One of Russia’s leading privately owned insurance companies, Renaissance Insurance Group, has announced that it will IPO on Moscow Exchange (MOEX), the company said on September 27.
“Renaissance Insurance Group JSC, a Russian diversified independent insurance company, today announces its intention to conduct an initial public offering of ordinary shares and to list on Moscow Exchange,” the company said in a statement. “The Offering is expected to comprise an offering of the Ordinary Shares (i) in the Russian Federation, (ii) otherwise outside the United States in reliance on Regulation S (“Regulation S”) under the US Securities Act of 1933, as amended (the “Securities Act”), and (iii) within the United States to certain qualified institutional buyers (“QIBs”) as defined in, and in reliance on, Rule 144A (“Rule 144A”) under the Securities Act.”
The company said it hopes to raise RUB21bn ($290mn) with the primary offering and a secondary offering where some of the shareholders will cash out.
“Proceeds from the primary component of the Offering will be used to accelerate the Group’s development by financing organic growth, investments in further digital initiatives, potential value-accretive acquisitions and the possible repurchase of shares following the results of stabilisation in connection with the Offering,” the company said.
Previously a source close to the company told Reuters that it hopes to raise $250mn and achieve a valuation of $1bn. The IPO will be led by JP Morgan, Credit Suisse and VTB Capital (VTBC) as global coordinators to work on the deal.
Renaissance Insurance is one of the oldest privately owned companies on the market, having been set up in 1997 by famous financier Boris Jordan, a US banker that made a fortune during the privatisation process in the early 1990s while at Credit Suisse. He went on to found the investment bank Renaissance Capital (Rencap), a doyen in the early days of Russia’s capital markets.
However, Jordan left Rencap, selling his interests to his partner Stephen Jennings, but retained ownership of the Renaissance Insurance in the deal, which is now owned by Jordan’s Sputnik Group. Jordan remains the company's president and board chairman. Oligarch Roman Abramovich’s Millhouse Capital is also an investor in the company.
“Today’s announcement represents a landmark for Renaissance Insurance and a watershed moment in the history of the Russian insurance market. Becoming the first publicly-listed Russian insurer would be entirely fitting for a company that has always sought to be ahead of the curve ever since we established it almost three decades ago,” Jordan said in the statement. “We were the first in our industry to recognise the potential of digital transformation and have disrupted the market with a business model that is high-tech, highly efficient and highly profitable. Digitalisation has been the core driver behind Renaissance Insurance delivering faster and more profitable growth than the overall market for the past several years, including during the coronavirus [COVID-19] pandemic.”
Boris Jordan’s Sputnik Group and partners own a 59% stake in Renaissance Insurance, and a group of investors linked to Abramovich and some of his business partners bought almost 30% in the company in May of this year. Other shareholders include US fund manager Michael Calvey’s Baring Vostok Capital Partners.
The Renaissance companies together had 4.5% of the Russian insurance market in the first quarter, according to Expert RA ratings agency, as cited by Bloomberg.
Russian IPOs have come thick and fast in the last 12 months as investors look to tap into the country’s bounce-back and buy into the rapidly growing e-commerce and finance sector. Russia’s leading RTS index is up around 30% year to date, but the banking sector stocks are up 60% in the same period.
Jordan became a billionaire earlier in 2019 following the float of his medical cannabis company Curaleaf, the biggest cannabis producer in the US, but he has been investing in Russia and continues to spend half his time in the country.
In a recent interview with Vedomosti Jordan said that the insurance business is rapidly being digitised and that part of the motive for listing it is to raise investment capital, as he considers the other players in the market to be relatively weak players.
“I have been investing in the Russian economy for almost 30 years and I believe that during this time it has passed from the wild economy of the Communist system to capitalism. Now it is not developing, but in the process of transition to developed. Russia today is a very attractive country for technology and innovation. Mobile payment systems in Russia are much better developed than in the States: few people pay by phone, people still use a lot of cash,” Jordan told Vedomosti.
Renaissance Insurance is one of Jordan’s biggest investments and has been a focus of the Sputnik Group since it was established. Today the company says it is disrupting the domestic insurance market with its leading digital platform that “offers efficiency and agility” that the other more traditional players lack.
The company has launched an AI-powered app that includes automated document and handwriting recognition software as well as photo recognition to make a strong customer experience.
And business is booming. Russia’s financial sector has come roaring back to life in the last year as the economy bounces back from the coronacrisis. Investors are particularly interested in financial sector stocks, as they are considered to be a proxy play on the economic recovery. Banks are currently making their best profits in the last five years and the size of the total insurance market has tripled in the last ten years, and up a third in the second quarter of this year alone.
Insurance premiums totalled RUB434.4bn ($6bn) in the second quarter year on year, exceeding last year's and pre-coronavirus levels, the regulator reported in September.
“The number, coming as a result of low activity in 2020 when most restrictive measures were in place, was further helped by the accelerated growth of premiums in core types of insurance. The trends are reported in the Review of Key Indicators of Insurers,” the CBR said on its website.
As demand for household loans rose, life insurance premiums were up 2.2 times in the second quarter to RUB35.2bn, and health and accident insurance premiums grew 1.8 times to RUB69.8bn. Expanding car loans and higher prices of vehicles drove 34.3% growth in the car insurance market that totalled RUB48.6bn.
As bne IntelliNews has written elsewhere, the time horizon of the average Russian has been growing steadily over the last three decades. In the early 1990s following the collapse of the Soviet Union and the Russian economy, personal time horizons came down to a matter of days as the future became totally unforeseeable. However, as the country recovered and began to grow, time horizons extended to months and then years, and products like consumer loans took off in the early noughties. As that decade wore on, time horizons extended into decades and mortgages appeared as Russians felt confident about committing themselves to a decade-long investment. But it has been only recently that the time horizon has extended to old age and death, and Russians are starting to invest into pensions and life insurance to protect their families.
The life insurance segment has been growing even faster than the general insurance business, expanding 19-fold in the last ten years, according to Renaissance Insurance, driven by consumer lending and continuously falling bank deposit interest rates that have driven retail investors into the stock market as bne IntelliNews recently reported in a profile of SPB Exchange, the market leader in that business.
“The direct insurance sector led by [Renaissance Insurance Group] remains significantly underpenetrated and supported by growing online adoption, especially post-COVID,” according to the company.
The offering should appeal to investors thanks to the group’s strong profitability and big upside growth potential. Motor insurance made up 57% of the revenues of RUB37bn ($510mn) in 2020, with voluntary medical insurance accounting for another 17% and other products for the remaining 26% in the non-life segment.
The bigger business is life insurance, where “investment” products – these have become a proxy for bank deposits – account for 54% of the RUB46bn of revenues in 2020 and endowments another 17%, with others making up the remaining 29%.
Revenues have been growing at a compound rate (CAGR) of 9% in the last two years from RUB70.3bn in 2018 to RUB82.8bn in 2020 and the net income growth was up from RUB3.4bn to RUB4.7bn over the same period, a CAGR of 18% over those two years.