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Wednesday, August 31, 2016

Tokio Marine in talks with RHB, could pay RM2bil for insurance arm

Wednesday, 31 August 2016
Tokio Marine in talks with RHB, could pay RM2bil for insurance arm

PETALING JAYA: Japanese insurance giant Tokio Marine Holdings Inc is in exclusive talks to buy out the general insurance business of RHB Bank Bhd.

Citing people familiar with the matter, Reuters said RHB, the fourth-largest banking group in the country, expects the property and casualty insurer to pay up to 3.5 times book value of the business or some US$500mil (RM2.025bil), making it possibly one of the most expensive non-life insurance deals in the South-East Asian region if the deal materialises.

Shares in RHB Bank finished seven sen higher to RM5 at yesterday’s close.

Recall in 2013, MetLife’s acquisition of AMMB Holdings Bhd’s life insurance and takaful units was completed at three times price-to-book, valuing the deal at a price tag of RM812mil.

Also in the same year, Sun Life Financial Inc and Khazanah Nasional Bhd agreed on the RM1.8bil deal to buy CIMB Aviva Assurance and CIMB Aviva Takaful from Aviva International Holdings Ltd and CIMB Group Holdings Bhd, valuing it at 3.2 times price-to-book.

In 2010, there was a record-high deal when Hong Leong Assurance Bhd, with both of its life and general insurance businesses, sold for a hefty 6.5 times book.

However, observers said that particular deal’s high valuation was justified, as it comprised both the general and life insurance businesses.

In general, the average valuation for general insurers is lower - about 1.9 times book – compared with life insurers at about 2.8 times.

A book value is basically the value at which an asset, in this case, insurance businesses, is carried on a balance sheet.

Buyers generally look at factors such as the existence of a ready market, economies-of-scale and the financial strength of the business when deciding on the price they are willing to pay. Whether or not it fits strategically into the buyer’s overall growth plans also plays a huge role.

Most deals fall through due to pricing issues when both parties cannot agree on a suitable price.

Meanwhile, Reuters said the Tokio Marine-RHB deal could include an agreement for the distribution of Tokio Marine products through the bank.

Notably, Tokio Marine will not be the only one employing such a model, as another Japanese insurance firm, Sompo Japan Nipponkoa Holdings Inc, has a 15-year tie-up with CIMB.

Under this deal which was sealed in June, CIMB will sell and distribute Sompo’s non-life insurance products in Malaysia as well as Indonesia, Thailand and Singapore.

Sompo, which has total assets of US$89.7bil and net written premiums of US$22.5bil, has said that bancassurance has been identified as one of its primary sales channels in the region.

Interestingly, Japanese insurance firms were reportedly among the most active buyers of overseas insurance businesses globally last year, even as demand for insurance products in the world’s third-largest economy is being affected by an increasingly ageing Japanese population.

In the case of Tokio Marine, its more recent acquisition exercises include buying US-based HCC Insurance Holdings Inc for about US$7.5bil in what was touted to be the biggest acquisition by a Japanese insurer.

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