RIYADH: The Saudi insurance sector is set for consolidation as two leading firms signed a non-binding memorandum of understanding to explore a potential merger.

The MoU between Buruj Cooperative Insurance Co. and the Mediterranean and Gulf Insurance and Reinsurance Co., known as MedGulf, aims to establish a framework for the strategic transaction through a share exchange offer, according to a Tadawul filing. 

The deal will involve increasing MedGulf’s capital and issuing new shares to Buruj shareholders based on an exchange ratio to be agreed upon by both parties, it added.

This comes as the government aims to strengthen the insurance sector as part of its Vision 2030 plan to diversify the economy and enhance financial stability.

Saudi Arabia’s insurance industry is projected to experience a compound annual growth rate of 5.2 percent until 2028, reaching SR83.7 billion ($22.3 billion), according to UK-based consultancy firm Global Data.

This growth, up from SR68.3 billion in 2024, is primarily driven by the health and motor segments, which together will account for 86 percent of the overall gross written premiums. 

If the proposed transaction proceeds, MedGulf will act as the acquiring company, while Buruj will be the acquired firm, according to the Tadawul announcement. 

It added that Buruj will announce its financial adviser for the proposed transaction later. MedGulf has appointed HSBC Saudi Arabia as its financial adviser and Khoshaim & Associates as its legal advisor. 

The deal would involve a share exchange offer, increasing MedGulf’s capital, and issuing new shares to Buruj shareholders based on an agreed exchange ratio. 

Buruj stated it will continue its usual business operations until the merger is finalized and will announce any major developments as required by law.  

MedGulf noted both companies will conduct financial, tax, legal, and actuarial reviews and discuss the terms of the merger.