Race to win bigger slice of regional insurance market heating up

  • Business
  • Wednesday, 20 Jun 2012

KUALA LUMPUR: The race to win a bigger slice of South-East Asia's insurance market is heating up as AIA Group, Manulife and Prudential plc compete for mid-size acquisitions in the region totalling up to US$1bil (RM3.18bil), sources said.

The three insurance groups as well as France's AXA and Canada's Sun Life had submitted initial bids for the Malaysian life insurance joint venture between CIMB Group and Aviva, a deal worth at least US$400mil (RM1.27bil), the sources who had direct knowledge of the matter said.

The moves come against the backdrop of a US$7bil auction for ING's Asian insurance business as some foreign insurers exit the region to focus on their core markets, while some larger ones and new entrants try to gain bigger exposure to Asia.

“Many of the recent opportunities have been driven by distressed sellers, whether because of government bailouts, the impact of Basel III or lack of focus and investment resulting in underperformance,” said Anna Tipping, a partner at law firm Norton Rose, who specialises in insurance.

AIA and Manulife are also in the running for ING's Asian insurance business, while Prudential is seen as a strong contender to buy Thai Thanachart Bank Pcl's insurance operations in a deal worth US$500mil, sources have said.

The fundamentals appear compelling. Life insurance premiums in emerging Asia are forecast to grow 9.6% this year and 8.7% next year, compared with the world average of 3.1% and 3.7% in the two years, respectively, according to Swiss Re.

That projected growth comes after the life insurance market grew 15.4% annually over the last 10 years, far exceeding the global growth rate of 5.7% per annum over that period, according to estimates by Credit Suisse late last year.

And South-East Asia accounts for less than 0.25% of the world's insurance market share, according to research by Norton Rose, with insurance penetration low in Indonesia, Malaysia and Thailand.

Easy foreign ownership rules were also creating greater interest for foreign insurers, analysts said. Malaysia allows foreign insurers to take up to 70% stake in domestic insurers, while foreign insurers can buy up to 80% of an Indonesian insurer. Indonesia, which has a life insurance penetration of only 1.3%, is attracting interest from foreign players including Swiss, Japanese and South Korean insurers.

Indonesia's capital market regulator BapepamLK has said it will not change foreign ownership cap norms in the insurance sector despite the central bank's planned move to cap ownership in banks at a maximum of 40%.

“We see tremendous interest from many foreign investors, even from US pension funds who are keen to invest in the sector given the current regulatory situation and the underpenetrated market,” said Julian Noor, executive director at the Indonesian General Insurance Association.

Last year Japan's largest property and casualty insurer, MS&AD, bought a 50% stake in PT Asuransi Jiwa Sinarmas, the life insurance unit of Indonesian conglomerate Sinar Mas, for about 67 billion yen (RM2.62bil) at a record valuation of around 5 times book value.

PT Panin Financial, controlled by Indonesia's powerful financier Gunawan family, is also planning to sell up to a 40% stake in its life insurance business in a deal worth US$200mil that is attracting Japanese bidders, sources told Reuters earlier this year.

The new entrants will be competing against industry leader Prudential, whose domestic Indonesian unit recorded a total premium income of 14.8 trillion rupiah (RM5bil) in 2011 a 47% increase from the previous year. It had 1.4 million policyholders in the country.

The auction of the Aviva-CIMB business in Malaysia comes after Britain's second-biggest insurer laid out plans last month to exit non-core markets, a strategy aimed in part at raising money to protect against its eurozone exposure.

Aviva is selling its 49% in the Malaysian joint venture, while CIMB could sell a significant portion of its 51% stake, the sources told Reuters.

The auction was being handled by Morgan Stanley and CIMB, the sources said. The initial bids are of a non-binding nature. “They will come back to the bidders in a week or so,” said one of the sources.

The shakeup will help the new buyer control the destiny of the joint venture in a market where life and nonlife premiums grew 5.4% in 2011 to US$10.7bil, according to central bank data. According to Swiss Re, life insurance premiums are forecast to grow 5.3% this year.

A successful sale will also heighten competition between the foreign companies and domestic players such as Great Eastern, which enjoys a leadership position in Singapore and Malaysia.

Aviva entered Malaysia in June 2007 by investing RM500mil in the insurance joint venture with CIMB, according to CIMB's website.

AIA, Aviva, AXA, CIMB, Manulife, Morgan Stanley and Prudential declined to comment. Sun Life, which has an insurance partnership with CIMB in Indonesia, said it was focused on growing its business in Asia both organically and through acquisitions, but declined to comment on this transaction.

The sources declined to be named because the details of the bidding process are not public. - Reuters

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