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Adamjee Life Assurance sets to raise Rs700mn in 1QCY22

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January 7, 2022 (MLN): Adamjee Life Assurance Company Ltd (ALACL), a wholly-owned subsidiary company of Adamjee Insurance Company Ltd (AICL), has announced its listing plans at PSX to raise Rs700 million through an offer for sale, with a floor price of Rs28 per share, which is expected to be listed by 1QCY22.

To note, ALACL is engaged in the life insurance business carrying on non-participating business only, offering both Conventional Life Insurance and Family Takaful policies.

The principal purpose of the offer for sale is to enable the holding company to realize a gain on its investment in ALACL. Further, the public offering will enable the company to broaden its shareholder base by bringing in public shareholders, HNWIs and Financial Institutions. It will also aid in increasing ALACL’s transparency and enhance good governance measures.

The offer comprises 25,000,000 ordinary shares of the face value of Rs10 each, which constitutes 10% of the total post-IPO paid-up capital of the company. The entire offer will be offered through the Book Building process at a floor price of Rs28per share with a price band of 40% above the floor price i.e., Rs39.2 per share, a Draft offer for the sale document of the company revealed.

The bidders shall be allowed to place bids for a hundred percent (100%) of the offer size and the Strike Price shall be the price at which the hundred percent (100%) of the Offer is subscribed. However, the successful bidders shall be provisionally allotted only seventy-five percent (75%) of the offer size i.e., 18,75,000 shares, and the remaining twenty-five percent (25%) i.e., 6,250,000 shares shall be offered to the retail investors.

MCB Bank Limited has been appointed as the Banker to the Book Building for this offer.

Looking at the financial statement of the parent company, AICL reported 9MCY21 PAT at Rs2.27bn (+91% YoY) with an EPS of Rs6.49/share; where 3QCY21 EPS clocked in at Rs1.88/share, up 2x YoY. Improvement in underwriting income and hefty dividends from the banking sector in 9MCY21 (accumulated with a suspended dividend of CY20) were the key reasons for the outstanding growth, a research report by JS Global said.

During 9MCY21, the Motor segment remained the dominating contributor to core income (43% of total Underwriting income), followed by Fire and Property (29% of total Underwriting income).

Going by the report, the auto sector growth may remain comparatively lower given the ongoing increase in policy rate (decreasing auto financing) and increase in auto prices impacting potential auto sales. It is forecasted that the underwriting profits to post a meagre 5-YR CAGR 6%, where the Motor segment is expected to outperform; and maintain the claims ratio above ~60%, translating to CY22F P/E of 5.2x on the said segment.

As far as the ALACL’s future outlook is concerned, the prime objective of the company is to expand the business going forward by creating new strategic partnerships, entering new channels for distribution, and enhancing the capacity of existing channels. It is now financially stable and will be able to appropriate surplus from statutory fund to the shareholders' fund in ensuing years, draft offer stated.

The company’s primary business channel i.e., the bancassurance business will grow steadily, albeit with lesser than historically registered high growth, due to the increased regulations specific to this particular distribution channel. These regulations are expected to encourage insurance companies to write quality business and hence will increase the sustainability of the business model in the long run.

In addition, Adamjee Life is looking forward to building a sustainable and mutually beneficial relationship with its new Banca Partners i.e., National Bank of Pakistan and Habib Metropolitan Bank which will further augment the Banca business in ensuing years. Simultaneously, it also focuses on enhancing the business with existing Banca partners and becoming the leading service provider through these partners, it said.

Meanwhile, the Direct Distribution (Agency) model has continued its expansion plan as per the company’s strategy to increase new business from other than the Banca channel. The total number of sales offices of the company has increased to 57 by 2020 from 34 in 2019 and currently has expanded to 64 branches. The company will continue its expansion plan for its Direct Distribution Salesforce and is targeting to touch new business generation of PKR1.5 billion by 2025-26, it added.

With the above objectives and prospects in sight, the company is confident to touch the fund size of over Rs100 billion by 2025 and annual profitability of above Rs750 million by 2025. With a strong and highly trained and professional team along with the support of ‘state of the art policy management and ‘claims processing system’, the company is confident to achieve its above-mentioned objectives.

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Posted on: 2022-01-07T16:33:36+05:00

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