Hedge fund managers in China are feeling positive about the rest of 2013 as the nation’s stock market recovers, resulting in high expectations for potential yields. One of the fastest growing and most attractive segments for fund managers in China is that of healthcare and pharmaceuticals.
Although investment in the Asia Pacific region, particularly in private equity, has been sluggish since 2011, the healthcare industry has seen surprising and promising growth. Many articles, opinion pieces and exposes have highlighted the new frontier that is Asia healthcare.
After the recent merge of HTH with Blue Cross Blue Shield, the latest product from the growing company has been launched. It is hoped that the new “GeoBlue” product line, which will replace HTH’s “Global Citizen” plan, will allow for increased brand recognition and the merge is expected to be especially promising for clients in the USA, who will now be able to benefit from Blue Cross Blue Shields vast network of hospitals. Read more
Insurance Australia Group (IAG) is planning to expand its presence in Asia following successful initial investments worth around US$735.5 million in five countries including India and Thailand. The expansion is part of IAG’s long term goal to have 10 percent or more of its premiums come from Asia by 2016.
IAG’s CEO, Mike Wilkins was confident that building on the company’s investments was the right decision, stating that: “The Asian opportunity is here and now. Over the past couple of years we’ve quietly gone about our Asian strategy and are now getting real traction. We are entering an exciting phase of our Asian ambitions as we shift from a market entry focus to one of driving operational performance from our enlarged regional presence”
Despite his confidence, shareholders are wary of investing even more money into Asia as it brings back memories of the company’s last offshore investment; a costly and damaging expansion into the UK market. The company expanded into the UK in 2006 with the purchase of motor insurer, Hastings Insurance. The investment was considered a failure after the Hastings posted losses which in turn brought down IAG
Some IAG shareholders have expressed that they want the company to focus on domestic markets rather than going abroad. Portfolio manager at Tyndall Investment Management Jason Kim said on his company’s stance: “[Asia] might be exciting but it’s very, very long term. They’ve got such a great business in Australia and New Zealand, and it would be really good to focus on that and harness that.”
Wilkins said IAG will be relying on the ever expanding middle class in Asia to ensure that the company’s latest investments prove to be successful as it is expected that middle class consumption will experience a 200 percent increase by 2020.
The investments that IAG has already made in Asia, including a venture with the State Bank of India and Malaysia’s AmBank have contributed approximately 6 percent to the group’s total premiums and it is next looking to expand into Indonesia.
While a merger in Indonesia is still some ways away as no official deal has been reported, IAG does have a number of possible merger partners. Citing a number of reasons including Indonesia being a “very-high growth market” with “very low insurance penetration” Justin Breheny, Chief Executive of IAG’s Asian operations said: “Its [Indonesia's market] got the characteristics which are very attractive to us.” If a deal occurs, the company will be leaning towards a bancassurance model, teaming up with a bank to provide insurance products through the bank’s existing sales channels.
It is expected that the Asian businesses will collectively lose US$50 million over the short term, however it’s not something that IAG executives will be losing sleep about. This is because by 2017, it is anticipated that the investments will bring in return rates of up to 17 percent, further cementing the point that the expansion into Asia is very much for the future rather than the present.
One of IAG’s three “developing businesses” is its joint venture with the State Bank of India. The venture resulted in the creation of the SBI General Insurance Company Limited, which IAG are hoping will be profitable by 2015.
Despite existing laws stating that IAG cannot immediately add on to the 26 percent of SBI General it already owns, it still expresses hopes that in the future a change in regulations would allow it to increase its stake to 49 percent. In the meantime IAG are hoping that the joint-venture’s plans to set up more distribution channels (including Bancassurance) will increase the amount of money it brings in.
The other two ‘developing businesses’ in China and Vietnam have both initially been successful. In China, IAG own 20 percent of Bohai Property Insurance. China’s insurance industry is dominated by domestic players, with foreign investors only holding 1 percent of the market, and as a result, one of IAG’s big goals for the future is to increase Bohai’s market share.
In Vietnam, IAG own 30 percent of the country’s 6th largest motor insurer, AAA Assurance. Much like China, the industry is dominated by local insurers, and through AAA, IAG are aiming to become the first foreign entrant to gain a meaningful market position by becoming one of the top 3 motor insurers.
