Ceska pojistovna and Generali PPF Holding
“The agreement with Generali marks the end of an important journey for PPF. The agreement, together with the dividends received over the past five years, represents an excellent return on our initial investment. We view this final transaction as a culmination of many years of work that began by our acquisition of Česká pojišťovna nearly twenty years ago.”
– Petr Kellner
founder and majority shareholder of PPF Group
PPF’s 20 Years in the Insurance Industry
Česká pojišťovna’s (Czech Insurance Company) history dates back to 1827, making it one of the longest trading companies in the Czech insurance market. Post-1948, under the Communist regime, it became known as Československá státní pojišťovna, the only state-owned institution of its kind in, what was then,-Czechoslovakia, a position it retained for a long time. Thus, it was down to its history that Česká pojišťovna long held a monopoly position in the Czech insurance market, which was a huge positive for the company’s successful development after 1989. Unfortunately, Česká pojišťovna’s management at that time failed to take advantage of this opportunity, both commercially and financially. The company lacked a long-term strategy and efficient organisation, its investment portfolio was of poor quality, and its financial and operating reporting also needed to be improved.
In 1995 and 1996, PPF built a stake in Česká pojišťovna, with the objective of changing its obsolete structure and building a strong company through efficient management. The gradual transformation of Česká pojišťovna, a process that took several years, was in the end so successful that the company attracted the attention of Assicurazioni Generali S.p.A. (“Generali”), the third largest insurance company in Europe. As a result Generali PPF Holding was founded, a joint venture between Generali (with a 51% stake) and PPF Group (49%), in which Česká pojišťovna became the key asset under the leadership of PPF. For five years PPF and Generali worked together to create one of the biggest players in the Central and Eastern European insurance market with a presence in 14 countries.
In early 2013, the joint venture partners agreed that Generali would buy PPF’s stake in two tranches. In January 2015, Generali therefore became the owner of the 100% equity interest in Generali PPF Holding.
Now, PPF Group is leveraging its 20 years of insurance experience in certain target foreign markets. As part of the agreement with Generali, PPF took over Generali PPF Holding’s insurance companies in Russia and other CIS countries in March 2013. Despite the current challenging economic situation in Russia, PPF is successfully developing its life insurance business in the country through its unit PPF Life Insurance.
Transformation of Česká pojišťovna: Facts and Figures:
1995-1996: PPF Group acquired a significant stake and management control in Česká pojišťovna and immediately started to transform the company’s business model. Despite the changes underway, and facing growing competition from the dozens of new insurance companies that were appearing at that time, Česká pojišťovna retained its leading position in the Czech market. It successfully developed its Slovak subsidiary, and after 2002 also expanded to markets in Russia, Kazakhstan and Ukraine.
2008: For PPF, this was the year of the final stage of Česká pojišťovna’s transformation into a leading provider of insurance services in the Czech Republic, which it has remained to this day. PPF Group remodelled the once overwrought and inflexible organisation - notorious for its poor quality of customer service- into an institution offering quality on a par with the main European insurance players and capable of retaining its market leadership in an environment of keen competition on a long-term basis.
January 2008: Combining their insurance assets, know-how and experience in the Central and Eastern Europe region, PPF Group and Generali set up a joint venture, Generali PPF Holding (GPH). This move formed one of the largest insurance groups in the region. As part of the transaction related to the formation of the joint venture, PPF Group received EUR 1.1 billion in cash, thereby becoming a 49% shareholder of the company.
January 2013: PPF and Generali agreed that Generali would buy PPF’s 49% stake in GPH. For this equity interest, Generali paid a total of EUR 2.7 billion in two tranches, including dividends from retained earnings. On 28 March 2013, Generali acquired 25% of the shares in GPH for EUR 1.286 billion; PPF Group received EUR 1.235 billion for its remaining 24% stake in GPH from Generali in early 2015.
September 2013: PPF Group made the strategic decision to develop its insurance assets in Russia, which it had retained under the agreements with Generali from January 2013, under two brands, PPF Life Insurance and Home Credit Insurance. PPF Life Insurance focuses on the dynamically growing segment of long-term life insurance, while Home Credit Insurance offers innovative non-life products primarily across Russia-based Home Credit & Finance Bank’s distribution network.
Restructuring Ceska pojistovna
At the time of PPF Group's first partial acquisition of Ceska pojistovna, the company had a dominant position in the insurance services market in the Czech Republic. However, despite this monopoly, the management of Ceska pojistovna was not capitalising effectively on this position, either commercially or financially.
Profile - today
Ceska pojistovna is a composite insurance company that provides individual life, non-life and pensions products for retail customers, as well as providing insurance solutions for corporate clients in CEE.
