After IGI, Adamjee expresses interest in MetLife Pakistan

New York-based insurance giant, however, is not committed to selling its local presence.

KARACHI:

The battle for MetLife Pakistan is heating up as Adamjee Life Assurance is the latest player to throw its hat into the ring for acquiring its assets, following a similar show of interest from IGI Life Insurance last month.

The announcement came through a notification sent to the Karachi Stock Exchange by Next Capital, the investment bank advising Adamjee on the transaction. It stated that Adamjee was bidding for almost 82% of the shares in MetLife American Life Insurance Company Pakistan. That percentage represents slightly more than the total institutional investors’ holdings in MetLife Pakistan, with the remainder owned by ordinary investors through its listing on the Karachi Stock Exchange. MetLife officials, however, said that they had yet to be contacted by Adamjee with a due diligence request.

Adamjee executives remained tight-lipped about the matter. “It is too early to comment at this stage,” said Jalal Meghani, the chief financial officer of Adamjee Life Assurance.

However, sources familiar with the matter said that Adamjee – already the largest player in the general insurance business in Pakistan – wants to expand its presence in the life insurance sector and felt that the organic growth strategy being pursued by Adamjee Life was not going fast enough to build a strong enough presence in the sector.

The public expression of interest is a requirement under the law: it does not necessarily reflect an intention to buy or sell by either company, but merely the earliest of inquiries about the possibility of an acquisition. In many other countries, such an early discussion would not even be public information, but the Securities and Exchanges Commission of Pakistan has some of the most stringent disclosure rules about mergers and acquisitions.

A similar expression of interest was made by IGI Insurance on September 25, 2012. Executives from IGI did not answer requests for comment from The Express Tribune.

Both expressions of interest come as something of a surprise. MetLife Pakistan has been doing well, and the company had originally bought the global parent American Life Insurance Company (Alico) in 2010 from New York-based rival AIG in large part to take advantage of its strong presence in Asia. South Asia has been a priority market for MetLife, with the company maintaining a strong presence in India.

When asked if it had made the decision to offload assets in Pakistan, MetLife’s global parent was noncommittal in its response. “It is our responsibility to consider any serious offers for our assets around the world. We are in very early stages in this situation. It is too early to talk about any decisions,” said Peter Stack, a MetLife spokesperson.

MetLife has been doing well in Pakistan. In 2011, premiums increased a whopping 58% to Rs3 billion. Profits increased by 34% to Rs116 million. Its return on equity also improved significantly, from 13% in 2011 to 15.8% in 2012. Return on equity is a measure frequently used by companies when making a decision about whether or not to sell a business line.

The year 2012 has so far also been good to the firm, with premiums continuing to expand. For the first six months of the year, premiums increased by 19.4% to Rs2.1 billion.

Adamjee Life is the newest player in the life insurance market, which currently only has six companies. It is currently the fifth largest company in the country, with about Rs900 million in premiums in 2011. MetLife is the fourth largest. IGI Insurance currently does not have any presence in the life insurance sector, but has recently made announcements that it intends to enter both the life insurance and Islamic insurance markets.

According to the SECP, the total life insurance market is worth about Rs23 billion in premiums every year, of which more than two-thirds is controlled by State Life Insurance Company, the government-owned giant. Nonetheless, the life insurance business is expanding very rapidly, growing by almost 36% in 2011, compared to just 11% growth for the general insurance segment.

Were a deal between either bidder and MetLife to go through, it would still have considerable regulatory hurdles to cross.

“The regulatory requirements and approval followed by due diligence on the part of the companies could take up to a year before actual execution of the deal,” said Insurance Commissioner Mohammed Asif Arif, the industry’s top regulator at the SECP. “The approval of the State Bank of Pakistan would also be needed before the winning bidder transferred any money abroad as payment for the company.”

He added that neither had yet approached the SECP about the deal.

Background

MetLife completed the acquisition of Alico in November 2010, buying it from ailing rival AIG for over $15 billion, which was forced by the US federal government to sell many of its most lucrative and prized foreign assets in order to pay back the nearly $185 billion in bailouts that the company took at the height of the 2008 financial crisis. The Pakistani subsidiary of Alico thus became a subsidiary of MetLife, which had hitherto not had any presence in the country.

AIG, meanwhile, continues to operate its general insurance business in Pakistan, which it first set up in 1949 as the Pakistan branch of the New Hampshire Insurance Company. Yet the website of the company today contains no mention of AIG, saying only that it is part of Chartis. It does not disclose that Chartis is a subsidiary of AIG.

The American firm has been remarkably committed to its presence in Pakistan. It first set up its general insurance operation in Pakistan in 1949 and its life insurance business in 1952. In 1972, AIG was kicked out of the life insurance sector in Pakistan, which was completely nationalised and all 40 existing firms merged to form State Life Insurance Corporation. But in 1995, when the government re-opened the life insurance sector for foreign investment, AIG was the first global firm to apply for a licence.

This commitment to operating in difficult foreign markets is unsurprising: AIG was established in Shanghai in 1919. It only moved to the United States in 1949, when it was kicked out by the newly victorious Communist government in China.

(With additional reporting by Kazim Alam in Karachi)

Published in The Express Tribune, October 18^th, 2012.