Arpico Insurance Limited

Initial Public offering of 6,630,400 shares

Sector: Banking, Fin.& Insurance

Rs.12.00

Dec 2014

LongTermBuy

AboutArpicoInsuranceLimited(AINS)
AINS is a subsidiary of Richard Pieris & Company PLC (CSE Code: RICH.N);
oneofthelargestbusinessconglomeratesinSriLanka.

AINS was incorporated in 2011 after RICH divested its investment in Asian
Alliance Insurance PLC (AAIC). This was part of the strategy in expanding
financial services sector of RICH which now represents Insurance, Stock
brokering,LeasingandFinance.

Beingrelativelynewtothemarket,AINSoperatesonlyintheLifeInsurance
segment,targetinganicheofmarketofaveragemonthlyincomeearnersof
Rs.40,000andaboveinselectedprovinces.

Raise additional capital to maintain Risk Based Capital requirement:

According the IBSL all insurers are required to comply with the
requirement to maintain its RiskBased Capital Requirement at Rs.
500mn.

Table01:CapitalRequirementasperRBC

Forecast
Forecast
Rs.Mn
Jun14
2014
2015

Tier1Capital
523.91
507.80
519.79
Tier2Capital

Deductions
(44.01)
(63.52)
(94.53)
TotalAvailableCapital
479.90
444.28
425.26
RequiredCapital
500.00
500.00
500.00
ShortFall
(20.1)
(55.72)
(74.74)

Source:AINSProspectus2014

Regulatory requirement: Section 15A of the Insurance Industry Act,

No.43 of 2000 requires an Insurer to be listed on the CSE within a
periodof3yearsofbeingissuedalicenseasanInsurerbyIBSL.

Expand Brach Network: Arpico Insurance is concentrating on

expanding its reach by opening 12 new branches by the end of 2015
which will increase its physical branches to 31 from current 19
branches. The estimated cost per branch is Rs.2.56mn resulting to a
totalexpectedcostofRs.30.7mn.

ArpicoInsuranceLimitedIPO

12.00

Issueprice(Rs.)
No.ofsharesofferedviaIPO

6.63mn

TotalNo.ofsharesinissue
subsequenttotheIPO
ResultantMarketCapitalization

66.23mn
Rs.794.76mn

PostIPOshareholding
PromoterShareholders

89.99%

PublicHolding

10.01%

Capitaltoberaisedthrough
theIPO

ObjectiveoftheInitialPublicOffer

IssueataGlance

FundamentalAnalysisDivision
Capital TRUST Research (Pvt) Ltd

Rs.79.60Mn

OpeningdateoftheIssue

11Dec14

Latestclosingdate

31Dec14

Minimumsubscription

100Shares

BasisofAllotment
No.ofShares
Offered(Mn)

Category
*RetailindividualInvestors

2.65(40%)

UnitTrusts

0.66(10%)

**NonRetail

3.32(50%)

Total

6.63(100%)

*RetailIndividualinvestorsApplicationsup
toamaximumof8,300shares
**NonRetailInvestorsApplicationsfor
morethan8,300shares

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GroupStructure

ShareholdingStructure
Table02:PreIPOVsPostIPOShareholdingofAINS
PreIPO

Shareholder

PostIPO

Numberof
Shares(Mn)

Numberof
Shares(Mn)

KegallePlantationsPLC

26.69

44.77%

26.69

40.29%

RichardPierisDistributors(Pvt)Ltd.

17.79

29.85%

17.79

26.86%

RichardPieris&CompanyPLC

15.13

25.38%

15.13

22.84%

0%

6.63

10.01%

59.60

100.00%

66.23

100.00%

SharesofferedthroughtheIPOtothepublic
Total

Note:AllshareswhichwereinissuepriortotheIPO(59.6mn)willbelockedinforaperiodof6months
fromthedateoflisting.

