New China Life Insurance, the state-backed insurer part owned by Zurich Financial Services, yesterday embarked on its international road show, which is seeking up to US$2.3 billion for their upcoming initial public offering. While the deal size is below the US$3-4 billion the Chinese insurer was initially hoping to raise this year, the IPO range remains at the top end of expectations given current market conditions.Read the rest of the China Insurance IPO On the Horizon article.
The ongoing civil strife and revolutions occurring throughout the Middle East and North Africa could have a negative impact on the further development of insurance markets in the region, according to a new special report published this week by AM Best.
2011 will forever be known as a year of mass social unrest and political turmoil in the Middle East and North Africa (MENA) region, where revolutions in certain countries have not only taken a considerable human toll on local populations but have also affected the region’s financial risk systems and overall business environments for potentially years to come. In ‘Protests Alter Forecasts for Premium Growth in MENA,’ worldwide insurance information and credit ratings agency AM Best examines the financial impact of the Arab Spring protest movement, country by country, and how it has altered the international insurance industry’s prospects in the region.
In general, periods of sociopolitical unrest and upheaval will pose considerable problems to a nation’s insurance industry, disrupting business patterns and affecting liquidity, according to AM Best. For the insurers themselves, premium levels can often stagnate due to business days lost due to unrest and other prolonged inabilities to collect on policies. In addition, while claims directly resulting from revolution and civil war are typically excluded, the incidence rates of claims overall can be higher in the aftermath and firms will have to find ways to absorb these losses. Moreover, if wide scale changes to a country’s government occur, insurance regulations could follow suit and the performance of previously prominent state-backed companies could be affected. Alternatively, the rating agency noted, certain business lines can in fact benefit from these tumultuous times, with premium levels for cargo and marine cover due to rise in tow with expected oil prices, as well as reinsurance opportunities arising from reconstruction efforts and government infrastructure spending.
Overall, AM Best reiterates that premium growth will continue to be closely linked to economic activity. “Specifically, a country’s growth in inflation-adjusted insurance premiums is determined, at least partially, by the overall level of real economic activity in that country. Nominal gross domestic product growth historically is highly correlated with insurance premium growth,” the ratings agency noted. Thus political turbulence which fosters business uncertainty could affect the development of the region’s insurance markets going forward.
Although the political situations in several MENA countries are still far from resolved, AM Best was able to use the most recently revised economic growth data provided by the International Monetary Fund (IMF) to forecast how the region’s insurers may expect to perform in the near future. In September, the IMF downgraded the economic growth projections of 8 MENA region countries, including Algeria, Bahrain, Egypt, Syria and Tunisia, and raised the forecast for 7 others. Although Syria is the only country expected to slip into a formal recession, the IMF noted that the unrest is expected to negatively impact the economies of many MENA nations in 2011, with growth rates generally returning to their original pre-crisis path by around 2013 or 2014. The IMF held the potential long-term disruptions in key business sectors of MENA economies, chiefly, tourism, private financing (particularly foreign direct investment) and the oil industry, accountable for the reductions in GDP projections. Tourism and investment activity, in particular, are highly dependent on consumer and investor confidence, and have been shaken by the pervasive turbulence of the Arab Spring. Equity markets across the MENA region have been down 16 percent on average since the start of 2011, ranging from the full rebound in the Qatar exchange to a massive 41 percent drop on the Egyptian exchange.
Using the IMF’s updated forecast, AM Best found that the Arab Spring protests will affect the insurance industries of each country in different ways, although the projected impact on premiums overall in the region is not expected to be too severe, owing primarily to the relative immaturity of the MENA insurance sector in general. According to AM Best’s calculations, the impact the widespread unrest will have on markets ranges from Syria’s projected insurance premiums in 2015 being around 14 percent lower than they would have been before the protests, up to Turkey’s projected premiums in 2015 being in fact 1 percent higher. Of the 16 countries surveyed in the MENA region, 10 are expected to post lower premium growth in the aftermath of the Arab Spring, namely, Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Oman, Qatar, Syria and Tunisia, with Egypt and Syria experiencing the largest expected declines in growth due to unrest. Relative to country risk metrics, with the exception of Tunisia, all of these markets where the impact from the Arab Spring is judged greatest were already classified in AM Best’s highest country risk tier. Meanwhile, 5 MENA countries are projected to remain unaffected or experience modest gains, with more than US$2 billion in projected premiums in 2015. These countries are Israel, Morocco, Saudi Arabia, Turkey, and the UAE.
