Islamic insurer Salama secures approval to merge with Takaful Emarat

Salama, Dubai-based Islamic Arab Insurance Company, on Monday confirmed that it has obtained initial regulatory approval for a merger with Takaful Emarat and that it also in negotiations to acquire a stake in a third insurer, Aman.

The moves will elevate Salama to become one of the world’s top five largest Islamic insurers, the company said in a statement to Dubai Financial Market (DFM) today.

The statement said Salama is working to fulfil legal and regulatory requirements as well as Securities & Commodity Authority (SCA) approval.

“The merger between Salama and Takaful Emarat is anticipated to be a non-cash transaction via the issuance of additional shares by Salama to Takaful Emarat shareholders to consummate the merger,” the statement said.

The transaction is expected to be complementary and accretive to the shareholders. Salama expects significant merger synergies upon completion.

The statement added: “Salama is currently the largest Takaful company in UAE. Upon completion of these transactions, Salama expects to extend its market-leading position in UAE and is expected to become one of the top five largest takaful companies in the world.”

In August, Takaful Emarat reported a loss of $1.6 million in its second quarter financial results, with auditor EY saying it had failed to meet its minimum capital requirements of $27.23 million, while Salama itself announced a capital reduction of $108 million.

Salama said it has also initiated negotiations with Aman, the Dubai Islamic Insurance and Reinsurance Company to acquire a portion of Aman’s general, medical, and family takaful portfolios.

The transaction is subject to due diligence, further negotiations between the parties, and regulatory approvals, the company said.

Further Consolidation Likely

It may be recalled that S&P Global Ratings, in its latest report, has forecast in August that there would be “further consolidation” for GCC Islamic insurers following the merger of Dar Al Takaful and Wataniya.

The S&P’s report said GCC Islamic insurers would need to adjust premium rates amid intense competition.

‘In our view, higher hydrocarbon prices, with our assumption of an average Brent price of US$100 per barrel for the rest of 2022 and US$85 in 2023, will lead to accelerated economic growth in the oil-exporting region. This should feed through to the takaful insurance sector, where we expect gross written premiums to expand about 10 per cent in 2022 and 5-10 per cent in 2023,’ the ratings agency said.

Following several years of slow growth, there was a pick-up in regional takaful premiums in 2021 thanks to Saudi Arabia, which contributed about 87% of gross written premiums for all GCC Islamic insurers. About 8% aggregate regional growth was mainly spurred by an increase in medical business, following some rate adjustments and extension of covers, the S&P report said.

The report said that ongoing pressure on earnings and capital has already resulted in some capital raising and consolidation in the GCC’s two largest markets – Saudi Arabia and the UAE – in recent years and this trend is expected to continue in 2022 and 2023.

“The upcoming regulatory and accounting-related changes (such as IFRS 17) will likely lead to rising operational costs, requiring insurers to upgrade their information technology systems and other internal processes. This will also reinforce the need for capital raising and mergers, in our view,” the ratings agency added.