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AYUD hunting for acquisitions

Insurance market tipped to downsize as AEC comes into being

INVESTMENT company Sri Ayudhya Capital (AYUD) continues to look for acquisition opportunities as it believes the coming insurance liberalisation will force small insurers to seek strategic partners to reduce operating costs.

"The deals will happen if those companies have a good strategic fit with our objectives regardless of whether the asset size of those firms is larger or smaller than AYUD's. However, we do not think our acquisitions will occur this year," managing director Chusak Salee said.

He said the company had sufficient funds to support acquisitions after divesting assets of a non-listed equity, the disposal of which garnered a profit of about Bt1.08 billion. The deals will be booked on the balance sheet this quarter.

The company has a wholly owned subsidiary in non-life insurer Sri Ayudhya General Insurance (SAGI), and holds a 20-per-cent stake in life insurer Allianz Ayudhya (AZAY). AYUD wants to increase its stake in AZAY if the major shareholder is willing to sell.

AZAY contributes a healthy profit to AYUD even though in the first quarter profit share from AZAY fell to Bt97.96 million from Bt130.90 million in the first three months of 2013.

Chusak said the company believes its profit share from AZAY this year could reach Bt350 million, similar to last year, as the outlook for life insurance is brighter than for non-life because the latter was greatly affected by declining auto sales.

Rowan D'Arcy, president and chief executive officer of AYUD, said small and medium-sized insurers would be forced to adjust their business strategies because of the insurance liberalisation driven by the upcoming Asean Economic Com-munity.

The Office of the Insurance Commission (OIC) is preparing tariff deregulation to comply with the AEC, which means premiums will be lower than before, pressuring small insurers and insurance firms with little capital.

Small and medium-sized insurance companies will have to sell out or merge for survival, and the tariff deregulation will clearly have an impact on the Thai insurance market in the next few years, D'Arcy said.

He noted that there are 66 non-life insurance companies in Thailand, which is too many for a market this size. He put the appropriate number at 40-45.

Another trend that will affect non-life insurance, particularly the motor-insurance segment, is the change in bargaining power, he said. The company has seen an increasing role of auto manufacturers in assigning their dealers to offer in-house motor insurance to buyers, and that has hit written premium margins of general insurers.

Still, AYUD wants to grow in motor insurance as this segment contributes 30 per cent of its premium income. D'Arcy said it would be very difficult for SAGI to drive premiums in the second half of the year after its premium income in the first quarter posted Bt759.60 million, down 1 per cent year on year.

The OIC has lowered its forecast for non-life premium growth this year to no more than 5 per cent, but Chusak said SAGI had maintained growth of more than 5 per cent as it is optimistic that premiums from industrial all-risk insurance could pick up if tendering for state projects can start this half.

"Consumer confidence rebounded in May and what we are seeing is active movement in residential purchasing, and we have bank partners offering fire and general insurance when they grant home loans," Chusak said.




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