While these findings could indicate a significant shift in the MENA insurance industry, premium levels for the whole region are projected to only be 0.7 percent lower in 2015 than they otherwise would have been without the protests. “Thus, while the overall effect of the protests in the short-to-medium run is negative, it will be relatively minor on the regional insurance industry,” AM Best noted. The rating agency’s findings leave us with two profound conclusions, one is that political upheaval does not necessarily destroy a domestic insurance industry, and the other is that there is still considerable opportunity for foreign investors to build the insurance trade in the MENA region.
Rating Agency Mentioned
A.M. Best Company was founded in 1899 and is a full-service credit rating organization dedicated to servicing the financial services industries, including the banking and insurance sectors.
The further expansion of insurance and pensions sectors in populous Asian countries like China and India will be both integral to the development of their own capital markets as well as offering huge potential for rapid growth for overseas investment, according to a new report published this month by the City of London Corporation.
In ‘Insurance companies and pension funds as institutional investors: global investment patterns,’ Trusted Sources, a top emerging markets research group, study how pension funds and insurance companies have historically helped to shape the financial systems of developed countries, gradually increasing liquidity in their established capital markets through the introduction of long-term and stable funding mechanisms to market. By contrast, the contribution of such institutions towards China and India’s development has been limited so far due to the evolving nature of their insurance and pension sectors as well as tighter government restrictions placed on their investments and business decisions. If these two emerging Asian superpowers want to increase the depth and diversity of their respective financial markets, greater liberalization of investment mandates for insurance companies and pension funds may be needed going forward to match their rapid growth potential.
The report first observes the role insurance companies and pension funds have played in developed markets and what experiences can be garnered for emerging economies now. Generally speaking, as a country grows richer, they develop more active insurance sectors and the markets benefit overall. This has been especially true in the United Kingdom and United States, where the pension and insurance industries have grown rapidly in tow with their more sophisticated financial systems and with more people demanding protection and retirement planning services as they grew richer. The report cites that in the past 30 years, insurance company assets in the UK have increased from 20 percent of GDP in 1980 to 100 percent in 2009, with pension assets growing four-fold as well. In the US meanwhile similar growth was occurring, with pension funds and insurance companies investing more in equities and corporate bonds.
As a result of these developments, huge sums of stable, long-term funds have been pumped into the UK and US’s respective capital markets over the past three decades. This deep and stable pool of capital provided by the insurance companies and pension funds has worked to reduce market volatility and fund other ventures. In the UK, this influx of capital has been behind the development of the country’s stock market, helping it turn into one of the most efficient and sophisticated financial centres in the world. Before foreign investors became major shareholders on the FTSE, UK pension funds and insurance companies held the majority of issued shares. Insurance company and pension fund investors in the US meanwhile have contributed both significantly to equity markets as well as the growth of the corporate bond market, which is now the world’s largest at 140 percent of GDP.
Trusted Sources’ report also examined the approach other Western markets have taken. Continental Europe has used a more bank-based financial system, where the role insurance companies and pension funds have played in the markets has historically been much smaller. Furthermore, investments remained much more focused on government bonds, partly due to regulations that are stricter than in the UK and the US. As a result, the financial system remained centred on bank lending and growth has been more limited. However more recently these same European institutional investors have grown and have diversified their investments into equities and corporate bonds considerably. This has facilitated a move towards market-based financing through stocks and bonds, following the likes of the US and UK. While in the US, the insurance sector has stabilised at around 40 per cent of GDP, in Germany it is at 60 percent, and France near 100.
Insurance companies and pension funds in Asia have much to do to match the overall contribution made by their Western counterparts toward their respective economies but time is on their side. The report notes that while the insurance and pension sectors in India are underdeveloped now, with assets at 7 percent and 16 percent of GDP respectively and limited investment activity in equities and bonds, there is considerable potential for growth going forward.
