Allianz’s buy plan may involve bancassurance ops

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Allianz Malaysia Bhd’s (AMB) proposed move to acquire HSBC Amanah Takaful (M) Bhd (HAT), a deal thought to be worth RM240mil to RM300mil, will likely involve a bancassurance agreement which will fill up a void once AMB’s current bancassurance tie-up with CIMB Group Holdings Bhd ends next year.

Industry sources and analysts told StarBiz that AMB had been for some time on the lookout for a partner that could at the same time offer bancassurance and takaful amid the growing takaful business in country.

“Since most insurers also have a takaful arm or a partnership and with the rapid growth and low penetration rate of takaful of around 15%, it makes business sense for AMB to venture into the takaful space.

“At the same time, the existing tie-up with CIMB Group for bancassurance, which will end by next year, is a catalyst for the acquisition as it will fill the vacuum caused by the exit of CIMB,’’ an industry source noted.

AMB has been on the lookout for a strategic partner in the takaful business, the source said, noting that the proposed acquisition would help the insurer to compete in the takaful arena for bancaassurance as HSBC has close to 42 branches nationwide albeit lower than that of CIMB.

The valuations for the stake, analysts reckoned, would very much depend on a price a buyer was willing to pay for insurance assets and the niche and value it could derive from the acquisition.

This included the existence of a captive market, bancassurance, economies-of-scale, financial strength and whether it fits strategically in the buyer’s future plans in a particular market.

Meanwhile, Maybank IB research analyst Desmond Ch’ng in a report said: “Historical insurance mergers and acquisitions have averaged a price-to-book value (PBV) of 2-2.5 times, which would translate to a price of about RM240mil-RM300mil for HAT, based on its equity of RM121mil end-June.

“However, what is uncertain is whether further equity injection is needed, since the Financial Services Act 2013 mandates all composite insurers to split their family and general takaful businesses by mid-2018, each with a paid-up capital of RM100mil.

“Given HAT’s capital base of just RM100mil end-June, this cannot be ruled out and should be reflected in the eventual pricing.”

Ch’ng, who is maintaining a “buy” call on the stock, said he was “neutral” on AMB’s proposed acquisition, adding that while the expansion into takaful is positive, as is the prospect of a more comprehensive bancassurance agreement with HSBC, near-term profit contributions are likely to be immaterial and much would depend on pricing of the acquisition.

HAT reported a net profit of RM11.9mil in financial year 2016 and just RM2.5mil in the first half of 2016.

The average valuation paid (for both general and life insurers) was about 2.3 times priceto-book value although insurers with exclusive bancassurance arrangements or sizable market shares have transacted at higher premiums closer to 3 times book value in recent years.

For example, in 2013, Sun Life and Khazanah Nasional Bhd inked a RM1.8bil deal to acquire CIMB Aviva Assurance and CIMB Aviva Takaful from Aviva International Holdings Ltd and CIMB Group Holdings Bhd, valuing the deal at 3.2 times price-to-book.

MetLife’s acquisition of AMMB Holdings’s life insurance and takaful units was at 3 times price-to-book with a price tag of RM812mil.

Maybank IB, in a report last month, noted that in the general insurance space, the company ranked number one in 2015 in terms of gross written premiums with a 12.4% market share.

Meanwhile, it ranked the fifth-largest in the life insurance business with a market share of about 7% of total annualised new premiums.

The insurer, in a recent filing with Bursa Malaysia, said it would begin negotiations to acquire up to 100% equity interest in HAT. AMB, a subsidiary of Germany-based financial services giant Allianz SE, told the exchange via its letter dated Oct 26 that it had no objection in principle for the company to begin negotiations with HAT’s shareholders.

The shareholders of the takaful operator include HSBC Insurance (Asia Pacific) Holdings Ltd (49% stake), JAB Capital Bhd (formerly Jerneh Asia Bhd) (31%) and the Employees Provident Fund Board (20%), which is also a substantial shareholder in Allianz.

The central bank’s approval is subject to all parties concluding negotiations within six months from the date of its letter. HAT is a composite insurer that offers both family and general takaful.