'Sleepy' insurance stocks gaining traction at CSE
The recent Janashakthi Insurance PLC Rs. 16.4 billion deal last month of its general insurance business to multinational insurer, Germany's Allianz has re- rated the insurance sector at the Colombo stock market which is now seeing rising high networth investor attention, analysts say.
It 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 transaction was Rs. 16.4 billion done at 2.4 times higher, they noted adding it showed insurance stocks should be trading at a higher multiple. When Janashakthi repurchased the lands of its general insurance arm at Rs. 3.7 billion from Allianz the actual value of the transaction came to Rs. 12.7 billion. This still translates to 1.7 times the book value, which is higher than what the sector shares were trading at, according to analysts.
They added that usually a 'sleepy' one, the insurance sector has now gained traction and is further growing. "The per capita GDP is increasing with which affordability is rising for the middle classes. This is why we're seeing a large premium growth especially in the life sector in the insurance industry," an analyst noted to the Business Times. He backed this argument by saying that Union Assurance's and Softlogic Insurance's premium growth in the last three years was high year on year. But the market didn't react to it earlier. However now after the Allianz buy, mostly local high networths are eyeing larger quantities, he said. Many 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.
Another analyst said that the insurance industry's potential has yet not been fully priced in the sector's stocks and there are strong investment cases in the insurance sector. It is also reflected in higher pricing in Mergers and Acquisitions ( M& A) space. The insurance industry has by and large been active in M&A with few transactions taking place since 2014. 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.
The life industry in particular has strong bottom line potential, according to industry analysts citing gross written premium (GWP) growth as well as favourable tax implications.
The per capita GDP is increasing with which affordability is rising for the middle classes. This is why we're seeing a large premium growth especially in the life sector in the insurance industry,"