Foreigners eye insurance stocks
Two large buys by Janashakthi Insurance PLC (JINS) and Japan’s Mitsui Sumitomo Insurance Company Ltd (MSIC) have got global insurance players eyeing local insurers, analysts say.
The Business Times reported this in February when JINS in a Rs. 16.4 billion deal sold its general insurance business to multinational insurer, Germany’s Allianz.
Analysts say that global insurers have re-rated the insurance sector at the Colombo stock market which is now seeing rising foreign investor attention. This was confirmed when nearly a month later MSIC increased its stake in Ceylinco Insurance PLC to 10.5 per cent. They bought 900,000 shares at Rs. 1,800 each last Monday.
Mitsui Sumitomo held 6 per cent stake as of 31 December 2017. Sumitomo is now the third largest shareholder in Ceylinco Insurance after Global Rubber Industries (22.25 per cent) and Banque Pictet and Cie SA (12.73 per cent).
Insurance was a sector that has always been trading at book value (the amount that the share holder will get for each share after selling out all assets and paying liabilities), but the value of the JINS transaction was Rs. 16.4 billion – which means that this transaction was done at 2.4 times, they noted adding it showed insurance stocks should be trading at a higher multiple.
Growth in the general insurance segment is projected 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.
The life industry also has strong bottom line potential, according to industry analysts who say that gross written premium growth as well as favourable tax implications is another reason why foreigners are showing interest in this sector.