Arabia Insurance CEO says capital hike supports business growth, financial solvency

Ziyad Alrubish, CEO of Arabia Insurance Cooperative Co.

Arabia Insurance Cooperative Co.’s (AICC) capital hike targets to support the company's business growth and maintain the financial solvency requirements set by the Saudi Central Bank (SAMA), CEO Ziyad Alrubish told Argaam.

The capital increase was backed by all the major shareholders, who have confirmed subscribtion to their full shares in the rights issue.

The CEO stated that the subscription’s net proceeds will be invested in medium and long-term financial deposits, in addition to Murabaha and trading funds, fixed income, stocks, and sukuk.

The company is expected to reap profits from investment at a rate of 3-4% annually.

Alrubish added that this rate is currently considered the minimum expected return for the investment portfolio, given the high returns on deposits that constitute a large portion of the portfolio, in light of the current rises in prevailing interest rates.

Q: AICC’s capital rose by 100% to SAR 530 million by offering 26.5 million rights issue shares. What are your objectives of this increase?

A: The capital increase mainly supports business growth, contributing to the company's ability to boost revenues and achieve investment returns through capital investment and cash surplus that is available from the company's operations.

In addition, it contributes to obtaining reinsurance agreements on preferential terms compared to companies with small capital.

The second objective is to maintain the solvency requirements imposed by SAMA. The net underwriting proceeds contribute to a significant rise in the solvency margin.

Q: How do you plan to distribute the net proceeds of subscription across investment portfolio and the expected returns?

A: AICC will utilize net proceeds from the subscription for medium- and long-term financial investments and deposits, enhancing and diversifying the investment portfolio, which will be invested in funds such as Murabaha and trading funds, fixed income, equities, and sukuk, in addition to direct investment in bonds, sukuk, and stocks. This will be in accordance with the executive regulations for monitoring cooperative insurance firms issued by SAMA.

Most of the investments will be focused on low and medium risk investments across the Kingdom.

AICC is likely to reap profits from investment at a rate of 3-4% on an annual basis, as this rate is currently considered the minimum expected return on the investment portfolio due to the high returns on deposits that constitute a large portion of the portfolio, in light of the current high prevailing interest rates.

Q: How did major shareholders see capital increase process? Are their participation ratios identified?

A: As recently indicated in the prospectus, one of the AICC’s strengths and competitive advantages is the support of the founding partners.

All major shareholders have confirmed subscribtion to their full shares in the rights issue, which reflects their confidence in the company and its strategy.

These companies are Arabia Insurance Co., Jordan Insurance Co., and Arab Supply and Trading Co.

Q: How did the capital hike improve AICC’s financial solvency requirements?

A: The net subscription proceeds contribute to raising the company’s solvency, as the increase in the net assets that can be included in the solvency constitutes the greatest impact in calculating the company’s solvency.

AICC has fully complied with the capital requirements imposed by SAMA as at the end of the past three years, as it was presented to the shareholders through the disclosed prospectus.

Q: AICC’s net income and gross written premiums (GWPs) surged 239% and 71.5% year-on-year (YoY) in 9M 2022. What is your comment?

A: We believe that AICC can continue to achieve positive results, as it constantly seeks to improve the underwriting results by applying the best pricing practices for insurance products while maintaining a reasonable profit margin as the main objective within the board of directors’ strategy.

Realizing growth in terms of GWPs and net income is one of the most important challenges, in light of SAMA’s support to implement several objectives, focusing on the insurance sector’s organization and development, as well as the achievement of the Kingdom’s Vision 2030 objectives regarding the financial sector.

Q: What is your message to investors on the capital increase process? 

A: We stress the importance of reading the prospectus carefully and completely before making any investment decision related to rights or new shares.

We also urge our investors who do not to subscribe, to sell their priority rights during the specified trading period for priority rights, which will end on Sunday, Dec. 4, so that their investment portfolios are not exposed to a decrease as a result of not benefiting from their rights by selling or subscribing, knowing that the subscription has been extended until Wednesday, Dec. 7.