Global insurers eye SL amidst Janashakthi sale
Janashakthi Insurance PLC (Janashakthi)’s Rs. 16.4 billion sale this week of its general insurance business to multinational insurer, Allianz has set off wide speculation that global insurance players are eyeing Sri Lanka.
The deal, which appeared to have caught the st0ck market by surprise, triggered reports that the other remaining Sri Lankan insurance companies, barring local giants Sri Lanka Insurance (SLI) and Ceylinco Insurance PLC (Ceylinco), would offload their general insurance business if they get attractive offers. Janashakthi officials said the deal has been in the works for the past 18 months.
This week’s transactions make it four deals since 2014 in which three local insurers have sold their general insurance business to foreign companies. In the other case, AIA sold its general insurance business to Janashakthi in 2016 which has now sold its entire general insurance unit to Allianz.
“As Sri Lankan insurance companies adjust to changes in the market after life and general units were segregated by regulation in 2016, divesting general insurance has become an emerging trend here,” an industry expert said.
Growth in the general insurance segment is expected to be slow and result in a tight battle for smaller players in years to come as insurance giants – especially foreign firms – consolidate the general segment. Local firms are divesting their general insurance segment and focusing on life as competition is intense with 62 per cent of the premiums coming from motor insurance.
Foreign insurers are interested in general insurance to scale up their operations, analysts said.
“They (foreigners) are interested in product innovation, research and development, etc. Most local firms are inward looking which is why they aren’t interested to sustain general insurance arms because of slow growth, impending challenges and the competition,” the industry expert said.
Even with 28 insurance companies operating as at December 31, 2016, the insurance reach is only 14 per cent of the population with large numbers untapped.
Of the 28, 12 companies deal with only life insurance, 13 are in the general insurance business and three are handling both – life and general.
In a sizable deal in 2014, foreign insurer, Fairfax Asia acquired 78 per cent of Union Assurance PLC’s (UAL) general insurance business and two years later bought 100 per cent in Asian Alliance’s (AA) general insurance arm.
Fairfax, a financial services holding company, then set up an amalgamated entity Fairfirst Insurance allowing it to leverage on the combined strengths of the former UAL and AAL general units.
Less than two years after Janashakthi Insurance completed the amalgamation of Janashakthi General and AIA General Insurance Lanka, the company has sold its general insurance stake to Allianz, the global financial services entity. The transaction is subject to regulatory approval and is expected to complete in the first quarter of 2018.
Ramesh Schaffter, Executive Director Janashakthi told the Business Times, on the sidelines of Friday’s briefing, that these deal-making discussions were held in Singapore and done through the managing agent to this transaction, Capital Alliance PLC (CAL).
CAL’s regional consulting partner, NMG Consulting in Malaysia had roped in Allianz for this deal. “Our mandate to CAL was to find us an international partner in terms of technology,” Mr. Schaffter added. He said no local insurer approached them and the near 18 month long discussions by CAL saw multiple parties from different countries in the world.
He said Allianz’s transaction was a natural progression. “This is an evolution of a business – a marriage.” Now Janashakthi has 25 per cent in the life insurance segment with their long term business, Prakash Schaffter, Managing Director at Janashakthi Insurance Co PLC said. “We can now focus on life. It’s less competitive than general insurance.”