With investments in China, India and Vietnam still in their infancy, it’s IAG’s ventures in Malaysia and Thailand that have been the most successful for the company. In Thailand, the company owns 98.6 percent of Safety Insurance, the sixth largest general insurer and one of the top three auto insurers in the country. In the future, IAG expect to increase Safety Insurance’s national presence and achieve a top two position in the motor insurance industry.
While IAG only has a 49 percent stake in its joint-venture in Malaysia, it also has proven to be a good investment up till now as the product of the venture, AMG Insurance, has become one of the top ten insurers in the country. In a couple of months the company is also expected to acquire Kurnia Insurans, a merger which will make AMG Insurance the largest auto insurer in the country.
In response to the seemingly positive investments made, Breheny attributed the success to a couple of elements: “Our extremely disciplined approach to market entry has resulted in an attractive portfolio of businesses, with differing stages of market development and associated growth and return profiles, but all with a clear ability to create value for the Group.”
Insurance Companies Mentioned
Insurance Australia Group
Insurance Australia Group was founded in 2000 and owns a number of smaller insurance companies around the world. It specializes in all sorts of insurance including general, commercial and auto.
SBI General Insurance Company Limited
SBI General Insurance Company Limited is a joint-venture between the State Bank of India and Insurance Australia Group. It has a presence in 20 cities in India and specializes in the retail, corporate and SME insurance industries.
Bohai Property Insurance
Bohai Property Insurance is partially owned by Insurance Australia Group. It has 25 provincial agencies and more than 200 municipal and county agencies and sepcializes in a wide variety of insurance.
Established in 2005, AAA Assurance is part owned by Insurance Australia Group. It boasts more than 30 branches in Vietnam and specializes in motor, property and other types of insurance.
Safety Insurance, a Thai insurer is 96% owned by Insurance Australia Group and deals predominantly with Motor Insurance.
AMG Insurance is 51% owned by AmBank Group and 49% IAG. It is Malaysia’s fourth largest motor insurer and has 2,900 insurance agents.
Kurnia Insurans is a Malaysian company that was formed in 1978. It is one of Malaysia’s top auto insurers and is expected to merge with AMG Insurance in the near future.
As ING Group continues to sell off its overall Asian insurance operations in order to repay part of the USD $7 billion in bailout funds that it received from the European Union in 2008, the Dutch company is also getting ready to offload its separate ventures in India.
The news comes as no surprise to many as the sale is part of ING’s global restructuring plan. The plan entails that by 2013, ING will cut its balance sheet by approximately USD $751 billion by selling off many of its businesses outside of Europe, including those in Asia and America. Thus far, ING have been looking to sell a number of its Asian insurance businesses (not including those in India), such as those in South Korea and South East Asia, as a single unit.
A number of factors, including the fact that the firm deals with local Indian players, means that ING has decided to sell its Indian businesses separately. This means that the imminent sale of its three Indian companies will take a while longer as ING are reportedly focusing all its efforts towards getting rid of its other Asian insurance business which are valued between $6 and $7 billion US dollars.
The creation of ING Vysya Bank, one of the three ING companies, was the first merger between an Indian bank (in this case Vysya Bank) and a foreign group. ING currently holds 44% stake in ING Vysya bank, with other shareholders including Aberdeen Asset Management, Morgan Stanley and Citigroup. ING also have an investment management company in the country that is also up for grabs. The company, ING Investment Management India, has a number of interested bidders including Pramerica, and South Korean company, Mirae.
ING Life India is ING’s third company in India. Due to Indian laws that state that a foreign owner can only own 26% stake in any Indian insurance firm, ING are not the majority shareholders. It does however have management control of ING Life India. The majority share holder in the insurance company, formed in 2002, was initially GMR Industries. GMR then sold its stake to Indian battery manufacturer, Exide Industries who now hold a 50% stake in the company, making it the majority shareholder.
While the life insurance company did report increases in its premium three months in a row from January to March, at the start of the new fiscal year in April it saw its premium collection take a huge plunge and drop to Rs14.09 crore (US$4.05 million).
What is even more worrying for ING Life India is that Exide Industries, the major shareholder, is also reportedly looking to sell their stake in the venture. This was almost the case a year ago, but Exide opted to stay on. However, following the recent news of ING’s decision to sell, it seems that Exide have now followed suit. With both sides looking to sell, the future looks uncertain for the company as it will have to look for a new foreign and domestic partner or opt for a merger.