ArpicoInsuranceLimitedIPO

FundamentalAnalysisDivision
Capital TRUST Research (Pvt) Ltd

Page|2

FinancialHighlights&Ratios

Table03:SummarizedIncomeStatement
Yearended31stDecember
(Rs.mn)
Revenue
+/Growth
NetWrittenPremium
+/Growth

2012

2013

2014F

2015F

2016F

2017F

162.54

284.42

418.36

75%

47%

39%

44%

44%

91.13 193.90

325.67

455.49

672.45

969.53

580.81 837.30 1,202.14

113%

68%

40%

48%

44%

162.54

284.42

404.94

536.93

771.70

1098.93

75%

42%

33%

44%

42%

204.43

317.76

405.31

524.94

725.56

991.81

55%

28%

30%

38%

37%

41.88

33.35

0.36

11.99

46.13

107.12

20%

99%

3392%

285%

132%

42.49

33.35

0.36

11.99

46.13

107.12

+/Growth

22%

99%

3392%

285%

132%

EPS

42.49

33.35

0.01

0.18

0.70

1.62

PEx

N/A

N/A

9%

7%

0%

2%

7%

14%

2013

2014F

2015F

2016F

2017F

NetIncome
+/Growth
NetBenefitsandClaims
+/Growth
Profit/LossBeforeTax
+/Growth
ProfitorLoss

ROE%

N/A 66.28 17.237.42

Source:AINS,CapitalTRUSTResearch

Table04:SummarizedStatementofFinancialPosition
Yearended31stDecember
(Rs.mn)

2012

NonCurrentAssets

458.37 680.92 776.79 1,050.34 1,353.94 1,814.21

CurrentAssets

116.18 42.64 86.71 100.42 114.93 136.41

TotalAssets

574.55 723.57 863.51 1,150.76 1,468.87 1,950.62

TotalLiabilities

104.09 226.66 355.71 551.40 823.38 1,198.01

ShareholdersEquity

470.46 496.91 507.80 599.36 645.49 752.61

TotalEquityandLiabilities

574.55 723.57 863.51 1,150.76 1,468.87 1,950.62

NAV

7.89

8.34 8.52 9.05 9.75 11.36

PBVx

1.52

1.44 1.41 1.33 1.231.06

ROA%

7%

5%

0%

1%

3%

5%

Source:AINS,CapitalTRUSTResearch

ArpicoInsuranceLimitedIPO

FundamentalAnalysisDivision
Capital TRUST Research (Pvt) Ltd

Page|3

InsuranceIndustry
Post war boom brought momentum to the insurance industry,
supported by the strong economic growth. As of June 2014,
total assets of longterm insurance business amounted to
Rs.238bn.

Figure 01: Market Share of Gross Written

PremiumLongTermInsuranceBusiness

Todaytheindustryisbasedonsolidfundamentalswithpositive
regulatoryreviewssuchas;

1.31%
0.50%

19.54%

6.10%

2013Riskbasedcapital(RBC)capitalregime
Segregationofcompositesintolifeandnonlife
Increase in minimum regulatory capital and public
listing

A total of 22 registered Insurers compete in terms of market

share of which 12 are composites (Life Insurance and General
Insurance). Ceylinco leads the Long term insurance business
with Gross Written Premium (GWP) of Rs.10, 829mn with
26.93%marketshare(2013IBSLAnnualreport).SLIC,AIA,UAL
andAsianAlliancewereabletosecuretopfivepositionsinthe
market.

Table05:InsurancePremiumsandPenetrationLevels

13.35%

16.62%

2.01%

0.69%
0.61%
0.67%

26.93%

0.78%
4.88%

5.21%

0.82%
UAL
MBSL
Janashakthi
Ceylinco
AmanaTakaful

SLIC
LOLC
HNBA
AsianAlliance
AllianzLife

Sanasa
LIC
Cooperative
Arpico
AIA

2009

2010

2011

2012(a)

2013(b)

LongTermInsurance(Rs.Mn)

24,005

31,152

35,162

37,477

41,306

GeneralInsurance(Rs.Mn)

33,548

35,101

43,329

49,694

53,177

TotalPremiumIncome(Rs.Mn)

57,553

66,253

78,491

87,171

94,483

GrowthRateinTotalPremium(%)

(1.06)

15.12

18.47

11.06

8.39

GrossDomesticProduct(Rs.Bn)

