KUALA LUMPUR: AmG Insurance Bhd will acquire Kurnia Insurans (Malaysia) Bhd, a subsidiary of Kurnia Asia Bhd, for RM1.55 billion.

“This acquisition will position us to deliver on AmG’s strategic objective of being among the top three domestic general insurers. The combined businesses of AmG and Kurnia will emerge as the largest domestic general insurer and the market leader in motor insurance,” said AMMB Holdings Bhd chairman Tan Sri Azman Hashim in a statement yesterday.

AMMB said the purchase price translates to a price-to-book multiple of 1.99 times, based on Kurnia’s audited net assets of RM778.7 million. It is equivalent to a price-earnings ratio of 17.9 times based on Kurnia’s audited net profit of RM86.6 million for its financial year ended Dec 31, 2011.

Aside from Kurnia’s net assets and historical earnings, AMMB said the purchase price also considered Kurnia’s strong foothold in the motor insurance sector and its well-recognised brand.

AmG is a 51%-owned subsidiary of AMMB, with the remaining 49% stake held by Insurance Australia Group Ltd (IAG).

The news propelled Kurnia’s share price to a two-year high of 63.5 sen early this month. The stock has rebounded from recent low of 51.1 sen to 62.5 sen yesterday, up 11.4 sen or 22.3%.

The merging of AmG and Kurnia will lead the domestic general insurance market with a 13% market share and over RM1.7 billion in gross written premiums.

Within the motor insurance sector, it will be the top provider with a 22% market share.

AMMB added that the merger will also prepare the company for the consolidation and liberalisation of the industry in the long term.

As at December, Kurnia possessed 8% of the local general insurance sector and was the fourth largest player. It is the largest motor insurer with a 14% market share. Kurnia has three million policyholders and a network of 30 branches.

AmG operates on a relatively smaller scale. AmG is the eighth largest general insurer and fourth largest motor insurer. It has one million policyholders and 19 branches.

“The three million policyholders under Kurnia are a ready pool of customers for cross-selling opportunities. The combined operations will also see an increase in funds under management, which will provide further activity for the company’s fund management services,” said AMMB.

The RM1.55 billion purchase price for Kurnia will be jointly paid for by AMMB and IAG. IAG is an international general insurance group with operations across Australia, New Zealand, the UK and Asia. The contributions by both will mirror their respective stakes.

AMMB said its share of the acquisition will be funded by internal funds and borrowings. As at Dec 31, 2011, AMMB had RM9.26 billion in cash and short-term funds.

AMMB said the acquisition was subject to approval by Kurnia’s shareholders. Kurnia would also need to seek approval for the change of the company’s name, at an EGM to be convened. As part of the terms of the acquisition, Kurnia will change the name of its associated entities and subsidiaries in Thailand, Indonesia and Cambodia to one that excludes the “Kurnia” brand.

AMMB said the complete integration of AmG and Kurnia will require two years, but the acquisition is expected to complete by the third quarter this year.

This article appeared in The Edge Financial Daily, April 13, 2012.