Short Positions - Insurance, Covid-19, ESG


AmBank group is expected to derive a potential RM300mil-RM400mil in one-off disposal gains. Proceeds from the sale are expected to be ploughed back into the bank’s operations and to beef up capital ratios.

Divesting insurance

THE move by the AmBank group to sell its stake in its insurance arm to American firm Liberty Insurance is not surprising.

Some even reckon the move is welcomed.

This week, AMMB Holdings Bhd (AmBank)’s 51%-owned AmGeneral Holdings Bhd said it is selling its entire stake in AmGeneral Insurance Bhd (AGIB) to Liberty Insurance Bhd (LIB).

In the past, the AmBank group had alluded that it was looking to exit the insurance business.

The price tag of RM2.29bil, subject to adjustments, is to be satisfied via cash and a 30% stake in LIB’s larger general insurance group.

Many are positive on the deal as the cash raised would assist the banking group to enhance capital and strengthen its balance sheet following the Global Settlement charge of RM2.83bil in relation to its involvement in the 1Malaysia Development Bhd (1MDB) matter.

Liberty Mutual Insurance is also seeking to acquire Insurance Australia Group’s 49% in that insurance business.

The RM2.29bil acquisition prices AmGeneral at a historical price to book value (PBV) of about 1.4 times.

This is lower than the PBV of 1.8 times to two times for historical mergers and acquisitions in the sector.

But this is understandable.

Competition has heated up since the detariffication of the industry over the past few years.

General economic conditions have also weakened.

AmBank group is expected to derive a potential RM300mil-RM400mil in one-off disposal gains. Proceeds from the sale are expected to be ploughed back into the bank’s operations and to beef up capital ratios.

The insurance business has been contributing around 11% of the banking group’s earnings. But small matter.

Firstly, AmBank will be maintaining a 30% stake in the enlarged entity.

Secondly, there will be a banca agreement in place, essentially an arrangement between a bank and an insurance company allowing the insurance company to sell its products to the bank’s client base, which would earn the bank some fees.

No wonder then that the loss of earnings from the disposal is expected to be less than 2%.

LIB’s parent Liberty Mutual is the sixth largest property and casualty insurer in the world, which could bring about longer term benefits.

Changing our approach

CASES of Covid-19 were at a record level once again yesterday while the pace of vaccinations too hit a new high exceeding 500,000 doses in a single day.

The pace of vaccinations comes as companies race in their pursuit of staff getting fully vaccinated.

As it stands now, about a third of the country’s population and more than a third of the adult population have now received their first dose.

Vaccine Malaysia CoronaVac ChinaVaccine Malaysia CoronaVac China

With the target to get the targeted residents in Kuala Lumpur and Selangor their first dose by Aug 1, the hope is that by as late as the end of September, depending on the vaccine type, most of the targeted population would have been fully vaccinated by then.

That is significant on a number of fronts. With the Delta variant now surging through countries across the world, that has led to a sharp spike in the number of Covid-19 cases.

The high case numbers have seen restrictions introduced in some countries that have even had a large percentage of their population fully vaccinated.

The virus has shown its infectivity by spreading even to those that have been fully vaccinated. But the numbers also tell a different story from the early days of the virus.

Most of the fully vaccinated people are not being hospitalised and reports have it that more than 99% of patients admitted into hospitals were unvaccinated.

There is little doubt that until the virus mutates out of existence or people develop a herd immunity to the coronavirus, people from all around the world will have to live with it.

The main question is how. Judging from how the cases are now being reported based on the severity of cases, it would appear that the vast majority of the infected have no or mild symptoms.

Those cases can worsen to the upper categories but as a growing number of people get fully vaccinated against the virus, the hope is that those in Category Four and Five will fall in numbers and the healthcare system can revert back to operating at optimum conditions that will allow for more care for those severely affected.

That will also mean that in time, we will have the ability to treat the virus with care but not as much fear and place economic restrictions and the balance of the scale can tilt back in the favour of livelihood while keeping vigilance over those whose lives need protection.

Caring for more than one

OVER the past week, there have been a number of companies that have touted their environmental, social and governance (ESG) aspirations.

The big companies have unfurled plans where they are starting to communicate their plans for the socially conscious future.

Some will argue that going overboard on ESG targets may not be the best thing yet but the climate change where the environment has extracted a heavy cost on population and business around the world, such as the episode of heavy rainfall and flooding, mean action needs to be taken.

Tenaga Nasional Bhd, which has seen its foreign shareholding hit record lows, is working on its sustainability plan.

TenagabuildingTenagabuilding

Even Malayan Banking Bhd, which has articulated its plans to be more ESG-inclusive, has spoken about using its financial brawn to guide their customers towards achieving a broader ESG mandate.

Malaysia is in a pinch when it comes to ESG adoption because of the main industries the country relies on.

Oil and gas, along with the oil palm business, do not have the best ESG outlook in the decades ahead.

Oil giants have spoken about their intent to venture into renewable energy to lower their carbon footprint.

And the plantation companies too will need to adapt their processes towards what their customers are increasingly going to demand in the same timeframe.

There is no use fighting such a change because that will only mean losing business and market share to the substitutes that go.

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