The county’s insurance sector in particular has progressed rapidly over the past decade, driven by an expansion of life products, which dominate the market. Since the insurance sector in India was first opened up to the private sector with the passage of the Insurance Regulatory and Development Authority Act in 1999, total insurance penetration has doubled with the domestic protection industry overtaking several developed markets in output. According to the report, the market share of state-run firms has decreased to 65 percent for life insurance and 60 percent for non-life insurance during this period. Foreign multinational insurers have been integral to the sector’s overall development so far. Despite a 26 percent cap on foreign ownership, 20 out of the 22 life and 16 of the 18 general insurance firms that have been set up since 2000 have been joint venture operations with foreign partners. One of the first recommendations Trusted Sources makes is to of course lift these restrictions to increase overseas stimulus.
India’s pension funds and insurance companies are expected to grow as the overall economy matures, as has happened of course in the UK, US and other developed markets. Regulation permitting, there is of course considerable room for insurers and pension funds to shift their assets from government bonds into equities and corporate bonds. The country’s expansive, high-inflation market environments make equity investment attractive and this, according to Trusted Sources, will drive the popularity of index-linked insurance products (ULIPs) for the foreseeable future. Despite this considerable potential however there are several restrictions holding India back. Insurance companies are, in general, barred from investing more in equities, and have been blocked moving into corporate bonds and derivatives as well. Pension funds face even more obstruction. Trusted Sources notes that the Employees’ Provident Fund Organisation (EPFO), which accounts for around two-thirds of India’s pension fund market, is prevented from investing its sizeable reserves into equities at all.
These restrictions are obviously limiting the overall contribution pension funds and insurance companies could make towards growing India’s capital markets. To improve upon this situation, Trusted Sources made several policy recommendations including: lifting restrictions on equity investments, corporate debt and derivatives, allowing the EPFO to invest in equities and removing burdensome tax and regulatory constraints which would increasing incentives for institutional investors to buy Indian corporate bonds.
In China, like India, the insurance and pension sectors have traditionally had a small presence in the domestic stock market, each holding only around 2 percent of issued shares at present. According to Trusted Sources however, that will soon change with both institutions likely to start playing a larger role in both equity and corporate bonds in the near future. China’s insurance industry has grown dramatically over the past few years and currently ranks as the sixth largest protection market in the world with assets under management now worth CNY4.6 trillion (US$720 billion) at the end of 2010, up from CNY1.4 trillion (US$171 billion) in 2005. Despite increased competition as of late, the Chinese insurance market is dominated by four state-backed insurers, China Life, Ping An, China Pacific Insurance Corporation (CPIC) and People’s Insurance Corporation of China (PICC). The market share for foreign insurance companies (who operate principally through joint ventures) remains at around 5 percent. More than 70 per cent of total premium income of China’s insurance industry currently comes from life insurance companies. As the country grows richer, demand for more sophisticated savings products will likely rise in tow, driving further expansion.
In spite of this pronounced industrial growth, institutional investment in China’s capital markets from insurance companies has been perhaps overly risk averse. Chinese Insurance companies invest only around 11 percent of their holdings into equities, with the rest held in bank deposits and bonds. According to Trusted Sources, this is occurring due to several factors. The first is that most insurance activity in China still involves conventional insurance products, which offer returns of only around 4 and 2.5 percent respectively. These returns are backed by government bonds and negotiated-term deposits with limited downside risk, and provide little incentive for insurers to diversify their investment portfolios at present. Trusted Sources inferred however that this could soon change “ULIPs occupy only a marginal position. If they increase in popularity, as happened in the UK and the US when competition increased, a shift into equities is expected.”
Chinese insurance companies, in general, are finding the stock market too volatile to invest in at the moment, with dividend guarantees effusive. The report claims furthermore that strict regulatory control over corporate bond issuance is affecting supply, and is thus restricting overall investment growth. To encourage greater participation from Chinese pension funds and insurers in capital markets, Trusted Sources listed several policy recommendations including increasing competition amongst local insurance companies, tax incentives for ULIPs, clearer dividend-payout rules for listed companies, and the relaxation of qualification rules for private companies allowed to issue bonds.
Overall, the report believes that, in China and India, increased liberalization of local insurance and pension markets could foster greater liquidity and depth in their domestic capital markets, which will of course be needed to support the effective growth of businesses in each country going forward.
