Solidarity: Insuring Tomorrow

First Insurance was established in 2007 with a paid up capital of JD28 million. The company entered an already crowded market that was ripe for consolidation. This finally happened last year, when First Insurance absorbed rival Yarmouk Insurance, to become one of the biggest players in the sector.

The company has now been rebranded as Solidarity, and its CEO, Ali al-Wazani, is hoping that though a roll out of new and innovative products he will be able to expand the company’s investment portfolio and client base.

When and why did you become Solidarity?

Solidarity Group Holding is the major shareholder of First Insurance, which has become Solidarity Jordan. It started with only 16 percent ownership in 2007, and during the last 10 years they increased their shares in the company, until 2016 when it reached around 80 percent. However, following our acquisition of Yarmouk Insurance Company, their share was diluted down to 71 percent. Nevertheless, it’s still a major share. Solidarity Group Holding directly and indirectly have a majority representation on the company’s board of directors. Being a subsidiary, it’s just normal to carry the same brand name of the mother company, especially given that it also operates in the same field of business in Saudi Arabia and Bahrain. The Bahraini group owns a 100 percent subsidiary in Bahrain for writing insurance business, and they also have a significant ownership in Solidarity Saudi. The name also came at a good time when we completed the acquisition of and merger with Yarmouk. And what I felt at that time was that the word solidarity is the best representation between First Insurance and Yarmouk.

How has your company developed since?

We finalized the acquisition and merger in February 2016. Since then we had to align the operations, integrate the teams, restructure the organization, and get the formalities done. We also had to unify all the prints, such as the agreements with reinsurers and customers, the IT systems, as well as the HR manual. It was important for us to become one entity and, most importantly, to create a unified culture that would create harmony and better understanding of how things are done.

At the beginning, when we merged with Yarmouk the best scenario for a CEO was to maintain the two portfolios and not to lose any of them because, when you merge, some of the Yarmouk customers will say we don’t like this, we were with a company and now we are with a different one. So the competition will be targeting the accounts, or maybe the service providers will not be able to accommodate the influx of business coming to First. What happened is that I was able to retain the two portfolios and achieve a 10 percent growth over and above for 2016, which is even more than market growth at around 5 percent. We doubled the growth of the market despite the pressure of retaining the two portfolios. There was a momentum and we took advantage of that. I would say that our approach to distribution channels was instrumental; the spread of branches that we have helped us a lot, and the composition of the business development team also helped us in achieving that. Q1 2017 was a very good quarter with a growth that exceeded 20 percent year-on-year.

So the acquisition is paying off by all means.

How is the sector doing overall?

Through the acquisition and merger you go through some difficulties, but the insurance sector is doing fine. In the last two years [the return on equity] was between 8-9 percent, which is reasonable. Still it’s not the best return with consideration of what’s going on in the region and the risk; the return on capital is associated with the risk. The problem is that the risk of doing business in this part of the world is increasing. When you deploy capital in a region where risks are high you expect high returns, otherwise you take it to a safer business environment. But I would still say it’s reasonable.

Do you think that we will see other M&As in the market?

It’s only logical that we will see more, because it’s the best time from all perspectives. The incentives that were given by the investment council to the merger were great. We were given a three year income tax exemption plus some other incentives.

So the government is encouraging M&As within the insurance sector. We will see a shift away from insurance companies that have mostly been family-run toward corporate-owned insurance companies.

Where are you investing?

Today we have a very conservative investment policy and a very well diversified investment portfolio. That was stressed by the ratings agency report on our company. The investment portfolio is very well diversified in terms of geographical spread of investments. We invest in Sukuk bonds in the GCC, Asia, and Turkey; we have fixed deposits in different currencies, and we have a very good portfolio of real estate. Currently we are present in 20 locations either through branches owned by the company or through our presence in the Arab Islamic Bank. We are also currently in the process of opening two new branches this year. Additionally, we have a piece of land where we are building our new headquarters, which is expected to be completed during the second half of 2018.

What other offerings and services do you have in the pipeline?

With the acquisition of Yarmouk we were able to write a life insurance business that has a lot to offer in terms of product diversity. We started with the credit life, group life, term life and we are planning to launch two new services every year. Most importantly, what we’re focusing on is to adapt our distribution channel. Today the big challenge in front of insurance CEOs is how to deliver the service to people. In terms of personal selling we’re doing very well and in terms of branch locations we’re doing fine, but we have to work on the digitalization of delivering the services through a mobile app. A lot needs to be done on this front. In the future I believe that the branches will be supporting the delivery of services through the online. Currently, we’re doing that on the group level where expertise is wider. Some countries are more advanced than others, so we’re taking advantage of the geographical spread of the group. We have already started and I believe this is crucial to where we’re heading as an insurance sector.

Will we ever see a solution to long-standing third party liability car insurance issue?

The problem is multi-dimensional. We have to reach a solution. It’s only normal that insurance services be priced in terms of supply and demand, the driver’s history, and the experience of the insurance company. Currently we are behind so many other markets where government has stopped intervening in the pricing of the insurance services. We’ve been in talks with the federation and with the Ministry of Trade and Industry for so many years. It has to happen. In terms of how accidents are solved, I don’t think we will see any change. Car insurance remains a bad experience, although it is a very easy process.

What types of insurance are currently most in demand?

What remains mostly in demand is of course motor insurance. There’s also an increasing demand for the medical insurance, which is the engine of growth for the market. People are realizing that medical insurance is a necessity on all levels, individual or corporate. Currently there are new policies like terrorism and political violence policies for hotels and banks. Some companies embed this coverage in the property insurance, but it can also be a separate offering. Cyber crime is also another new type of insurance that can benefit banks and big companies.

What are some of your other future plans?

One important part is to benefit from economies of scale on the group level. We want to unify the operations as much as possible to reduce operating costs of all subsidiaries. The other one is delivering the insurance service through online portals. Maybe it will not pay back quickly, but it is essential. It takes time because it needs some adaptation in your procedure manual and your own IT software. Also, mergers and acquisitions definitely remain on the top of the agenda. Following our acquisition in Jordan, our company in Bahrain acquired Al Ahlia, which is one of the oldest companies in Bahrain. Together they will be the largest company there. In Saudi Arabia the board also instructed a committee to start a dialogue with candidates for mergers. So on a group level, mergers and acquisition is on the top of our agenda.

For us the ultimate goal is growth and diversification of portfolios. The group is always on the lookout for more investments.  We cannot operate in Jordan in isolation of what’s going on in the surrounding countries. Nonetheless we are able to survive in tough times. Strategically Jordan is the gate of the group to Iraq, Syria, Palestine, and Lebanon. Of course we will be seeing these opportunities once they are available. Iraq is a very big market, but what we’ll benefit from in the shorter term when the border reopens is the increase in trade for which insurance is a supporting service. The more the economy grows, the more demand there is for insurance. We are looking forward to it.