Co-operative Insurance announces Rs. 435.2 m IPO on CSE offering 10% stake in firm

As one of Sri Lanka’s leading and fastest growing insurers, Co-operative Insurance Company has been in the forefront in serving the country’s underserved communities in rural, suburban and urban areas extending protection and financial stability at an affordable premium payment.  The company recently announced an Initial Public Offering on Colombo Stock Exchange (CSE) offering a 10% stake in the firm at an attractive price of Rs. 3.60 per share. In 2020, Co-operative Insurance increased its market share to 4.06% from 3.89% while growing above the industry averages. Further, it also contributed to increasing insurance penetration in the country by – introducing some of the most attractive and affordable insurance solutions. 

Co-operative Insurance Managing Director Wasantha Ranasinghe recently sat down with Daily FT for a discussion on its announced IPO on the CSE while outlining its business model and some of its expansion plans for the future. Following are excerpts of the discussion: 

By Nishel Fernando

Q: What’s the background of Co-operative Insurance?

Co-operative Insurance was founded in 1999 as a co-operative owned insurance firm with 99.9% of our shares owned by co-operative societies across the country and the balance is opened by officials of the firm. So, we are basically a co-operative owned insurance firm since the beginning up to now.

We are in fact a public, but unlisted firm with more than 300 shareholders – it’s very much of a balanced ownership with no controlling shareholder.

We are in both General and Life insurance businesses. Our General Insurance and Life Insurance entities have an extensive branch network of 110 and 50 fully-equipped branches, respectively. In addition, we also possess 130 service centres island-wide that are operated by our shareholders (Co-operative societies). Overall, we have the third largest branch network in the country’s insurance industry. In particular, I want to emphasise that majority of our branches are located in rural areas of the country. In many of these areas, we have positioned ourselves as the market leader and we continue to be the top of the mind of those areas.

As a co-operative owned insurance provider, we have dedicated ourselves to fulfil the insurance requirement from urban areas to the outskirts of this country where most of our shareholders are present. This is also our main objective as well as key focus, especially given the low insurance penetration in these areas. 

Q: You have announced plans for an Initial Public Offering (IPO) on Colombo Stock Exchange (CSE). Could you elaborate on that?

According to the current Insurance Act, we are required to list our shares on the CSE. Although it was due in early 2016, we decided to take some time as did some of the other players in the industry. Now, we have decided to go ahead with a CSE. It’s a mandatory listing as we don’t have a requirement to raise capital from the market.  Our minimum capital levels are currently maintained at Rs. 1.6 billion above the minimum required level of Rs. 1 billion. In share capital, we have over Rs. 2.2 billion including our reserves. In terms of Risk Based Capital (RBC) ratio, we maintain this ratio at around 300 in our Life Insurance business and more than 200 in the General Insurance business. Both of these levels are well above the minimum requirements as well as maximum levels expected by the Regulator, Insurance Regulatory Commission of Sri Lanka (IRCSL).

Although we don’t have any requirement to raise additional capital, we issue 10% of the equity or 166.37 million ordinary voting shares from our existing shareholders to the market. Accordingly, we are planning to list our shares on the Diri Savi Board of CSE.  Under the advice of our manager for the issuance, the Merchant Bank of Sri Lanka (MBSL), we have decided to offer an attractive of Rs. 3.60 per share which would be a discount to the existing nominal value per share. As per the current market conditions and recent developments, we are quite confident that our price per share would move beyond Rs. 3.60 following the proposed IPO.

Q: What has been the recent performance of the Co-operative Insurance?

In 2016, our revenue grew by 24% Year-on-Year (YoY) and in 2017, we recorded a staggering 44% YoY growth by competing side by side with multinational companies and becoming the fastest growing insurance company in the local insurance industry that year. We achieved a 23% YoY growth in 2018 and followed by a 16% YoY growth despite the impacts of the Easter Sunday attacks.  In 2020, our Gross Written Premium (GWP) rose to Rs. 5.2 billion recording a growth despite the impacts of the pandemic. In the year, Profit after tax (PAT) rose by 155% YoY to Rs. 695 million and Profit before tax (PBT) grew by 120% from the previous year to reach Rs. 940 million.

In the first seven months of the year, we have seen around 50% YoY growth in Life Insurance business and 6% YoY growth in General Insurance business. In particular, non-motor segment of General Insurance shown a growth of around 76% YoY in the period.

Q: What’s the business model that facilitated this growth?

Our premium charges have been quite competitive compared to our peer; however, we extend a similar and reasonable converge to our policyholders. Our business expanded by nearly 300 times over the last six years mainly due to the excellence of our service levels offered at a reasonable premium. With almost no advertising costs, mouth-to-mouth word has been a key driver of our business growth over the period. 

I would say we have been successful in managing our overhead despite charging relatively affordable premiums while making payments on claims to our policyholders under our business model which is aligned with our objective to reach out to underserved communities in rural, suburban and urban areas of the country.  Despite more competitive and affordable premium charges, we have been able to generate reasonable dividends to our shareholders. We have been able to maintain double digit dividend payout ratios in vast majority of years in operations. Especially in 2014, we paid the highest dividend in the year, at 14%.

Due to the regulatory measures related to COVID-19, we weren’t able to declare dividend for 2019 and the company instead has declared that dividend in 2021 as an interim dividend of Rs. 1.15 per share. Further, we declared final dividend of Rs. 0.75 per share in 2021. Overall, we have been able to pay dividends above treasury bill rates for our shareholders throughout our history illustrating a good dividend track record.

Q: What are some of your plans for the immediate future?

Well, currently, our General Insurance firm acts as the holding company in addition to running the General Insurance operations while the Life Insurance comes under the holding company as a fully owned subsidiary. However, we have sought the permission from the IRSCL to restructure our corporate structure one year back and the approval is still pending. 

Under this proposed restructuring process, we intend to establish Co-operative Insurance Company as the holding company and to spin off the General Insurance Business to a different entity under the holding company. 

This would grant us more freedom in decision-making allowing us to make more prudent investment decisions. 

Q: What’s your opinion on the current status of the industry and the way forward in particular given very low penetration levels even below the regional peers?

 My feeling is that the insurance industry is not a matured market, the market potential is huge and this is an ever-developing market. Now the industry is shaping its strategies to be more affordable and more personalised. With the digital disruption, the insurance industry makes more progress by reaching customers with more cost-effective ways and brings them to financial inclusivity with new risk management products. 

We have seen good progress with our strategies; we are growing at a high rate; we are continuing; we are starving with our service ethos to be an organisation that will stand united with its customers to the very end.