Sale of Sri Lanka’s Janashakthi to Allianz results in global insurance players looking at entering the country
The sale of Sri Lanka’s Janashakthi Insurance PLC’s general insurance business to Germany’s Allianz for Rs. 16.4 billion has set off wide speculation that global insurance players are eyeing Sri Lanka, according to local media reports.
The deal, which appeared to have caught the stock market by surprise has triggered reports that the other remaining Sri Lankan insurance companies, barring local giants Sri Lanka Insurance (SLI) and Ceylinco Insurance PLC (Ceylinco), would offload their general insurance business if they get attractive offers, a report in BT states.
This week’s transactions make it four deals since 2014 in which three local insurers have sold their general insurance business to foreign companies.
In the other case, AIA sold its general insurance business to Janashakthi in 2016 which has now sold its entire general insurance unit to Allianz.
“As Sri Lankan insurance companies adjust to changes in the market after life and general units were segregated by regulation in 2016, divesting general insurance has become an emerging trend here,” an industry expert has been quoted as saying.
Growth in the general insurance segment is expected to be slow and result in a tight battle for smaller players in years to come as insurance giants – especially foreign firms – consolidate the general segment. Local firms are divesting their general insurance segment and focusing on life as competition is intense with 62 per cent of the premiums coming from motor insurance, the report further states.
Analysts have been quoted in the media report as saying that foreign insurers are interested in general insurance to scale up their operations.
“They (foreigners) are interested in product innovation, research and development, etc. Most local firms are inward looking which is why they aren’t interested to sustain general insurance arms because of slow growth, impending challenges and the competition,” an industry expert has noted.
Even with 28 insurance companies operating as at December 31, 2016, the insurance reach is only 14 per cent of the population with large numbers untapped.
Of the 28, 12 companies deal with only life insurance, 13 are in the general insurance business and three are handling both – life and general.
A similar transaction has taken place in 2014 where foreign insurer, Fairfax Asia acquired 78 per cent of Union Assurance PLC’s (UAL) general insurance business and two years later bought 100 per cent in Asian Alliance’s (AA) general insurance arm.
Fairfax, a financial services holding company has then set up an amalgamated entity Fairfirst Insurance allowing it to leverage on the combined strengths of the former UAL and AAL general units.
Less than two years after Janashakthi Insurance completed the amalgamation of Janashakthi General and AIA General Insurance Lanka, the company has sold its general insurance stake to Allianz, the global financial services entity. The transaction is subject to regulatory approval and is expected to complete in the first quarter of 2018.
The interest shown by other international insurance companies to look at entering into Sri Lanka’s insurance business following the recent acquisition of Janashakthi Insurance by Germany’s Allianz is a positive sign indicating the growth in the field of insurance in Sri Lanka. For foreign investors looking at investing in Sri Lanka’s general insurance sector, it would be worthwhile to note the un-penetrated market in the sphere of insurance in Sri Lanka as well as the positive developments that have been taking place in the local insurance sector.
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