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2011-05-05 17:19:29 CEST 2011-05-05 17:20:23 CEST REGULATED INFORMATION BankNordik P/F - FyrirtækjafréttirBankNordik acquires 50% of a life insurance companyBankNordik acquires 50% of the shares in the largest Faroese life insurance company in connection with a privatisation In an announcement to the stock exchange on 21 January 2011 BankNordik indicated an interest in acquiring 50% of the share capital in Føroya Lívstrygging (Lív) from the Faroese government. Lív is the largest Faroese life insurance company with over DKK 3 billion in pension savings from over 18.000 customers. BankNordik has now made an agreement with the Faroese government to acquire 50% of the share capital in Lív for DKK 35 million. The transaction is conditioned upon the approval from the Faroese insurance and competition authorities. Valuation of the company Today, Lív is structured in two life insurance companies, Lív 1 and Lív 2. Lív 2 is a subsidiary of Lív 1. The main difference between the two companies is that the policy holders in Lív 1 have a performance guarantee from the Faroese government regarding their pension savings, while the policy holders in Lív 2 do not have such government guarantees. In connection with the sharp decline of Lív's portfolio of shares and the simultaneous fall in interest rates in 2008, Lív had to capitalise the value of the government guarantee in the financial accounts in order to retain a solvent company. In this connection the policy holders without the government guarantee were transferred to the subsidiary Lív 2. In 2009 and 2010 the government guarantee retained a positive value in the financial accounts of Lív 1 in order to ensure that Lív 1 fulfilled the capital requirements. Thus the government guarantee is vital for the capitalisation of the company with the current structure. Prior to the completion of BankNordik's acquisition of 50% of Lív the Faroese government has agreed to make some changes to the company structure. The policy holders in Lív 1 are being transferred to a new wholly owned subsidiary. In this new company the government guarantee to the policy holders is the same as before and performs the same role with regards to securing a solvent company being able to meet the insurance liabilities. In this new company structure it is the value of Lív 2 that is driving the value of the company group. The acquisition price corresponds to a total valuation of Lív of DKK 70 million. The booked equity in Lív 2 at year-end 2010 was DKK 58 million. In 2010 Lív 2 had a pre-tax profit of DKK 35.9 million, which is primarily explained by an extraordinary income of DKK 31.5 million from a ‘security fund' to the equity. Exclusive of this extraordinary income the net profit in 2010 would have been DKK 3.6 million. The valuation of Lív thus corresponds to a P/E ratio of 9.7 and a P/B ratio of 1.2. This is equivalent to the pricing of similar companies in the Nordic countries. Shareholders agreement Prior to bidding BankNordik made a shareholder agreement with the other new shareholder in Lív, Ognarfelagið Lív (OL). OL is an organisation representing the policy holders. OL will receive 50% of the shares in Lív free of charge based on a broad political agreement in the Faroese parliament. The shareholder agreement is a good foundation for a fruitful cooperation between the two shareholders to further develop the life insurance company. OL takes on the role of representing the policy holders in the board of directors, where OL elects two board members. BankNordik also elects two board members, while the two shareholders jointly select the final member of the board. BankNordik as the strategic investor takes an active role in managing the company at the operational level. The vision of both shareholders is that Lív has a competitive product offering relative to the Danish pension providers that hitherto have been the providers for some of the Faroese trade unions. This becomes even more important in connection with the upcoming pension reform in the Faroe Islands, where all wage earners will have a mandatory pension savings scheme from 1 January 2012. Strategic rationale BankNordik has pursued strategic initiatives to increase fee income. In recent years this has in particular been done by focusing on pension savings and asset management. The acquisition of Lív is a good fit to these strategic aspirations, since both pension savings and asset management increase significantly with this acquisition. Lív has a market share of approximately 60% of the paid premiums in life insurance on the Faroes. The managed portfolio of securities in Lív amounted to DKK 3.0 billion at year-end 2010. The combined company manages pension savings for DKK 4.5 billion. Lív has recently launched individualised pension savings products to meet an increased demand from customers to be able to choose flexible solutions with regards to investing the pension savings in mutual funds. BankNordik has the financial advisors to provide these advisory services in the countrywide network of bank branches. With the upcoming pension reform on the Faroe Islands the acquisition is strengthening both BankNordik and Lív, since the combined company will be able to provide the customers with the full product offering at competitive prices. Integration The before mentioned adjustments to the company structure requires the prior acceptance of the insurance authorities. Also the policy holders will have to be notified prior to transferring them from Lív 1 to the new subsidiary. BankNordik therefore expects closing of the transaction to take place within the next four months. In the time period until closing BankNordik and Lív will do the necessary detailed preparations for implementing the integration of the companies. For further information: Janus Petersen, CEO, phone (+298) 330 340 |
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