AMMB Holdings – Insurance unit restructured

December 10, 2008 at 7:29 am Leave a comment

• Enter Friends Provident PLC
The Group announced last week the receipts of necessary approvals to restructure its insurance unit, with the incorporation of a new subsidiary AMAB Holdings to hold the Group’s investments in AmG Insurance Berhad (AmG) and AmAssurance Berhad. The restructuring will also see the exit of IAG from the life general insurance business, and the entry of Friends Provident PLC as a strategic partner in its life insurance business.
• Restructuring reaps RM30mn for the Group, and two
strategic partners of great pedigree In the sale of an additional 19% stake in AmG Insurance to IAG for RM140m, the Group will reap a net surplus of RM30m after netting off the RM170m it would have to fork out to re-purchase the 30% equity stake in AmAssurance but which will be subsequently re-sold to Friends Provident (FP) for the same amount.
IAG is an international general insurance group with operations in Australia, New Zealand, the UK, China, Thailand, Singapore and Malaysia. Its businesses currently underwrite approximately RM22.4bn in premiums per annum and insures around RM2.5tn worth of property. FP is a UK-based life insurance company listed on the UK stock exchange, and has assets under management within the Group to the tune of approximately RM515bn. Gross earned premiums on insurance and investment contracts amounted to RM35bn last year.
• Maintain BUY call and TP of RM3.90.
The Group has also recently signed an MOU for the purchase of MAA Assurance’s general insurance business, which when concluded, will go some way in expanding the Group’s income stream going forward and make it AmG one of the largest general insurance companies
domestically.
Banking operations meanwhile, continue to improve, as evidenced by recent quarterly results announcements. We are maintaining our conservative expectation of an average 5-6% loans growth for 2009 and 2010 for all banking stocks under coverage. Our BUY call and target price
(premised on 1.5x P/BV) is re-iterated.

Original Structure
• Composite insurance business held under AmAssurance, of which IAG International holds a 30% equity stake and AMMB Holdings the remaining 70%.

Restructuring
• Insurance unit now split into life and general, of which it had recently obtained BNM’s approval and licenses for
• Life insurance to be housed under AmAssurance Berhad
• General insurance to be housed under AmG Insurance Berhad
• A new holding company, AMAB Holdings, will be incorporated as a wholly-owned subsidiary to house the Group’s investments in both AmAssurance and AmG Insurance.
• IAG only wants exposure to the general insurance segment and will therefore sell its 30% equity stake in AmAssurance back to AMMB Holdings for RM170m
• It will then purchase an additional 19% equity stake in AmG Insurance from AMMB Holdings for RM140m, thereby bringing its total holdings to 49%
• AMMB Holdings will then sell the 30% of AmAssurance it had re-purchased from IAG to Friends Provident for RM170m, and in the process obtain another strategic partner for its insurance business.
• As a result of this exercise, AMMB Holdings will reap RM30m and implicitly value its life insurance business at RM567m and the general insurance business at RM736m.

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