Insiders laud move to offer incentives for insurance firm mergers

AMMAN — The Investment Council’s recent decision to offer incentives to insurance firms willing to merge is expected to salvage financially troubled companies and boost the sector’s performance, insiders said Tuesday. 

Prime Minister Abdullah Ensour, who chairs the council, on Saturday announced the decision to exempt insurance firms willing to merge from income tax for three years in addition to exemptions on fees for registering ownership, and transferring and raising capital.  

The 25 insurance firms currently operating in the local market are “high in number” compared to the volume of the Jordanian economy and the market’s needs, Jordan Insurance Federation (JIF) President Ali Wazani said in a phone interview with The Jordan Times.

Wazani highlighted the discrepancy in capital among the firms, noting that the capital of some insurance firms is eight times higher than that of others, all of which are competing in the same market, offering similar services.

“This fragmentation increases the cost of doing business.” 

Up to 60 per cent of insurance firm expenditures, Wazani added, are allocated for salaries, a cost that mergers will help decrease.

When insurance firms are in financial distress, they either exit the market or merge, he said, noting that a couple of insurance firms went bankrupt and left the market over the past three to four years. 

Describing the decision as a “step in the right direction”, Wazani, who is also the CEO of First Insurance Company, said he expects the incentives to encourage investors to develop a “more serious” view of the market.

Othman Bdeir, a field expert and a former president of JIF, agreed with Wazani, noting that Japan, whose economy is larger than Jordan’s, has only seven insurance companies.

“This is a move that insurance firms have long been demanding,” he said, adding that under the decision, well-performing firms can buy out financially troubled ones, shielding them from bankruptcy and safeguarding the rights of their clients.

“Tens of thousands of clients were not compensated when some insurance companies went bankrupt,” Bdeir told The Jordan Times over the phone, underscoring the role of mergers in increasing liquidity and investments.

However, merging is not easy and requires extensive studies of troubled firms and the feasibility of the merger, according to the expert, who noted that the Trade Ministry’s approval of mergers is a basic part of the process.

Bdeir said the council’s decision is “more than enough” to ease the challenges facing the sector, “if implemented fully”, expecting the number of firms to drop by half as a result of mergers.