Insurance market abuzz with M&A

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“Mergers and Acquisitions (M&A) in the insurance industry, life and non-life alike, are not limited to foreign markets and will spread to Vietnam as well,” commented an expert in the field.

According to 2017 insurance market forecast reports, M&A remains an important goal as insurance companies are seeking for different ways to grow.

“On the European insurance markets, there have been rumours of big insurance brands to be bought out soon. There has yet to be a definitive move to confirm these rumours, since the information only aims to examine the market’s reactions. However, Asia seems a likely target for M&A,” said an expert.

According to this expert, a company can consider entering a new market by forming a subsidiary or building a partnership with local enterprises. Certain markets like China or India have encouraged M&A activities in this field by raising the foreign direct investment (FDI) limit in the sector.

A few years ago, entering the insurance market by forming partnerships with local enterprises, especially banks and conglomerates, was a common trend among insurance firms in Vietnam, mainly in the life insurance segment. However, Vietnam’s current rising insurance market is also opening new investment paths for foreign financial and insurance corporations.

Foreign corporations making an initial capital contribution and then buying up all the local enterprises’ shares after a few years to turn the company into a 100 per cent foreign-owned entity has become a new trend. The insurance market has witnessed similar cases recently, like the acquisition of Sun Life Vietnam or Aviva.

Experts forecast this trend to continue. At present, there are a few rumours that a Thai insurance group is negotiating to buy shares from some of its Vietnamese partners.

Another type of M&A in the insurance industry comes from the corporate or regional level. These transactions have certain influences on the development strategy of local branches, including those in Vietnam.

“Buying brands with small market shares and slow development then investing to rebuild and renew the business and eventually selling when the time comes is a common trick of the trade for many financial groups. This trend is not only popular in Vietnam but also in other markets,” said an expert in the field.

Commenting on M&A trends in the insurance industry, a CEO of an insurance company said that the above trend has become more fashionable than the old joint venture method in the life insurance sector because of the latter’s inconspicuous results.

In the non-life insurance segment, foreign financial giants remain enthusiastic in investing in insurance companies with great market shares in Vietnam. For a domestic insurance company having more foreign investment equals to having more opportunities to expand business activities and accessing key technical support.

On May 5, Petrolimex Joint Stock Insurance Company (PJICO) has signed a contract selling 20 per cent of its shares to Samsung Fire & Marine Insurance Co., Ltd. (SFMI), a leading insurance company in South Korea, at a price of $1.32 per share and $23.4 million altogether.

According to its first quarter financial report in 2017, PJICO’s revenue reached $26.4 million, an increase of 8.5 per cent compared to the same period in 2016. The company’s pre-tax profit was $1.8 million, 31 per cent higher. At the end of the first quarter of 2017, PJICO’s total asset value and chartered capital were $184.8 million $31.2 million, respectively.

After the M&A, Petrolimex remains the biggest shareholder, possessing 40.95 per cent of PJICO’s chartered capital. SFMI, the strategic shareholder, holds 20 per cent of the capital. Other big shareholders of PJICO are Vietcombank (8.03 per cent) and Vinare (7.03 per cent).