sian Alliance to sell general insurance unit to Fairfax in Rs.1.27bn deal

Fairfax Asia Limited Chairman R. Athappan and Softlogic Holdings PLC Chairman Ashoka Pathirage exchanging copies of the agreement

Asian Alliance Insurance PLC (AAI), a unit of diversified Softlogic group is to sell its entire stake in its fully-owned subsidiary Asian Alliance General Insurance Limited (AAGI) to Canadian insurer Fairfax Financial Holdings Limited in a deal valued at Rs.1.27 billion. The share is valued at 1.7 times the net book value of the acquiree – AAGI – but the final valuation is subject to the net book value post-audit and actuarial analysis, a filing to the Colombo stock exchange by AAI last week noted. Accordingly, AAI has entered into a share sale and purchase agreement to sell its entire stake in AAGI to Fairfax Asia Limited or another nominated member of the Fairfax group.

What is special in the Softlogic – Fairfax deal is that the two parties have also forged an exclusive 10-year general insurance distribution agreement to sell insurance policies via the former’s existing distribution channels. This agreement is valued at Rs.224 million, Softlogic Holdings said in a separate filing. “We are extremely pleased to partner with Fairfax Asia, who has a very good track record in General Insurance that we are confident will translate into value addition to our group channels. Their expertise will build on the great platform that we have established at AAGI for the benefit of all stakeholders,” said Softlogic Chairman Ashok Pathirage in a statement. By March 31, 2015, Softlogic Capital PLC held 59.18 percent stake in Asian Alliance Insurance PLC followed by Netherlands-based FMO and Germanybased DEG holding 19.0 percent stake each. Sri Lanka’s insurance sector has seen several foreign investments during the last four years, and this is the third such instance since AIA Group bought 92.3 percent stake in Aviva-NDB Insurance in 2012 in a deal worth US $ 109 million. Thereafter in 2015, Union Assurance PLC divested 78 percent stake in its general insurance arm, Union Assurance General Limited, to Fairfax Asia Limited for a total consideration of Rs.3.66 billion, soon after the group’s general insurance business was spun off to comply with regulator’s call. Increased minimum regulatory capital requirements, intense competition, increased operating expenses in managing two business units and dearth of talent in the domestic market after the business segregation in 2015 forced smaller local insurers to seek support from able foreign parties or amalgamate with a competitor to remain solvent. Sri Lanka’s insurance market i s overcrowded with 30 companies operating at present – 12 life insurers, 15 non-life insurers and 3 composite insurers, with the mix changing at present.