Saudi insurers, what will follow capital increases?
Thursday, 04 30 2015, Category: Insurance and Reinsurance, Country: Saudi Arabia
Further to the cumulative losses which affected around 70% of insurance companies operating in Saudi Arabia during the past years, and which were caused by either price wars or bad management, and which in turn led to the deterioration of capital levels especially when SAMA compelled insurance companies to allocate technical reserves in order to comply with regulatory instructions. So the stock shares of the affected companies were threatened to be suspended from trade under the pressure of both the Capital Market Authority and the shareholders who requested profits.
The best solution available to distressed insurance companies was to revert to mergers in order to halt the series of losses, reform their situation or exit the market. But however, never did a stock company exit the market, or announce bankruptcy or go through a merger since no relative benefits can be drawn from such a merger. Therefore, insurance companies had to increase their capital for the loss level to be away from the minimum capital allowed for the company not to be suspended from the stock exchange trade which a scenario that materialized for a number companies in the insurance sector and outside it… However, is the capital increase an effective solution or merely an “escape” from the Capital Market Authority suspension.
Source: Alpha Beta