AWT eager to acquire East West Life Assurance

It makes sense to buy small company and grow it rather than buy large one, analyst says

KARACHI:

Army Welfare Trust (AWT) has shown interest in buying a majority shareholding in East West Life Assurance, a stock filing said on Monday.

AWT wants to acquire 30.3 million shares representing 51% of the total issued capital of East West Life Assurance.

AWT is no stranger to the insurance industry, as it is already the main sponsor of Askari General Insurance Company - one of the 30 non-life insurance companies with a net profit of Rs154.4 million for Jan-Sept 2015. Its market share was 1.7% in terms of total assets of the non-life insurance industry, latest data shows.



However, East West Life Assurance will become the first life insurance company to be owned by AWT in case the deal goes through. In addition to Askari General Insurance, AWT also owns at least 18 companies in different sectors of the economy.



Headquartered in Rawalpindi, AWT is registered with the Securities and Exchange Commission of Pakistan (SECP) under the Societies Registration Act 1860. Ten out of 11 members of AWT’s board of directors are retired army officers. Its committee of administration is headed by the chief of army staff.

Speaking to The Express Tribune, Taurus Securities Head of Research Zeeshan Afzal said, “Pakistan’s life insurance industry is poised to record substantial growth in years ahead, which makes East West Life Assurance an ideal company for AWT to acquire.”

After-tax profits of the private life insurance players amounted to Rs2.4 billion in 2014, the last year for which industry-wide annual financial accounts are publicly available. They amounted to only Rs1.1 billion for 2009, which reflects a compound annual profit growth rate of 16.5% over the five-year period.

East West Life Assurance is the smallest player in the industry in terms of total assets. With Rs548.7 million, its share within total assets of the private-sector life insurance providers constituted just 0.3% at the end of September 2015.

“It makes more financial sense for AWT to buy a small company and grow it over coming years than acquire an already big entity,” Afzal said.

Creating synergies within the group can be another reason for AWT’s interest in buying East West Life Assurance, Afzal added. After all, a significant number of non-life insurance companies exist as part of large conglomerates.

For example, UBL Insurers, Alfalah Insurance, PICIC Insurance, Atlas Insurance and Habib Insurance belong to conglomerates whose core business is not insurance.

Similarly, two of the three biggest players in the life insurance segment - Adamjee Life and Jubilee Life - belong to conglomerates whose business interests go far beyond the insurance industry.



Almost 72% of the East West Life Assurance outstanding stocks are held by its sponsors while the rest constitute its free float on the Pakistan Stock Exchange (PSX). The stock price of East West Life Assurance increased 12.8% on Monday to close at Rs8.79 per share.

The proposed deal should be worth Rs266.4 million assuming it is sealed at the current share price of East West Life Assurance.

Published in The Express Tribune, March 29^th,  2016.

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