A statement released this month by Korea Life Insurance Ltd confirms that South Korea’s second largest life insurance company has now received the appropriate regulatory approval from the Chinese authorities to establish a joint venture business in China with a local partner, and begin providing it’s insurance services and expertise in the world’s second largest economy.
The China Insurance Regulatory Commission (CIRC) has now signed off on a 50-50 joint venture life insurance business between Korea Life and Zehjiang International Business Group, a state government-owned asset management company, with operations scheduled to begin in 2012, according to the Seoul-based insurer. The new life insurance joint venture will have a total paid-up capital of CNY500 million (US$79 million), equally financed by Korea Life and Zheijang International, and will be headquartered in Hangzhou, the capitol city of Zhejiang province in eastern China. “With the insurance market potential and domestic economic growth in China, the joint venture is expected to begin its business in the Yangtze Delta region,” Korea Life said in the statement.
Korea Life will assume the overall business management responsibilities of the new joint venture, and will work to gradually localize their operations for the Chinese market with help from Zheijang International’s robust business network.
Korea Life has been looking for a way to enter into China’s fast-growing insurance market for a number of years. The Seoul-based life insurer first set up its representative office in Beijing back in August 2003. Then, in December 2009, Korea Life Insurance signed a memorandum of understanding agreement with Zhejiang International Business Group, which outlined their preliminary plans to partner together through an initial 45 billion Korean won (US$40 million) investment for establishing a joint venture life insurance operation in China. Now that the proper regulatory licenses have all been granted, Korea Life and their domestic partner can begin establishing their business presence in Zheijian province’s insurance market, one of China’s higher-income areas.
Expanding outside of their saturated home market has become increasingly important for Korean insurers. South Korea remains one of the world’s largest insurance markets by per capita premium levels, with a particularly high insurance-penetration rate in regards to life insurance products and services. In the aftermath of the 1998 Asian financial crisis, South Korea’s insurance industry has rapidly expanded on the back of regulatory developments, government support, economic growth and rising per capita income levels, to now become the seventh largest market globally in terms of market share. While the domestic insurance market has been open to multinational insurers since 1987, both the life and general insurance sectors are dominated by large domestic financial conglomerates, namely Samsung Life, Korea Life and Kyobo Life, which control over 60 percent of the life-insurance assets between them.
Despite this success at home however, in order to sustain their margins, South Korea’s most prominent insurance companies must now look towards expanding into other international markets. Local market analysts have long expressed concerns over the country’s alarmingly low birth rate and rapidly aging populace, and the effect this all has the insurance sector’s growth prospects if the prospective customer base continues to decline. At present, one in 10 Koreans is aged 65 or older, but the ratio is expected to rise to over 14 percent by 2018. These concerns are of course not unique to Korea. An OECD report issued earlier this year claimed that aging populations will cause global spending on long-term care to double or even triple by 2050, and this will have a considerable effect on insurance markets in tow, as the demand for health-care and retirement-related products continues to rise.
Founded in 1946, Korea Life Insurance is the Southeast Asian country’s first standalone insurance company. According to the Korea Life Insurance Association, the company reported over KRW 6.54 trillion (US$5.79 billion) in gross written premiums in 2010, and a 12 percent share of the life market. Korea Life has had to innovate in order to protect its position in the competitive local market. In March 2010, the Seoul-based company became the first Korean insurer to go public on the South Korea Stock Exchange. While that move has successfully raised capital for further development in their domestic life insurance operation, Korea Life is now looking to expand it’s footprint into more international markets. Currently the insurer’s global network feature offices in Tokyo, London and New York but more work needs to be done to develop a presence in emerging markets with real guarantees of sustainable premium growth. This was a sentiment shared by the company CEO and Vice Chairman, Shun Eun-Chul in an interim report filed earlier this year, saying “The local insurance market is becoming saturated, so advancement overseas is a must.” Overall, the company is putting itself on the forefront of Korea’s insurance industry as they all expand internationally.
Korea Life Insurance has already had some success in moving its operations into an overseas market. In April 2009, the company became the first Korean life insurer to enter Vietnam’s budding protection market, initially providing endowment policies and educated savings plans through a 2,000 strong agency force. In their first year, Korea Life took a 1.8 percent share of all new insurance sales in Vietnam, with over 10,000 new policyholders and premium income of US$3.3 million.
