(Photo: VNA) DB Insurance, which is one of the Republic of Korea’s leading non-lifeinsurance companies, has just completed another step of its purchase strategyto take control of Vietnam National Aviation Insurance Company (VNI).
Expectations of fresh momentum from foreign capital inflows helped VNI's stockprices soar last week.
The transfer value is determined by the two parties' agreement, but it isestimated to be worth about a trillion dong at the current market price.
VNI has a charter capital of 1 trillion VND (42.2 million USD), which is thelargest charter capital in M&A deals over the past two years. Threenoteworthy M&A transactions in the insurance sector occurred during thistime, but the parties involved were not experts in the non-life sector.
In particular, VPBank increased its shareholding of OPES Insurance from 6.05million units to 53.9 million units last November, or 98% of charter capital,by purchasing an additional 47.85 million shares of the company.
Additionally, in the fourth quarter of 2022, Tasco spent more than 402 billion VNDto acquire Groupama Vietnam's entire share capital, changing the company's nameto Tasco Insurance. The plan calls for Tasco to invest an additional 612billion VND in this business.
Previously, in September 2021, BCG invested a total of 316.5 billion VND toacquire a controlling interest in AAA Insurance.
Vietnam was one of the insurance marketplaces with the highest growth rates inthe world prior to the COVID-19 pandemic. Statistics for 2011–2019 showed thatthe country's annual growth rate in insurance premium revenue was 20% while theglobal average was 3%.
In the two years affected by the pandemic, the growth of insurance premiumrevenue in Vietnam was only a few%. It grew by 1.7% in 2021 alone.
However, after the pandemic was controlled in 2022, insurance premium revenuerecovered quickly, increasing by 16.2% for the whole market, with the non-lifesegment gaining by 17.3% year-on-year.
Fierce competition
As there is still much room for development in the domestic insurance market,the industry’s growth target is set at double-digits.
The industry's rivalry is still fierce, though.
By the end of 2022, the insurance market had 78 businesses, including 31non-life insurers, two reinsurers, 19 life insurance businesses, and 26insurance brokers.
Since the launch of HD Insurance (in 2020), the management agency has notgranted more establishment licences, but M&A transactions have altered thefundamentals of many businesses.
Fierce competition leads to high costs for insurance companies to pay fordistribution channels. In 2022, profits from the insurance activities of manynon-life insurers went down despite higher revenue.
Under competitive pressure, it is difficult for new entrants to find aposition.
VPBank's 2022 segment reporting showed that this division's business results posteda slight loss of nearly 6 billion VND. Meanwhile, BCG's investment in AAAInsurance also lost nearly 35 billion VND out of the total investment capitalof nearly 320 billion VND in the first financial year of merging.
However, the results of the first few years cannot reflect the results of theM&A deal. After a long enough time, many M&A deals have producedremarkable results.
For example, more than seven years after FairFax Financial Group (Fairfax AsiaLimited) bought 35% of shares of BIDV Insurance (BIC) through the offering ofnew shares through private placement, the rate of return on average equity(ROEA) increased from 7.72% in 2015 to over 12% in 2022, although there was asignificant decrease in the first three years.
In 2019, BIC's ROEA saw a significant breakthrough after A.M. Best lifted itscredit rating and it received support from Fairfax's information technologyexperts to invest in a core banking system.
There are also cases of conflicts after a reorganisation of shareholders. Forexample, at the 2022 Annual General Meeting of Shareholders of Post andTelecommunications Insurance Joint Stock Company (PTI), plans to offer sharesto the public and issue shares to increase capital from equity and the issuanceof ESOP shares were all vetoed.
In the case of DB Insurance, if the deal is successful, the RoK insurancecompany will hold the controlling percentage in VNI, avoiding conflicts betweenmajor shareholder groups./.
VNA
