16/01/2010 00:00 AST
Saudi Arabias Allied Cooperative Insurance Group (ACIG) plans to increase its capital by 150 percent in the first-quarter and expects to turn profitable by 2011, its top executive said.
I expect (profitability) in 2011, Omar Hafiz, chief executive of ACIG, told Reuters in an interview.
The company plans to increase its capital to 250 million riyals ($66.7 million) from 100 million riyals after incurring losses in its first two years through a rights issue, as it plans to get involved in reinsurance operations.
We witnessed some losses because of late operations so now our capital is reduced to a limit in which we cannot do a lot of business so we have to increase our capital to do more business in addition to the reinsurance operations, Hafiz said.
The company is awaiting approval from the central bank and the regulator Capital Market Authority and expects to complete the capital increase by the first quarter, or the second quarter at the latest, he said.
There are more than 30 insurance companies in Saudi Arabia, 25 of them listed, seeking to tap into a population of 25 million. The companies operations are sometimes delayed as they await permits to sell various insurance products after receiving their business licence.
Saudi Arabia is one of the worlds least-insured countries, partly due to a belief among many Muslims that buying an insurance policy could indicate a lack of religious faith.
Only last year, the government made it mandatory for non-Saudi private sector employees to have health insurance and a similar requirement is expected for Saudi citizens in the next few years.
Now people are realising that insurance is a necessity, not optional for them. The government started making medical and motor insurance compulsory. Other classes will be on the way maybe on houses, shops, factories, construction. This is all coming, Hafiz said.
Some insurance executives believe the insurance market will see mergers and acquisitions among smaller and less experienced firms by next year.
Hafiz said he believed that would come in three to five years after the mostly newly licensed companies prove their ability to establish themselves. The trend in the short term would be capital increases, he added.
This is now the trend, to increase the capital of those companies who could not start operation immediately after getting the final licence it will write off losses and push (the firm) with good solvency, he said.
I think the trend to merge or acquire smaller companies is not going to happen in the short term but it may happen after three or five years.
ACIG, established in Bahrain in 1979, is licensed for medical and general insurance. It is looking to be licensed for credit insurance in the future.
The company posted a net loss of 17.6 million riyals for the first nine months of 2009, up 68 percent from a year earlier, according to the latest results posted on the bourse website.
Reuters
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