4,835

5,604

6,544

7,579

8,674

3.50

8.00

8.20

6.30

7.30

1.19

1.18

1.20

1.15

1.09

0.50

0.56

0.54

0.49

0.48

0.69

0.63

0.66

0.66

0.61

2,814

3,208

3,761

4,288

4,613

20,450

20,653

20,869

20,328

20,483

468,317

516,139

526,023

514,516

552,436

GDPGrowthRate%
Penetration%(TotalIndustryPremium
asa%ofGDP)
Penetration%(PremiumofLongTerm
InsuranceBusinessasa%ofGDP)
Penetration%(PremiumofGeneral
InsuranceBusinessasa%ofGDP)
InsuranceDensity(TotalPremiumIncome/
population)(Rs.)
MidYearPopulation('000)
Numberofnewlifepoliciesissued
numberofpoliciesinforce
Source:IBSLStatisticalReview2013

2,068,548 22,214,976 2,355,449 2,438,340 2,494,899

(a)ReinstatedAuditedFigures

(b)ProvisionalFigures

ArpicoInsuranceLimitedIPO

FundamentalAnalysisDivision
Capital TRUST Research (Pvt) Ltd

Page|4

FuturePotential
LifeinsurancepenetrationinSriLankaiscurrently0.5%asapercentageofGDP
(2013data)whichisverylowcomparedtoothercountriesintheregion(India
3.10%). Hence, there is tremendous untapped potential in the life insurance
businessinSriLanka.
PercapitaGDPin2013reachedUSD3,280comparedtoUSD2,922in2012,and
is on its way up to reach UDS 4,000 by 2016. This improves the disposable
income level which can result in an increase in the life insurance penetration
levelintheindustry.

Valuation

Table06:PeerComparisonAsofSeptember2014
Company

CSECode

EPS4Q
(Rs.)

NAV
(Rs.)

PE(x)

PBV(x)

Price
(Rs).

UnionAssurancePLC

UAL.N0000

13.27

CeylincoInsurancePLC

CINS.N0000

92.22 692.16 14.72 1.96 1,357.00

CeylincoInsurancePLC(X)

CINS.X0000

92.22 692.16 5.75 0.77 530.00

AIAInsuranceLanka

CTCE.N0000

18.78 157.78 16.13 1.92 302.90

AsianAllianceInsurancePLC

AAIC.N000

27.01 68.68 5.48 2.15 147.90

JanashakthiInsurancePLC

JINS.N0000

3.18 13.04 7.08 1.72 22.50

HNBAssurancePLC
ArpicoInsuranceCompany

61.88 12.06 2.59 160.00

HASU.N0000

7.32

44.71

10.98

1.80

80.40

(0.49)

8.75

(24.26)

1.37

12.00

Source:CompanyFinancialStatements,CapitalTRUSTResearch

AINS is issued at a PBV of 1.41x which is below the

industryaverage.Thecompanyisstillinitsstartupstage
in the business life cycle and is expected to enter the
growthphaseonlyduring20162017.Hence,theshareat
present is issued at relatively higher PE of 66.2X
(FY2015F), however as it enters the growth phase in
FY2017;earningsareforecastedtoimproveandthePEis
forecastedat7.4x.
In our opinion this is an investment opportunity for long
terminvestorswhohaveexcesscapitalandwillingtotake
ahigherriskforahigherlongtermreturn.

ProfitandPE(x)
Profit
(Rs.Mn)
120
100
80
60
40
20
0
20
40
60

Profit/(Loss)

PEx

PE(x)
90
70

66.28

50
30
17.23
2012

7.42

2013 2014F 2015F 2016F 2017F

10
(10)
(30)
(50)

The information and the opinions contained herein were compiled by Capital TRUST Research (Pvt) Ltd, and are based on information obtained from reliable sources in
good faith. However, such information has not been independently verified and no guarantee, representation or warranty expressed or implied is made by Capital TRUST
Research (Pvt) Ltd and its related companies as to its accuracy or completeness. This report is not and should not be construed as an offer to sell or a solicitation of an
offer to buy any security. Neither Capital TRUST Research (Pvt) Ltd nor its related companies, directors and employees can be held liable whatsoever for any direct or
consequential loss arising from any use of this report or the information contained herein

ArpicoInsuranceLimitedIPO

FundamentalAnalysisDivision
Capital TRUST Research (Pvt) Ltd

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