12/05/2016 09:17 AST
Muscat Securities Market (MSM) is expected to witness a number of initial public offerings (IPOs) in the third quarter of next year. Seven insurance companies are already in the process of floating their shares in August next year, said Abdullah Salim al Salmi, (pictured)Executive President of Capital Market Authority (CMA). “As a compliance with the Royal Decree and need to raise the minimum capital base, many insurance companies will divest their shares”, al Salmi told Observer. “The market needs strong and capable insurance companies to withstand competition,” he said.
In August, 2014, His Majesty Sultan Qaboos issued a Royal Decree that requires local insurers to be listed on the local bourse. Consequently, the CMA raised the minimum capital for insurance companies to RO 10 million. Earlier, the insurance companies were required to maintain their minimum capital base at RO 5 million and only new market entrants were required to be listed and hold a minimum capital of RO 10 million. As a result, only four insurers were listed on the MSM, namely, Al Madina Insurance Company, Dhofar Insurance Company, Oman United Insurance Company and Takaful Oman Insurance.
According to al Salmi, the insurance market as a whole will benefit from the stock market listings, which will add more transparency due to the mandatory periodic financial disclosures. ““The insurance sector in the Sultanate is progressing well thanks to the regularly updated legislations and regulations in accordance with international standards. With the decision to raise the capital base, the market will definitely benefit,” he said. It is the right time for the companies to raise capital, human resources and internal systems to enhance underwriting and retain more business within the country, he added.
The insurance firms that are expected to float shares are Al Ahlia Insurance Company, Muscat Insurance, Muscat Life Insurance, National Life Insurance, Oman & Qatar Insurance, Falcon Insurance and Vision Insurance. Falcon Insurance in a filing to the market regulator last year had already announced its plans to float the IPO, while Oman Qatar Insurance Company, a subsidiary of Qatar Insurance Group, said it was preparing to go public.
Of the 22 insurance companies operating in the Sultanate, 11 are locally incorporated and the 11 others are branch operations of foreign firms. The listed companies are Dhofar Insurance, Oman United Insurance, Al Madina Takaful and Takaful Oman. The last two are Islamic insurance firms.
According to global rating agency, the new requirement for Omani insurers to list their stocks is a credit positive move for them.
“It will improve the companies’ capital market access to funds, strengthen their capital, make them more transparent and enhance the financial strength of the insurance market”, Moody’s said.
The report added: “Given the increase in capitalisation, insurers will likely take on more risk, be it underwriting risk, through increased business/higher retentions, and/or investment risk”.
For example, the rating agency said, insurers may seek to raise business volumes or weaken pricing, and/or deploy excess capital into investment in high risk asset classes, potentially increasing volatility in the market’s performance.
“However, these risks will likely be offset over time as the increased capital requirements encourage consolidation among some of the smaller players, as well as pose a barrier to new entrants, aiding market stability in the medium- term,” the report added.
Oman Daily Observer
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