is keen to revitalize this once international travel resumes on May 17.

According to the Japan National Tourism Organization (JNTO), a total of 11,152 Saudi tourists visited the East Asian country in 2019, a year-on-year surge of 50.6 percent.

However, due to global travel restrictions as a result of the pandemic, Tomoko Kikuchi, executive director of the JNTO’s Dubai Preparation Office, told Arab News the numbers declined rapidly last year.

“Unfortunately, because of the pandemic, the number decreased more than 90 percent in 2020. We do not expect it to recover soon, but we hope to return to 2019 levels at the soonest,” she said. 

Tomoko Kikuchi

In a bid to revive interest from visitors in the region, the JNTO has put in place a strategy to raise visitor numbers to their pre-pandemic levels.

As part of its goal to attract 60 million international visitors per year by 2030, the JNTO announced in April that it is planning to establish a regional office in Dubai and to exhibit at the Arabian Travel Market, the Middle East’s largest tourism exhibition, which starts in Dubai on May 16.

The number of tourists from Gulf Cooperation Council (GCC) countries who have visited Japan has doubled in the last five years, reaching 28,222 in 2019.

With Saudi visitors making up nearly 40 percent of GCC visitors before the pandemic, the JNTO partnered with global travel and tourism sales and marketing firm AVIAREPS Middle East to promote Japan in the Saudi market.

“Many travelers from Saudi Arabia visit Tokyo and Kyoto to enjoy the unique cityscapes that fuse traditional and contemporary culture, to try Japanese food and to do some shopping, but there are many other attractive aspects to Japan. Nature is abundant, and you can enjoy the beach in the summer and skiing in the winter. We would like to promote various Japanese tourist attractions in the Saudi market this year,” Kikuchi said.

“It is great to know that vaccinated Saudi citizens will be allowed to travel overseas from May 17. When the COVID-19 situation improves internationally and domestically in Japan, we would like to welcome tourists from Saudi Arabia,” she added.