TWO corporate giants — Nishat and Packages Groups — from Lahore are in a serious race to purchase MetLife Alico Pakistan, a subsidiary of American Life Insurance and a significant and old player in the country’s growing life insurance market.

In this run, the two giants are being chased by a relatively smaller player from Karachi, TPL group of companies, with interest in general insurance, construction, security services and energy.

The race for MetLife Alico started towards the end of last month when IGI Insurance Limited, a company owned by the Packages Group of Syed Babar Ali showed its interest in acquiring 82 per cent shareholding of the company. It was followed by another announcement by Adamjee Life Assurance Limited, a subsidiary of Adamjee Insurance Company Limited owned by Nishat Group of Mian Mohammad Mansha. It also indicated its interest in buying 82 per cent holding in the company. TPL Direct Insurance is the latest potential bidder, looking for the same percentage of shareholding in MetLife Alico as the two others.

The half yearly report of MetLife shows a deterioration in its performance compared to last year. The pretax profits of the company dropped to Rs91.2m during the half year ended June 30 this year from Rs116.2 million a year earlier. Net premiums, nevertheless, grew to over Rs2bn from Rs1.7bn. Earning per share also fell to 1.19 from 1.51.

Top executives of all the three bidders of the MetLife are not ready to speak about the reasons of their interest in purchasing the company because they “do not feel like talking about in the public at this point in time”.

“The notices sent through the stock exchange do not mean that these bidders will actually buy the company or the MetLife management is prepared to sell its holding in it. Through the notifications they have expressed their intention to acquire the company. It is going to be a long process starting with due diligence of the company by the interested parties,” a former official of the Insurance Association of Pakistan from Lahore told Dawn.

But he did not agree to a suggestion that the successful acquisition of MetLife by any of the three prospective bidders will set a new trend of acquisitions and mergers in the insurance industry. “I do not think so. It is going to be a one-off acquisition, if it happens,” he said.

He said he had no knowledge if the holding company of MetLife was interested in selling off its ownership of the firm. “Still I think the bidders must have got some indication to this effect after which they had expressed their interest in acquiring controlling votes,” he said.

A MetLife spokesperson was recently quoted to have said in a statement that “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.”

A spokesperson of one of the three bidders for MetLife Alico, who did not want to be identified by his company or his name told Dawn that their company’s interest in acquiring MetLife Alico had stemmed from its strong desire to expand into life insurance segment. “With the general insurance segment of the insurance industry facing stagnation, we see a lot of potential for growth in life insurance to expand because of its very, very low penetration in Pakistan as compared to other countries in the region,” he said. He said long-term life insurance was a more profitable business because it helped companies raise funds for sustainable investments on a long-term basis.

Total insurance business in Pakistan is 0.8 per cent of GDP with a share of 0.03 per cent in the global market, according to official data.
India’s share has grown to 1.32 per cent of the world market. Pakistan is ranked at 83rd position in the world ranking of insurance penetration compared to 31st position for India, 71st for Sri Lanka and 80th for Bangladesh.

Life insurance penetration, as measured by the ratio of premiums to gross domestic product (GDP) by the State Bank of Pakistan (SBP), in Pakistan is estimated to be around 0.3 per cent, the lowest in the region, on the basis of the 2008 gross premium. This compares to four per cent for India, 0.6 per cent for Sri Lank and 0.7 per cent for Bangladesh. The number of life insurance policies sold is, however, projected to increase from 15.3 million in 2011 to 27.8 million in 2016 after registering a CAGR of 12.6 per cent over the forecast period.

Insurance industry sources say the business thrived and expanded during early 2000s on the back of robust growth driven by favourable economic conditions, expansion of the financial sector, privatisation of state- owned entities and foreign investment. But macroeconomic instability that set in the late 2007, turmoil in global financial markets and dislocation of domestic equity market along with deteriorating security conditions, had resulted in stagnation of business in the last five years.

The anonymous spokesperson pointed out that many insurance companies had realised that their organic (or evolutionary) growth was too slow to allow them to take advantage of the potential of life insurance segment. Hence, he added, some companies in life as well as non-life segments had decided to increase their presence in this important market.

“Growth in size through mergers and acquisitions can suddenly increase your market share as well as cut overhead expense, boosting your earnings, he said. He felt that the success of the bid for MetLife could trigger a series of acquisition and mergers in the industry in the days to come. But will it?