Mon | Oct 2, 2023

Scott: General Accident undervalued by the market

Published:Sunday | September 17, 2023 | 12:12 AMAvia Collinder - Business Writer
Paul Scott, chairman of General Accident Insurance Company Limited.
Paul Scott, chairman of General Accident Insurance Company Limited.

General Accident Insurance Company Limited has no immediate plans or need to raise capital when it migrates to the main market of the Jamaica Stock Exchange, Chairman Paul B. Scott has said. At the company’s annual general meeting on Friday, Scott...

General Accident Insurance Company Limited has no immediate plans or need to raise capital when it migrates to the main market of the Jamaica Stock Exchange, Chairman Paul B. Scott has said.

At the company’s annual general meeting on Friday, Scott said it wasn’t an immediate consideration because of the stock’s low trading price.

Additionally, the Musson Group has no interest in diluting its shares, he said. Dilution, which refers to a decline in percentage ownership, is often the outcome of issuing new capital to a larger pool of investors.

“GA is ridiculously priced in the marketplace. We should buy back the shares. But that’s the opposite of what we want. We want to develop a regional business which will continue to grow,” Scott said while addressing the company’s shareholders.

On the day he spoke, the GENAC stock traded down six per cent on Friday at $4.55 per share, giving it a market cap of $4.7 billion.

General Accident is a member of the Musson Group that’s also led by Scott. A junior market company since September 2011, the general insurance company announced on the 12th anniversary of its listing that it would be graduating to the main market but didn’t state any particular reason for the move.

Since then there has been speculation as to whether the company was positioning to raise fresh capital without the constraints of the $500 million share capital limit that junior companies are required to abide by. Another general insurer, Key, which made the switch in 2020 had followed up with a rights issue, and the market was anticipating a similar move by General Accident.

On Friday, however, Scott indicated that prevailing market conditions weren’t conducive to fundraising, while also noting that one of the considerations for the company’s graduation was the level of market activity on the different indices.

“Part of the reason for [migration to] the senior market is that there is no float. There is very little trading,” he said.

“We could raise money. That option does not exist on the junior market. However, we will not be raising money at the price which exists today,” he said. “We do not need to raise money. We are well within our requirements,” he added.

JSE data indicates that for the first eight months of the year, the value of trading activity on the junior market was around $7 billion while for the main market it was nearly four times as much at $27 billion.

General Accident has 1.03 billion units listed. Volume trades on any given day hasn’t surpassed 966,000 units in the past year.

The stock has shed more than $360 million of its value since the announcement of its market migration, but it is still up three per cent year to date. Additionally, the it’s outperforming the overall market, which remains in a slump. Year to date, the market to which General Accident is graduating, the JSE Main Index, is down nearly 12 per cent, the JSE Junior Index is down four per cent, and the JSE Combined Index is down 11 per cent.

Still, the GENAC stock is also trading well below its one-year high of $6.15.

“GA has licences in three different countries. We have a tremendous reputation, 10 years of consistent dividend distribution. Why is it trading at such a low?” Scott demanded.

General Accident has been expanding regionally in the past few years and now has operations in Jamaica, Trinidad & Tobago, and Barbados.

With that network, the company has the potential to grow to a US$300-million business, said Scott, who is also chairman and CEO of the Musson Group.

“Significant growth is going to come from outside of Jamaica,” he said.

“If the market wants to buy the shares, they can buy them. If they don’t, it matters very little to me. What matters to me is that we are creating value … . If you want to buy General Accident shares at five times earnings that would be a good investment for you.”

Managing Director Sharon Donaldson said the company is aiming to double profit for the remainder of the year, assuming that the forecast isn’t blown off course during the storm season.

Scott said the biggest issue for the company was the tightening of the reinsurance market, globally.

“It correlates to capital available to be put in reinsurance funds. Less money is available, but we have exceptional relationships with our reinsurance partners,” he said.

“GA is in a fortunate position in that we expect to expand our insurance business in spite of reinsurance capacity shrinking. We will see that in the next 18 months,” the chairman told shareholders.

General Accident recorded an eight per cent increase in business, with gross premium income of $15.1 billion, while its pretax earnings climbed 173 per cent to $708.2 million.

In Jamaica, the company said it was the largest underwriter of general insurance risks last year.

Jamaica delivered gross premiums of $13.8 billion, Trinidad $948.1 million, and Barbados, $394.8 million.

General Accident entered Trinidad in 2019 through the acquisition of Motor One, which it has since rebranded. It later entered Barbados through a start-up business.

Going forward, Scott indicated that he was bullish about the business.

“The big driver in Jamaica, where only 25 per cent of assets are insured, is economic prosperity. As we become wealthier, more people will insure,” he said.

avia.collinder@gleanerjm.com