The Palestine Insurance Company (PICO) plans to issue US$1.25 million (Dh4.5m) worth of shares next month in a bid to strengthen its capital base by as much as 25 per cent and fall into line with regulatory requirements.
PICO launched an initial public offering in May, raising $5m to become one of five insurance companies listed on the Palestine Exchange.
The company, based in Ramallah in the West Bank, plans to raise its capital to $6.25m in January by offering new shares to retail investors. The capital-raising is still subject to approval by the PICO board and the Palestinian Territories' market regulator, the Capital Market Authority (CMA).
The capital-raising is expected to take place in the first quarter of next year, said Ahmad Aweidah, the head of the Palestine Exchange.
"The higher their capital base the better the financial indicators. They need it," he said.
Arab Bank, a Palestinian lender, is expected to be the book-runner for the offering but this is still unconfirmed, said Mohammed Helles, the financial manager of PICO.
Insurance companies across the Palestinian Territories are subject to strict rules by the insurance division of the CMA. Under the regulations, insurance companies must maintain a minimum solvency margin to enable them to meet liabilities and pay all claims.
"We have different reasons [for the capital-raising]. One is to strengthen the ability of the company to compete in the local market," Mr Helles said.
He said the Palestinian insurance sector was struggling because of competition and strict regulatory requirements.
"You can't compete, except by giving a discount, which is very risky," he said.
The CMA, the Palestine Insurance Fund, which is the insurance sector's union, and several insurance companies met in Jordan this month to resolve problems that curb profitability for shareholders, Mr Helles said.
Firas Ahmad, a financial manager at AB Invest, the investment arm of Arab Bank in the Palestinian Territories, said the legislative council struggles to put through new laws.
"The biggest loser is the investment sector, and insurance is one of the major sectors of investment in Palestine," he said.