As insurance firms proliferate and regulation picks up pace, discussion at MultaQa 2011 turned to the prospects for mergers and acquisitions in the GCC region


When it comes to insurance companies, the GCC region may have too much of a good thing.

Using his company’s home market of Bahrain as an example, (re)insurer Arig chief executive Yassir Albaharna said the country was home to 30 domestic direct insurance companies, plus a further 26 foreign firms – all chasing roughly BHD220m ($82.6m) of premium.

And that is just Bahrain. Saudi Arabia is home to 34 (re)insurance companies, and has placed a freeze on new entrants.

Therefore, there was much talk about potential mergers and acquisitions in the GCC region at MultaQa Qatar 2011. Speaking at the chief executive panel session on the first day of the event, Munich Re’s client management executive for the Middle East and North Africa region, Andreas Pollmann suggested that the effects of regulations and standards elsewhere in the world would push GCC insurers to merge.

Thinking big

“If regulators want companies in their markets that are able to build a sufficient risk pool, are big enough to attract talent to develop their underwriting standards and big enough to retain business and not just pass it on to reinsurers, they require consolidation in the market,” Pollmann said.

He added that regulators hoping to create such a situation would not increase capital requirements because there was an abundance of capital and willing investors.

Instead, he suggested, regulators could impose certain operational standards on companies, such as underwriting and reporting requirements, as well as monitoring risk retention levels.

“If the company does not achieve the necessary retention, the regulator is called to remove this company from business. This will obviously hurt some companies,” he commented.

However, there has been little activity to date. In a panel session on day two of MultaQa Qatar, law firm Clyde & Co partner Wayne Jones said several factors were suppressing mergers and acquisitions in the GCC region.

“At the moment there is very little pressure to sell on the companies that are in place,” he said. “The insurance industry is seen as a growth sector, so those who have entered the market and have licences are in the position of trying to exploit the growth to gain market share. In order for M&A activity to happen, there needs to be some pressure on companies to sell.”

Even where there are willing buyers and sellers, regional rules can get in the way. “With the exception of the new financial centres, such as the Qatar Financial Centre and the Dubai International Financial Centre, it is very difficult to buy and sell companies,” Jones added.

As one example, Jones pointed to Saudi Arabia’s restrictions on new companies entering the market. However, he added: “I know the regulator is keen, though, to see good companies survive, bad companies weeded out and absorbed by other companies.”

A further restriction is the United Arab Emirates’ disallowance of composite insurance, meaning that insurers writing there must choose either life or non-life.

“I know a number of international companies would love to pick up a composite insurer’s life business and partner with them on that. But it is exceptionally difficult with the legal structure the way it is and the way the regulations operate at the moment,” Jones said.

In addition, the structure of many regional firms as public companies, which may trade rarely on the stock exchange and sometimes only once on the day of incorporation, could make acquisitions a challenge, he said. “It adds another layer of complication to how you go about buying a company or buying a book of business.”

Clamour for M&A

That is not to say there has been a complete dearth of M&A activity in the GCC region. And while regulations can prove a barrier, some regulators can facilitate deals.

In February 2010, UK-based insurer RSA announced it was buying Oman’s third-largest insurer, Al Ahlia, from the Oman National Investment Corporation for £31m ($51m).

In October of the same year, Swiss insurer Zurich agreed to buy 99.98% of privately-owned Lebanese insurer Compagnie Libanaise D’Assurances. A key attraction for Zurich was the company’s licences in the UAE, Kuwait and Oman, giving it a presence in the local markets outside its DIFC regional base.

Jones, whose firm Clyde & Co worked on both deals, said the RSA transaction in particular was helped by regulators. “The Omani regulator was very accommodating on that transaction and I think that is a significant contribution to why it went ahead,” he said.

Despite the clamour for more M&A activity in the GCC region, some warned that it should not be seen as a panacea for the market’s difficulties.

“To me it seems M&A is somehow being marked as a solution to some problems here,” said Islamic reinsurer ACR ReTakaful chief operating officer Peter Koerner. “If that is the case, I think we are at too early a stage for it to be a solution.”

He added: “M&A for me is something that belongs to the most mature markets – Japan for instance, or Taiwan.

These are markets where there is probably nothing else left than to merge. In the GCC, I would first advocate for other measures.” GR