Competition intensifies: EFU enters race to acquire MetLife Pakistan

Three insurance firms have already shown interest in the multinational giant.

KARACHI:

Amidst rumours that the majority stake in MetLife American Life Insurance Company is up for grabs, EFU Life Assurance has become the fourth company to formally announce its intention to acquire 91% shares in the multinational insurance giant operating in Pakistan since 1995.

EFU Life Assurance threw its hat into the ring on Friday by sending a formal notice to the Karachi Stock Exchange (KSE), stating it wants to acquire 45.5 million ordinary shares of MetLife Pakistan, constituting approximately 91% of the company’s issued shares.

“Our intention is based on market reports that there’s a possibility that MetLife may want to sell its stake in Pakistan. As per the Listed Companies Ordinance, 2002, and Listed Companies Regulations, 2008, for substantial acquisition of voting shares and takeovers, we’re expressing our intention to buy the majority stake,” EFU Life Assurance Chief Strategy Officer Mohammed Ali Ahmed told The Express Tribune in an interview.

Earlier, IGI Insurance, Adamjee Life Assurance and TPL Direct Insurance have shown interest in acquiring the majority stake in MetLife Pakistan.

“MetLife Pakistan has a reasonably sized life insurance business, which is also profitable. Therefore, we are interested in having a closer look at it to evaluate its portfolio in detail,” Ahmed said, adding the process of due diligence – which will be carried out by each bidding company separately – was likely to take many months.

Although the par value of 45.5 million ordinary shares that EFU Life Assurance is bidding for is Rs455 million, Ahmed said the final bid price would depend on the soundness of MetLife Pakistan’s portfolio and the company’s future prospects.

“The bid price may be more or less than Rs455 million,” he said, adding EFU Life Assurance would like to increase its holding in the company from 91% if it became successful in the bidding process.

Currently, 81.97% shares in MetLife Pakistan are owned by its global parent, Alico US. About 0.24% shares in the company are held by its directors while the general public owns 17.8% shares.

Out of the seven players in the country’s life insurance sector, MetLife Pakistan is the fourth largest in terms of assets, which were worth Rs6.6 billion at the end of 2011. They have increased at an annualised rate of 32% since 2006, outperforming the rest of the six companies.

Average annual increase in gross premiums of MetLife Pakistan has also been greater than the rest of the companies, making it the fastest growing insurance player in the country. Its gross premiums for the nine months ended September 30, 2012 increased by 34% over the corresponding period in 2011. However, MetLife Pakistan suffered a drop of 18.9% in profit after taxation over the same period.

Speaking to The Express Tribune, a veteran of the insurance industry said the negative growth in profits of MetLife Pakistan despite a remarkable increase in gross premiums during the last nine months should be attributed to the company’s focus on generating single premium business in recent years.

“Single premium business boosts gross premiums, but it doesn’t necessarily leave a strong impact on the long-term profitability of the insurance company,” he said while requesting anonymity because he did want to be seen talking about a competitor.

Speaking of profitability, EFU Life Assurance is the most profitable life insurance company in Pakistan. It made a profit of Rs578 million in 2011, which was 11% more than the profit earned by government-owned State Life Insurance Corporation of Pakistan (SLIC) in the same year. That is despite the fact that EFU Life Assurance holds only 15% market share as opposed to SLIC, which controls 66% market share.

EFU General Insurance holds a 42.2% stake in EFU Life Assurance. The Jahangir Siddiqui Group owns 20% shares while the general public holds the rest of the shares.

Published in The Express Tribune, November 4^th, 2012.