Temasek Tracking - Asia Capital Reinsurance

Founded : 2006
Temasek investment: US$200M

Business : Re-isurance. ACR was set up as an independent reinsurer with a pan-Asia focus to address the demands of the fast growing Asian property and casualty insurance industry. It took on large risks segment such as aviation, marine, energy, large infrastructure and engineering projects across Asia.

ACR was founded in 2006 by John Tan, a local veteran in the industry. Founding investors included Khazanan Nasional and other private equity investors, including Hsieh Fu Hua and Koh Boon Hwee. At US$620M it was the largest fund raising in this part of the world at the time.

Both Hsieh and Koh were board members of Temasek Holdings at one time. It is not known at which time Temasek bought into ACR which may represent some conflicts of interest.  Appointments, relationships, family connections are all so intertwined in Singapore Inc, and given the non-transparency surrounding many transactions, everything is up for conjecture. Temasek sank in US$200M it seems not in a funding exercise but buying off some investors' shares.

ACR grew very fast in terms of contracts written and balance sheet growth. In the years 2010/2011 the insurance industry took big hits from natural catastrophes, eg the Thailand flood of 2011. In a very challenged environment of rising natural catastrophe risks in the Asian region, competition, excess insurance capital to demand that puts a downward pressure on pricing, ACR soon struggled with continued underwriting losses and the uncertain outcome of its turnaround strategy. It had a record of missing performance targets and during the past few years it has seen its combined ratio rising and its return on equity dwindling. In 2011 it was put on credit watch by rating agencies which was lifted shortly after capital injection. In 2016, its return was zero.

The eventual failure of ACR follows the familiar path of NOL and Chartered Semiconductors. In the game played by the big boys, in the end there was the lack of deep knowhow and connectedness to carry the business on a sustainable basis. Founder John is an industry vet and touted by many as a trail blazer. But at the same time, there were some whispers of disquiet on his staying power in the projects he undertook.

John Tan retired in 2015 from executive positions so the operation was basically struggling in the hands of financial investors. Major investors are Temasek, Malaysian SWF Khazanah and Marubeni. As early as 2016, investors seek an exit. In a 2017 aborted sales to a Chinese group, the valuation was set at US$1B.

By Dec 2019 a sales to Catalina Holdings was pending regulatory approval. For Catalina, it is a strategically important transaction as it gives them a platform from which to build an Asian portfolio and to complete their geographic footprint. Catalina intends to retain Singapore as a hub to build a strong Asian run-off platform.

The deal amount was not disclosed, but as at Sept 30, 2019, ACR had US$835 million of shareholder equity, US$1.3 billion of gross liabilities including unearned premium reserve, and total assets of US$2.1 billion.


Investment watch :
Selling in a buyers' market, where there were hardly any other takers, valuations is likely to be depressed. Expect substantial losses.

July 2020

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