In January 2009, Standard & Poor’s awarded Ceska pojistovna a rating of A+ with a stable outlook – the highest rating possible for a company in the Czech Republic
PPF Group acquired a significant interest in Ceska pojistovna in 1996 and started the transformation of its business model. At that time, Ceska pojistovna was making substantial losses despite its monopoly the market and continued to suffer from an inflexible and unfriendly approach to customer service inherited from the communist era. The focus of the turnaround in Ceska pojistovna’s business model during this time was the adoption of European business practices and standards, combined with a strong emphasis on customer marketing and segmentation.
Home Credit Group – a business previously established in 1997 by PPF Group to provide consumer finance services across the CEE region – was separated from Ceska pojistovna in August 2006 in order to create two separate and distinct business lines in insurance and in consumer finance.
As well as being the market leader for insurance in the Czech Republic, Ceska pojistovna has established highly successful new businesses in Slovakia and Russia.
In 2007, PPF and Generali agreed to form a joint venture sharing both companies' insurance assets and experience in the CEE region, aiming to create an insurance powerhouse in the region.
Ladislav Bartonicek, the long-term CEO of Ceska pojistovna (1996 to 2006), became a shareholder of PPF Group in 2007.
Acquisition date - 1996
Exit from control of stake date - January 2008
Valuation at exit - The value of EUR 3.6 billion was exchanged for a 49% interest in the Generali PPF Holding JVCo. and cash of EUR 1.1 billion)
Transaction Generali / PPF
The details of the transaction
The Generali PPF Holding Joint Venture agreement was signed on 10 July 2007, whereby Assicurazioni Generali and PPF Group agreed to transfer their insurance assets in the CEE region to the new venture, establishing it as one of the major players in the region. The establishment of the joint venture company was completed in January 2008 with Generali and PPF Group equally represented on Generali PPF Holding’s Board of Directors. As a result of the transaction, PPF Group received EUR 1.1 billion in cash from Generali. The agreement has resulted in considerable operating cost savings thanks to the consolidation of regional platforms, significantly improved returns on investments, better pricing policy, and accelerated development in CEE.
Generali PPF Holding was managed from the Czech Republic and Petr Kellner has become a Board Member of Generali.
The establishment of Generali PPF Holding
In January 2008, PPF and Generali established Generali PPF Holding to pool their CEE insurance assets and combine their expertise to form a CEE insurance powerhouse.
Generali PPF Holding has been operating businesses in 14 countries in 2009 and has become one of the most important insurers in CEE. The holding company had total assets of EUR 13.8 billion and premium income of EUR 3.3 billion derived from over 10 million clients (2009).
The formation of the joint venture was a major step in the two groups' expansion strategies, creating a solid platform for future growth opportunities in one of Europe's most important geographic regions for insurance business. The deal valued the CEE insurance assets transferred by PPF Group at EUR 3.6 billion and those transferred by Generali at EUR 1.5 billion. Furthermore, Generali paid PPF Group a sum of EUR 1.1 billion to acquire a 51% interest in the joint venture. PPF Group held the remaining 49%.
The strategic objective of Generali PPF Holding was to develop appropriate financial products and services across all existing markets in CEE and subsequently to achieve a leading market position there. Standard & Poor’s rated Generali Group AA- with a stable outlook.
Culmination of the co-operation between PPF and Generali
Details of the sale of PPF Group’s equity interest in GPH to Generali
On 8 January 2013, PPF Group publicised the sale of its 49% equity interest in Generali PPF Holding (GPH) to Assicurazioni Generali.
The transaction attached a total value of EUR 5.1 billion to GPH and valued PPF Group’s 49% stake at EUR 2.52 billion, net of the acquisition of GPH insurance companies in the Commonwealth of Independent States (CIS) by PPF Group for EUR 80 million.
Part of the transaction was the payout of dividends amounting to EUR 352 million to GPH shareholders in the first quarter of 2013, prior to the transaction closing, and also the payout of dividends representing 66% of profits for 2013 and 2014 to the shareholders.
The transaction took place in two stages: Generali bought 25% of GPH in March 2013, and PPF’s remaining 24% stake was bought in the beginning of 2015, Generali has become the full owner of GPH. PPF has thus received EUR 2.7 billion for its 49% stake.
The transaction also involved a swap of equity interests entailing no cash equivalents: Generali raised its stake in the Russian insurance company Ingosstrach to 38.5% through its acquisition of all the shares of the PPF Beta fund, while PPF Group acquired full control over the private equity business of the PPF Partners funds.