The Saudi insurance sector is heading towards a wave of consolidation as new players squeeze into an already crowded market, the head of Tawuniya, the country's largest insurance company said.

The Saudi central bank has authorised some 30 new insurance firms to be set up over the last three years to unlock the sector's growth potential and increased the competitive pressure on Tawuniya, the kingdom's most lucrative insurance firm and one of its oldest.

Its chief executive Ali Al-Subaihin told Reuters that the "licensing of such a large number of insurance companies at once has made the situation difficult for everyone, not just for Tawuniya".   

About 24 of these new firms have already sold shares to the public which raises pressure on them to deliver profits although many of them had to wait for months after their listing before obtaining full authorization to start commercial activity.

Saudi Arabia is one of the least-insured areas in the world partly due to a belief among some Muslims that buying an insurance policy could indicate a lack of religious faith.

"Mergers and acquisitions are imminent. They have to happen.
Right now there is eagerness by many of these new insurance firms to prove themselves. Some of them raise their capitals, but they will have to give in," Al-Subaihin said.

Some of these firms are affiliated to global insurance players such as AXA and Bupa and others are affiliated to Saudi banks with deep pockets such as Al-Rajhi Bank and the Saudi banking affiliates of HSBC and Calyon.

Al-Subaihin said Tawuniya will be selective in expanding its business without engaging in a price war despite having lost some market share in 2008 which stood at more than a fifth of the nation's 10.7 billion riyals ($2.85 billion) in gross written premiums.

He could not immediately give a comparative figure for 2007. "This decline was expected as we resolved not to engage in a price war... and it is not because we were instructed by the central bank not to," he said.

"Market share is important but more important is the ability to serve the capital... We are focusing on premiums and profitability."    

Tawuniya itself is not "actively" seeking acquisition opportunities but it will not ignore a deal "that adds value", Al-Subaihin added.

He did not dismiss the possibility of selling a stake in Tawuniya to a foreign partner to fend off competition although he notes that this "has not been seriously discussed".

"As to selling a stake in Tawuniya to a foreign partner, there has to be value in it. We are not going to do it just to allow a foreign firm access to the Saudi market".

Tawuniya has not for instance been able to offer banking insurance products because it will need to partner with a local bank to make a break into this lucrative activity, he said. -Reuters