Fairfax in talks with Asian Alliance to buy general insurance biz
Fairfax Financial Services Holdings Ltd (FFHL), a Canadian property and casualty insurer, is in talks with Asian Alliance Insurance PLC (AAI) which is a Softlogic Holdings subsidiary, to buy its general insurance arm, an industry source said.
Both parties were tight lipped about the deal, but industry sources said that AAI’s general insurance business is for sale and that negotiations have been underway for a few weeks. They said that while it can’t be confirmed Fairfax Asia Ltd, part of FFHL which has 10 per cent in Nation’s Trust Bank (NTB) is learnt to be carrying out these discussions. HWIC Asia Fund, a Fairfax Financial group company, also held 15 per cent of NTB as at last September.
This has come on the back of Janashakthi Insurance acquiring AIA General Insurance Lanka Ltd last October. They completed the amalgamation in January this year. Many insurers are keen to focus on the more profitable life business and are looking to expand their portfolios through inorganic growth after the insurance regulator directed composite insurers with life and non-life companies to split. Some firms such as AIA are willing to divest the intensely competitive non-life business, industry sources said.
John Keells Holding, parent company of Union Assurance Lanka Ltd (fourth largest insurer by assets), announced the divestiture of 78 per cent of its non-life business to Fairfax Asia Ltd in 2014 January and AIG Insurance, which held less than one per cent of non-life market share exited the market, citing a lack of ‘fit’ of the local operation with the group’s strategic growth plans.
Many insurers are determined to grow their rewarding life businesses inorganically. Industry sources said that some insurers are also considering divesting their non-life businesses where there have been large underwriting losses because of severe price competition.
In the past high investment yields from high interest rates allowed some non-life businesses to post profits but general or non-life losses, when combined with life profits produced bottom-line profits for many firms. Analysts say that the split in firms will assist better visibility on the profitability of each line of business, which will prop up greater focus and push consolidation across companies. In results released for FY15, AAI said that its general insurance business, Asian Alliance Motor hit a top line of Rs 1.2 billion, growing 40 per cent, which is amongst the highest for the AAI group and more than doubling industry growth of 19 per cent.
AAI at group level achieved Profit After Tax (PAT) growth of 22.4 per cent year on year boosting PAT to Rs 924 million, a company media release said adding that Total Net Revenue was Rs 6.2 billion while Net Insurance Benefits and Claims increased marginally to Rs 1.6 billion for 2015. Total Assets as at December 31, 2015 stood at Rs 11.4 billion – an improvement of 11.3 per cent from the previous year, it said.
“We are extremely happy to note that Total Gross Written Premium has grown at a compounded rate of 30 per cent since the entry of Softlogic in September 2011, from a combined GWP of Rs 1.6 billion to 6.2 billion in 2015. A key challenge for management is to manage stakeholder engagement and business goals to achieve integrated growth for the organisation, and we feel that we have pressed hard on all the buttons that deliver relevance,”, AAI Managing Director Iftikar Ahamed was quoted as saying.