Medgulf, Buruj agree to merge as ins. sector heads into consolidation

Buruj Cooperative Ins. entered into a binding merger agreement with the Mediterranean and Gulf Ins. and Reins. (Medgulf), marking a significant consolidation move in the local ins. sector, according to a statement (pdf). The merger will see Buruj get absorbed into Medgulf in an all-share transaction.

The inner workings: Some 33.16 mn new Medgulf shares will be issued to Buruj shareholders, implying an exchange ratio of around 1.11 Medgulf shares for every Buruj share held. The transaction values Buruj at SAR 584.6 mn. As a result of the merger, Medgulf will raise its capital by 31.58% to SAR 1.38 bn, with its total number of shares increasing to 138.16 mn from 105 mn.

At a premium: The implied valuation — putting Buruj at SAR 19.49 per share — represents a 2.66% premium to Buruj’s closing share price of SAR 18.98 on 24 July, the last trading day before the agreement was signed. The valuation was based on Medgulf’s share price of SAR 17.63 on the same day.

The merger will create the fourth-largest ins. player in the Kingdom by gross written premiums (GWP), with a combined SAR 4.1 bn in GWP and an estimated 5.4% market share based on 2024 data. The Kingdom’s ins. sector recorded SAR 76 bn in total premiums last year. The top three players controlled 64.5% of the market, while the remaining 24 companies, including Buruj and Medgulf, shared the rest, according to the Saudi Ins. Authority. Medgulf accounted for 4.9% of premiums in 2024, while Buruj held a modest 0.5%.

The transaction is expected to improve the merged company’s scale, profitability, and capital strength. It aims to enhance operational efficiency through cost synergies and shared services, optimize the combined ins. portfolio — especially the health and motor segments — and support new growth in digital, reins., and investment offerings. The merged entity also plans to improve its solvency margin and expand access to retail, SME, and corporate customers, according to the statement.

As part of the governance structure post-merger, Medgulf’s board will expand to nine members from seven, with Buruj nominating two directors. Yasser Yousef Naghi, Buruj’s chairman, is set to chair the merged company.

What’s next? Some regulatory and shareholder approvals from both companies are still pending. Buruj creditors will have a 15-day window to object once the general assembly meetings are formally called, and any unresolved objections could delay or halt the merger.

Buruj shares will be delisted from Tadawul once all approvals are obtained. Any fractional entitlements resulting from the share swap will be sold on-market, with proceeds distributed pro rata.

Appetite for consolidation in the sector is growing: A string of merger talks including Liva-Malath and Salama Cooperative-Saudi Enaya are underway as ins. players contend with tightening capital regulations, shrinking margins, and mounting competition in motor and medical lines, according to Fitch Ratings. Gulf General Cooperative Ins. was also in talks with Gulf Union Al Ahlia earlier this year before scrapping the merger proposal in March.

The drivers: The shakeout follows a regulatory overhaul that handed supervision of the industry to the newly-formed Saudi Ins. Authority in 2023, with a risk-based capital framework set to take effect by 2027. However, the wave had already started before 2023, with Gulf Union merging with Al Ahlia in 2020, Aljazira Takaful acquiring Solidarity in 2021, and Arabian Shield absorbing Alahli Takaful in 2022 and taking over Alinma Tokio Marine in 2023.

The mergers trend is expected to lead to stronger balance sheets and fewer market players that are better positioned to manage risks. While Fitch views the consolidation trend and regulatory push as credit-positive over the long term, smaller players are already facing rising compliance costs and earnings pressure amid limited economies of scale. The market remains heavily concentrated, with Tawuniya and Bupa Arabia controlling 52% of total GWP as of late 2024, leaving the remaining players to either scale up or risk being squeezed out.

ADVISORS- HSBC Saudi Arabia acted as the financial advisor to Medgulf, while Zeyad Sameer Khoshaim Law Firm provided counsel. Buruj appointed Alinma Capital as its financial advisor, with Baker McKenzie providing counsel.

Market reax: Medgulf’s stock price rose 1.0% to close at SAR 17.8 yesterday.