When Allianz Malaysia Bhd acquired 100% of Commerce Assurance Bhd (CAB) from CIMB Group for RM490 million, which valued the general insurer at 2.4 times book value, it set a new benchmark for valuation not only among local general insurers but in the region as well.
Normally, general insurers command valuations of one to 1.8 times book value. But the deal between Allianz (then known as Allianz General Insurance Bhd) and CAB was higher because it enabled the former to tap into CIMB’s diversified customer base and distribution channels.
An integral part of the acquisition is a bancassurance agreement between Allianz and CIMB (the second largest banking group in the country) to distribute general insurance products, excluding offerings that are tied to life policies, takaful, accident and health policies.
In particular, the agreement allowed Allianz to benefit from CIMB’s strong push into consumer finance.
So, it is no surprise that Allianz is the top company in the financial services segment in the KPMG survey on shareholder value creation in 2009. It registered an economic profit over invested capital ratio of 25.09% to beat the others such as LPI Capital Bhd and Hong Leong Bank.
Three years ago, there was some apprehension whether or not the returns from the acquisition would be worth the RM298.7 million goodwill that Allianz would incur from the deal. But now, the growth coming from the bancassurance business has propelled Allianz’s earnings.
For FY2009 ended Dec 31, Allianz recorded a net profit of RM118.9 million from an operating revenue of RM2.2 billion.
Compare this to 2006, when the insurer registered a net profit of RM35 million from an operating revenue of RM1.13 billion. In 2007, Allianz recorded a loss due to the acquisition of CAB and integration expenses.
The insurer also took a hit from provisions incurred but not reported for investments and doubtful debts in CAB’s books to realign practices of the acquired company to Allianz group.
In 2008, the results of CAB in Allianz’s books started to show as turnover and net profit increased. That year, Allianz recorded a net profit of RM70.7 million on an operating revenue of RM1.9 billion. The amount grew in 2009 and is expected to gain strength by about 8% per annum in the years to come.
The acquisition of CAB made Allianz’s general insurance arm — Allianz General Insurance Company (AGIC) — the second largest in the country with 10% market share.
According to Allianz CFO Charles Ong Eng Chow, the general insurance business achieved a record high gross written premium of RM1.2 billion, a growth of 12%.
He attributes the impressive growth to the insurer’s multi-distribution strategy, particularly its bancassurance business.
“While the traditional distribution channels, agency and broking, continue to contribute positively, the new bancassurance and franchise channels recorded strong growth, contributing 25% of GWP. The acquisition of CAB gave us an excellent opportunity to further strengthen our multi-distribution model,” he says.
Apart from the general insurance business, Allianz life insurance business, undertaken by Allianz Life Insurance Malaysia (ALIA), also recorded strong growth last year. Its life insurance segment grew by 25.5% to a record high of RM869 million last year.
“The growth is contributed by two main factors — strong growth from our new business and high persistency of our renewal business,” says Ong.
Allianz market share in the life insurance business is 7.3%.
In July this year, Allianz completed a fund raising exercise to the tune of RM611 million. Part of the proceeds were used to repay the parent company RM490 million which was advanced to finance CAB in 2007. The rest was used to beef up the capital base of the general and life insurance subsidiaries.
Ong says one of the major purposes of the capital raising exercise was to increase the capital base in the general and life businesses to enable the two to meet the respective capital requirements under the risk-based capital framework.
“With that, we could continue our expansion plan and gain further market share,” says Ong.
He says the capital raising exercise will facilitate the growth of insurance operations.
“It will enable the company to expand the business and achieve a sustainable profitable growth,” he says.
With its bigger capital and tie-up with CIMB, Allianz will be a company to watch in terms of shareholder value creation.
This article appeared in Special Focus, The Edge Malaysia, Issue 827, Oct 11-17, 2010