Aljazira Takaful expects market share to triple after buying Bank Aljazira’s portfolio

Aljazira Takaful expects its market share from protection and savings business to exceed 22 percent after acquiring Bank Aljazira’s insurance portfolio, Chief Executive Sager Bin Abdullatif told Argaam in an exclusive interview on Monday.

The company’s market share stood at 9.2 percent at the end of 2017.

The target portfolio includes almost SAR 2 billion in retail savings, in addition to over SAR 100 million insurance premiums. Abdullatif said Aljazira Takaful is closely monitoring the market and evaluating available investment options, as part of its strategy to grow its profitability and maximize shareholders’ equity.

Here’s the full interview:

Q: What are the targets of the protection and savings insurance program?

A: There are two major targets behind the scheme. First, saving money for future use by family members, such as marriage, education, purchase of a new home, or any emergency. Families can save money through affordable insurance premiums. Second, we are looking to protect a family’s income in case of accidents. We provide insurance coverage of up to SAR 7 million, helping families to fulfill all liabilities in case of death, disability or terminal illness.

Many schemes were launched to enhance customer loyalty and secure their families in case of accidents.

Q: What is the percentage of protection and savings to the total insurance sector? How can you estimate your market share from this business?

A: The protection and savings business has the lowest penetration rate in the industry, with just 2.6 percent at the end of 2017. Gross written premiums for this activity stood at nearly SAR 926 million last year.

Aljazira’s market share stood at almost 9.2 percent, but we expect it to exceed 25 percent, upon acquiring Bank Aljazira’s insurance portfolio. All details will be announced when a final agreement is reached.

Q: Why hasn’t the acquisition of Bank Aljazira’s portfolio been completed after the intention was announced in 2016? What are the size and constituents of this portfolio?

A: There were no delays on our part as the actuaries usually take a long time to complete the required procedures. The Saudi Arabian Monetary Authority (SAMA) is reviewing the valuation of the portfolio’s liabilities and provisions ahead of transfer. We’re currently in advanced stages of the acquisition.

The bank’s insurance portfolio comprises almost SAR 2 billion in retail savings, in addition to over SAR 100 million insurance premiums.

Q: You previously mentioned that Aljazira Takaful will offer new products. What are the target insurance segments?

A: We are closely watching the market and all options are available whether through mergers and acquisitions or by development of new products, so as to boost our market share and enhance profitability.

No decision has been taken yet in this regard, but we are considering expansions. Aljazira Takaful’s board has developed a five-year strategy for this purpose. In addition, Aljazira Takaful is one of the few firms that pay regular dividends. It could be the only Saudi firm which paid dividends in the first year of operation. It has recently distributed dividends at 7 percent for fiscal year 2017. The company is looking to enhance these dividends annually.

Q: What is your opinion about potential mergers in Saudi Arabia?

A: If mergers will achieve integration for both firms, it will be a solid move. Mergers should be value-accretive. I believe firms need to be stronger whether by raising their capital or enhancing market shares.

Q: Have you been in talks over mergers with other insurance firms?

A: No, we haven’t been in talks over any merger.

Q: What about new foreign insurers entering the market and the potential competition local firms could face in the protection and savings business?

A: We are also looking for new entrants and rivals in this segment, as the move will increase awareness and help develop the market, given that the Saudi per capita spending on protection and savings programs reached SAR 30 annually. I believe the market is still promising.

The total concentration to the Kingdom’s gross domestic product stands at a maximum of 3 percent, compared to over 13 percent in South Africa. The Saudi market is likely to grow backed by potential expansions in all regions, types of products and related legislations.

The entrance of foreign players in the coming period could weigh on some insurers, especially those operating in compulsory insurance activities.

Q: Has Aljazira Takaful faced any changes on application of IFRS and is there a negative impact on the company’s operations?

A: The application of IFRS had no impact on our financial results, as technical reserves and provisions are estimated by actuaries.

The technical provisions are linked to the company’s liabilities. Therefore, reserves are required to be allocated in line with claims, compensation and provisions.

Aljazira Takaful is committed to settlement of all claims and our reserves are well studies. The company’s financial solvency ratio exceeded 2,000 percent in Q1 2018.

Q: Can you comment on the current low price of Aljazira’s stock?

A: I can’t comment on the stock price, as it depends on shareholders and trading. I can rather confirm that the company’s operations are solid and progressing as scheduled. Several goals were achieved and we’re working on reaching more objectives going forward.