Over the course of 2020, there was an increase of mergers and acquisitions by companies and the central banks of many nations are encouraging and calling for more. This is partly due to the financial constraints put on governments by the COVID-19 pandemic, who have borne the lion’s share of the cost of risk mitigation, testing, treatment, and vaccine development and deployment in many nations. In the wake of the first year of the pandemic, governments and central banks see merger and acquisition activity as a vehicle for financial and economic recovery.
An example of this is in Saudi Arabia. The Saudi Central Bank (SAMA) has issued a statement encouraging companies in the insurance sector to consider mergers and acquisitions. This is the latest such call by SAMA which has been promoting M&A activity among insurers for several years. SAMA stressed the insurance sector’s importance to the Saudi economy, and the part it plays in the government’s Financial Sector Development Program, reported Arab News. SAMA cited the merger of Walaa Cooperative Insurance and Metlife AIG ANB Cooperative Insurance, and of Gulf Union National Cooperative Insurance and Al-Ahlia Insurance, as successful examples of such deals and how they helped boost the financial solvency of the companies involved by improving the insurers’ capital. Research shows that M&As can make the sector more competitive and strengthen its financial position. Through merger and acquisitions, SAMA said it aims to improve customer service and efficiency and reduce costs.
What We Are Seeing:
Mergers and acquisitions among insurance brokerages accelerated in the fourth quarter of 2020 worldwide, capping a record-setting year, according to data from Optis Partners LLC. There were 290 fourth-quarter transactions involving U.S. and Canadian brokerages, third-party administrators and related managing general agent operations, the Chicago-based investment banking and consulting firm said in 2020. That compared with 173 in the same period in 2019.
International Events That Could Affect Your Clients:
You could see some international companies, especially those who operate in the Middle East, making moves in terms of locations and headquarters. The Kingdom of Saudi Arabia announced late Monday that by 2024 its government would cease doing business with any international companies whose regional headquarters were not based within the kingdom. Initially, the goal was to pitch itself as a location for HR headquarters to create new jobs and foster economic growth in many industries, but this ultimatum has many businesses confused about their future within the Middle East.
What began as a pitch to global head offices has now become an ultimatum for some: either relocate your headquarters to the Kingdom of Saudi Arabia or lose out the government contracts. The move, Middle East analysts and finance professionals say, appears to be targeted at the region’s current headquarters hub, Dubai. There are many different viewpoints from leaders across the Middle East. The Minister of Investment Khalid Al-Falih tweeted that the decision “will be reflected positively in the form of creating thousands of jobs for citizens, transferring expertise, and localizing knowledge, and it will also contribute to developing local content and attracting more investments to the Kingdom.” Dubai’s former financial chief rebutted, “Forced attraction is not sustainable and most effective is to improve the environment,” arguing that as the largest market in the region already undergoing major development, Saudi Arabia’s move is unnecessary.
What to keep an eye out for:
If your client mentions expansion to the Middle East, please inquire more about where they will base their operations at. The IMA Global Risk Team will be able to assist in the international insurance needs of your clients; please contact us at IMAGlobal@imacorp.com.