Advantage General Insurance Company (AGI) may value its shares at $1 for each dollar of capital it holds in its upcoming initial public offering, unless it pays out a big dividend before going public.

A one-to-one market value — the total issued shares of the company times the share price — to capital ratio could be an attractive proposition.

On the other hand, the company's high exposure to the high-claims motor insurance business and the challenge, faced by most general insurers, of making a profit from insurance on a whole could make it hard to peg its value based on earnings.

The insurer announced that it plans to raise between $500 and $600 million and list on the Jamaica Stock Exchange (JSE) soon, but it is still deciding how many shares to put up.

"We are still in the process of determining the final percentage to be issued to the public," said AGI president and CEO Mark Thompson. "However, it will be in accordance with the minimum requirements of the JSE rules."

The JSE requires that a minimum 20 per cent of the issued ordinary shares of a company must be put up if it wants to list on the Exchange.

Should it decide to issue the minimum amount of shares, through a planned combination of new and existing ones, the company would be valued at $2.5 billion to $3 billion.

Its capital base stood at $2.7 billion at the end of 2010, and should the company post similar results for 2011 as the year before when it netted $229 million in profit, capital should stand closer to $3 billion.

But like many other general insurers, AGI has not been able to consistently generate underwriting profit — earnings from the insurance side of its business.

AGI, formerly United General Insurance (UGI), had been hit by financial difficulties leading up to the 2006 acquisition. In 2005, it posted a net loss of $587 million, which was reduced to $19 million in 2006 — the year the company got $750 million dollars in capital through an acquisition deal.

AGI increased its share capital from 1.7 billion ordinary shares to six billion, and issued 750 million shares at $1 each, which increased its total issued shares to 1.95 billion.

Since, the company has posted mostly positive financial results, excepting in 2009, and accumulated $1.1 billion in profit between 2007 and 2010.

In 2009, when it took a $573-million underwriting loss and posted $55.6-million net loss, underwriting losses across the industry were particularly high — $2 billion across all general insurers compared to less than $1 billion in other years.

Thompson said that while AGI — like all of the other general insurers — relied heavily on the investment side of the business in prior years, the impact of the economic crisis and Jamaica Debt Exchange, which drastically lowered interest income, pushed the company to significantly increase its focus on improving its underwriting performance.

"Since 2009, the company has increased its focus on the motor segment with strong growth in premiums written while improving portfolio quality," he said.

The increased focus on the motor insurance business saw the insurer's share of that market segment grow from 28 per cent in 2008 and 2009 to 35 per cent as at June 2011, according to industry statistics published by the Insurance Association of Jamaica.

At the same time, AGI's share of the total market fell from 17 per cent in 2008 to 16 per cent as at June 2011.

Over 75 per cent of AGI's insurance revenue comes from motor premiums, but the segment is subject to high amounts of claims — industry-wide figures show that motor claims represent as much as 70 per cent of premiums written.

"The company over the last three years has seen a declining level in claims as a percentage of gross premium," he said. "The company's management is of the view that the strategy taken to date will position it to consistently generate underwriting profit presently and in the future."

Indeed, claims as a percentage of total gross premiums fell from levels above 60 per cent up to 2009 to 52 per cent in 2010 (no figures are yet available for 2011).

Thompson said that the underwriting income (loss) generated from the motor segment has bettered the non-motor segment for four of the last six years.

What's more, being the dominant player in the motor segment, AGI "has been able to write motor business at a much lower cost level than other industry participants thus positioning us to generate an underwriting profit from this segment," added Thompson.

AGI currently has over 100,000 clients and a network of 11 branches strategically located in main towns islandwide.

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