A number of insurance companies have expressed an interest in buying up ING’s 26% stake. They include insurers like Samsung Life, Manulife and Japanese company, Sumitomo. However, as none of the interested companies currently have a presence in India, before purchasing the stake they have to find an Indian partner to enter the market with.
ING Life India operates two distribution channels, Tied Agency and Alternate Channel. The Tied Agency channel has over 30,000 life insurance advisors, while the Alternate Channel contains the company’s bancassurance (BIM) partnership with banks such as ING Vysya Bank.
ING are not the only company selling its Asian operations. Struggling British firm, Aviva have also announced plans to sell its Malaysian operations as the economic crisis’ aftermath continues to affect insurance companies.
Insurance Companies Mentioned
Formed in 1991, Dutch institution, ING, is a group that specializes in a number of financial services including insurance. It currently has a presence in more than 45 countries with a client base of approximately 85 million individuals.
As part of a general wave of European institutions putting their Asian operations up for sale, five insurance firms have expressed an interest in purchasing British Firm, Aviva’s, 49 percent stake in its joint venture with Malay bank, CIMB. These sales come on the back of an increasingly unstable European economy which has affected both Aviva and Dutch company, ING, also currently looking to sell their Asian insurance business.
While some European companies are leaving APAC, the increasing number of potentially attractive acquisitions in Southeast Asia has paved the way for a number of large global insurance firms, including AXA and Manulife, to increase their exposure in the region’s relatively small but rapidly growing life insurance market.
According to Norton Rose, a law firm that specializes in insurance, Southeast Asia holds less than 0.25 percent of the world’s insurance market share. However, this year alone life insurance premiums are expected to grow by 9.6 percent, 5.9 percent greater than the world’s average. These positive predictions follow the Southeast Asian life insurance market growing 15.4 percent in the last ten years, a lot more than the 5.7 percent growth seen worldwide.
Aviva’s imminent exit comes only five years after the firm entered the Malaysian insurance market in June 2007. According to CIMB, the Malay bank that it entered into a joint venture with, Aviva paid 500 million ringgit ($164 million) to purchase the 49 percent stake that it is now looking to sell. Their decision to sell their Malaysian venture is part of larger plans to sell their underperforming businesses globally, including those in Sri Lanka and South Korea in an attempt to raise money to protect it against Euro Zone exposure.
Aviva has had problems with their insurance products in Asia, specifically their range of Global Lifecare plans which the company has since canceled.
Sources have indicated that the sale of Aviva’s stake could result in a new bancassurance (BIM) deal between CIMB and any potential buyer, who will also control the future of the venture. Furthermore, depending on the nature of the sale, competition between foreign and domestic companies could increase in the Malaysian life insurance market currently dominated by local life insurance company, Great Eastern Life.
According to sources with knowledge of the Aviva-CIMB auction being handled by Morgan Stanley, the five interested parties, AXA, AIA, Prudential, Manulife and Sun Life have all submitted non-binding bids that will be considered by Aviva and CIMB in “a week or so”. Of the five, Prudential boasts the strongest presence in Southeast Asia as it is currently an industry leader in Indonesia with 1.4 million policy holders.
Low life insurance penetration rates throughout Southeast Asia have been identified as one of the reasons for the huge amount of interest in securing slices of market share. In Indonesia for example, where Swiss, Japanese and Korean insurers have expressed an interest in investing in its insurance market, the life insurance penetration rate is a mere 1.3 percent. The attractive nature of the Southeast Asian markets has also been compounded by the relatively easy foreign ownership regulations. In Malaysia, foreign owners are allowed to buy up 70 percent of a domestic insurer, while in Indonesia they’re allowed to purchase 80 percent.
Insurance Companies Mentioned:
British firm Aviva is the sixth largest insurance firm in the world. Based in London, it has approximately 43 million customers in 21 countries. In the United Kingdom, Aviva leads the market in general, life and pension insurance in the UK.
Formed in 1991 Dutch institution ING is a group that specializes in a number of financial services including insurance. It currently has a presence in more than 45 countries with a client base of 85 million individuals.
AXA is a French insurance firm based in Paris, France. Ranking in as the ninth largest company in the world, AXA specializes in life, health and other forms of insurance.