Biggest deal in insurance augurs well for Sri Lanka: Allianz and Janashakthi

From left: Janashakthi Insurance Director Ramesh Schaffter, Janashakthi Insurance Managing Director Prakash Schaffter, Allianz Asia Executive Board Member Zakri Khir and Allianz Insurance Managing Director Surekha Alles 

By Nisthar Cassim

The biggest ever deal in the local insurance business augurs well for Sri Lanka, industry and customers, the two parties Allianz and Janashakthi said last week. 

The duo signed a Sales and Purchase Agreement which will see global giant Allianz buying 100% stake of Janashakthi General Insurance Ltd., for Rs. 16.4 billion. It is the biggest acquisition in the Sri Lankan insurance industry and one of the largest foreign acquisitions of a local corporate entity. Subject to shareholder and regulatory approvals, the deal is expected to be completed by end February or early March. 

“Sri Lanka is a very exciting and important market for Allianz. Janashakthi is a great company. Our investment is good for the economy of Sri Lanka and is a testimony of the country’s future potential,” Allianz Asia Executive Board Member Zakri Khir told journalists in Colombo after signing the agreements. The price paid (Rs. 28.35 per share) by Allianz represents a multiple of 2.2x Janashakthi General’s adjusted net asset value in 2017. Khir justified the move saying the premium lets Allianz to accelerate the entry and expansion in the market. “Paying a premium is the platform to grow faster and more over Janashakthi is a fantastic company and Sri Lanka is an exciting and growing market,” he emphasised.

Allianz also remains bullish on the general insurance market which grew by 13% last year despite stiff competition. “As the economy expands and companies and people add more assets, the demand for general insurance increases,” Khir said. “We see a lot of opportunities, as the market is growing,” he added.

Allianz set sights of market leadership in Sri Lanka

Allianz Insurance Lanka Managing Director Surekha Alles said the acquisition was historic in the insurance industry and will make the global giant number two locally with combined business strength. 

According to Alles, Allianz Lanka was number five in general insurance market while Janashakthi was number two, and the acquisition will make Alliance number two with a market share of 20%, overtaking Ceylinco but slightly behind the state owned Sri Lanka Insurance Corporation, which is number one. The Sri Lankan general insurance market has posted a compound annual growth rate (CAGR) of 12.1% between 2010 and 2016. This is expected to accelerate to 12.5% by 2020, driven by improving trade and macro-economic conditions, as well as increased insurance penetration.

Being in Sri Lanka for the past 12 years, Allianz, according Alles, has progressed well with exponential growth last year. In 2017, the general insurance Gross Written Premium (GWP) of Janashakthi was Rs. 12 billion and that of Allianz Lanka was Rs. 6 billion. 

“Globally Allianz is a leader and in Sri Lanka we will seek market leadership,” she said, adding that the proposition makes the future interesting. Apart from bringing a million new customers under its fold, the acquisition will give Allianz a greater footprint in Sri Lanka, harnessing the wide reach of Janashakthi.  Janashakthi General has a staff of 1,800 whilst Allianz has 550.

For Janashakthi divestiture is natural progression; to focus more on life business

Janashakthi Insurance Director Ramesh Schaffter said the Group considers the divestiture as a “natural progression” in the best interest of the staff, customers, industry and the country. For over 20 years, Janashakthi had built the insurance business with heart and soul and with strategic acquisitions of National Insurance Corporation in 2001 followed by the general business of AIA in 2015.

“The coming together of Allianz and Janashakthi isn’t an acquisition but a marriage and a progressive step,” he added.

Schaffter noted that general insurance remains competitive but the business can reach greater heights with a global leader such as Allianz. “When we gave the mandate to Capital Alliance Partners, we insisted that we need a global leader who will bring greater value and serves the best interest of the market,” he said.  Janashakthi believes further consolidation in general insurance is on the cards whilst the regulator too is backing such a course. With new cash, Janashakthi will focus on life business and in this segment too, Capital Alliance has been mandated to find a technical or strategic partner who will help Janashakthi to go to the next level of growth, strategy and digitalisation. With low penetration, the scope for life business is greater in Sri Lanka, Schaffter added.  The Company hopes to share part of the proceeds with shareholders and a share repurchase has been proposed.  A spokesman for Capital Alliance Partners said that the search for a strategic investor for Janashakthi began about one-and-a-half years ago. “The mandate was to bring a global leader and we narrowed the search for six and to three thereafter and final overseas negotiations with Allianz taking several months.” Capital Alliance Partners worked with NMG Consultants in this deal.   

Global and Asian strength

The acquisition also further strengthens Allianz presence in Asia, where it has been securing businesses since 1910. The Lankan acquisition is the second in Asia in two years. In 14 Asian countries, Allianz enjoys leadership positions in most markets with over 18 million customers, especially in Malaysia, Thailand, and Indonesia in addition to being among top four in India.

The Allianz Group is one of the world’s leading insurers and asset managers with more than 86 million retail and corporate customers. Allianz customers benefit from a broad range of personal and corporate insurance services, ranging from property, life and health insurance to assistance services to credit insurance and global business insurance. Allianz is one of the world’s largest investors, managing over 650 billion Euros on behalf of its insurance customers while its asset managers Allianz Global Investors and PIMCO manage an additional 1.4 trillion Euros of third-party assets. In 2016, over 140,000 employees in more than 70 countries achieved total revenues of 122 billion Euros and an operating profit of 11 billion Euros for the Group.

Pix by Lasantha Kumara