Law seeks closure of insurance firms suffering over 50% losses

Of the 30 listed insurance companies on the Saudi stock market (Tadawul), 10 have come under pressure to rectify their financial status after suffering heavy losses.
The insurance sector plays an important role in the Saudi market but Saudi Arabian Monetary Agency’s (SAMA) vice-governor said an agreement has been reached with the Ministry of Commerce and Investment to close insurance companies that have registered more than 50 percent losses.
Financial analyst Mohammad Alomran said the new company law specifies that firms that incur losses more than 50 percent of their capital have to rectify their financial status.
“They should decide whether they can continue functioning, and in case they do, they must come up with a mechanism that enables them to function, adjust capitalization, inject more money and restructure,” he added.
One of the listed insurance companies, he said, is delaying the implementation of the article of the law that says there are big risks in the insurance sector.
Alomran said that SAMA works to protect those who deal with insurance firms, and also protect the sector by forcing those that do not possess at least 50 percent capital to rectify the status and find a survival mechanism.
He said 10 of the 30 listed companies are expected to be able to rectify their status by restructuring and injecting more money.
There will be no liquidation until all the rights are paid up, including insurance policies and all the debt, Alomran added.
According to him, company losses are shareholder losses and a company may lose half of its capital after it pays up what it owes. As such, shareholders have the right to sue any company where foul play is proved.
Financial expert Abdullah Baeshaan said the sector of insurance companies in the Kingdom is new. It has been using an old insurance system, which had agents rather than companies before SAMA moved in to organize the sector. The result was that 30 of them were listed on the stock market.
Baeshaan said that some companies registered complete losses, while some lost 75 percent of their capital.
"According to the law, a meeting of the board of directors ought to be held in case any company that registers losses bigger than 50 percent to decide whether it should continue operating by increasing its capital and injecting liquidity or whether to liquidate it," he said.

Source: Arab News