To What Extent Do the Mergers and Acquisitions Reduce the Risk of Insolvency in Saudi Insurance Industry?
Abstract
Saudi insurance companies are currently facing a threat from financial instability that is leading to an increase in the risk of insolvency. The regulators have provided structured solutions help companies to survive but financial instability needs to be solved at its roots. Therefore, the insurance regulator has recommended the use of mergers and acquisitions (M&A). However, the resources that focus on the insurance market difficulties and the M&A in Saudi industries are limited. Therefore, this research, based on various perspectives and studies, aims to determine the extent to which the M&A will contribute to a reduction in the risk of insolvency in the Saudi insurance market by determining the reasons that have led to the rise in this risk and analysing the effectiveness of the regulated and recommended solutions. The M&A, in particular, will be evaluated through analysing the reasons behind their use and the factors behind their success and failure.
This research will show that there are several possible reasons for the financial instability within the market itself. However, the regulated solutions cannot reduce the risk of insolvency if these causes persist and remain unaddressed and the analysis will show that the M&A regulations are exposed to criticism and evaluation as they have recently been reformed. M&A will be resorted to for various motives and reasons. However, their success is uncertain because it depends on many factors, while the price of failure is likely to be further losses for the companies to bear. Furthermore, COVID-19 might contribute to an acceleration in M&A use and change the criteria to be considered when evaluating these transactions.
It will be concluded that the M&A seem to be a beneficial recommended solution to solve the market difficulties that produce financial instability and, as a result, will reduce the risk of insolvency. However, it is difficult to evaluate their effectiveness decisively as it is a modern mechanism in the market. Thus, insurance companies need to be careful to make sure they do not fail when considering an M&A transaction.