The company has now set an ambitious target to triple its manpower to 9,000 employees working across 22 branches in Vietnam, with projected annual premium income exceeding US$35 million by 2015. Korea Life is confident they can achieve these objectives due to the favorable market conditions in Vietnam versus Korea. The Vietnamese insurance industry is growing at average of 10 percent annually. When you combine these economic indicators with favorable demographics, as over 60 percent of the population is under 30, the potential for further insurance development becomes significant. After investing in and starting their operations in both Vietnam and now China, Korea Life Insurance is now considering making inroads into other emerging markets in the Asia Pacific region.
Insurance Company Mentioned
Korea Life Insurance
Korea Life Insurance is an insurance company specialized in providing life insurance business. The company offers a wide range of insurance products including whole life/term insurance, survival insurance, death insurance, group insurance, annuity insurance and many other services for both individual and corporate customers. Substantial loan services, credit options, fund products and risk management services are also offered. Korea Life Insurance was founded as Daehan Life Insurance in 1946. The company is headquartered in Seoul, South Korea with additional offices in Ho Chi Minh City and Hanoi, Vietnam.
Japan’s insurance industry has faced unprecedented natural catastrophe conditions throughout 2011, including earthquakes, tsunamis, typhoons, and now the ongoing Thailand floods, which have badly affected major Japanese manufacturers. Due to these considerable disaster losses, many Japanese insurers have begun turning their focus to risk management and are actively seeking alternative catastrophe reinsurance arrangements.
The March 11, 2011 earthquake and tsunami that struck off the coast of northeast Japan, and the widespread devastation that followed, has had a significant impact on the previously under-utilized catastrophe insurance market in Japan. The catastrophic event is now reported to have destroyed or damaged over 500,000 Japanese buildings, many due to the accompanying tsunami. According to the latest figures released this month by the General Insurance Association of Japan (GIAJ), the country’s non-life insurance sector has incurred total insured losses of ?1.3 trillion (US$16.9 billion) from the March 11 earthquake and tsunami and the two sizeable typhoons that have occurred since then in September.
The GIAJ furthermore reported that the country’s top 25 non-life insurance companies had received 831,130 claims inquiries related to earthquake insurance on housing risks, with 718,484 claims already settled. These same non-life insurers have, as of November 9th, paid out ?763.2 billion (US$9.86 billion) on insured properties in the north-eastern Tohoku region, settling 393,895 claims in the area closest to the original catastrophic event. In the eastern region of Japan including Tokyo, insurers have paid out ?413.6 billion (US$5.35 billion) in claims with 422,455 settled cases. The Hokkaido region and the other remaining prefectures meanwhile reported ?283.9 million (US$3.67 million) in insurance claims, according to the general insurance association. In total, the March earthquake and tsunami has lead to ?1.18 trillion in insurance claims for dwelling risks across the country.
In the second half of the year, Typhoon Talas caused ?33.18 billion (US$ 430 million) in insurance claims according to the GIAJ. The biggest claims came from fire insurance, accounting for ?25.8 billion (US$33 million) in insured losses. Another typhoon in September, Roke, resulted in a further ?88.8 billion (US$1.15 billion) worth of insurance claims.
The life insurance industry in Japan meanwhile has paid out ?185 billion (US$2.4 billion) in claims from catastrophe losses this year, including ?141 billion (US$1.8 billion) in claims for death benefits and a further ?44.3 billion (US$570 million) in accident-related insurance benefits from settling 18,391 claims. Usually these accident benefits would have excluded cover for earthquake-related damages, but the 47 members of the Life Insurance Association of Japan all agreed to pay out benefits without applying de jure policy restrictions, a previously unheard of conceit in Japan’s insurance market.
Despite these pervasive catastrophe events, the balance sheets for these Japanese insurers in general have not been badly affected by these losses, a reflection on the importance conservative risk management strategies currently play in the country. Since the earthquake in fact, Japanese general insurers have managed to successfully recover more than two-thirds of their gross insured losses via their pre-existing reinsurance coverage agreements. Most of Japan’s insurance companies are big conglomerates and remain financially strong, well reserved, with solid risk management practices designed to counter these adverse market conditions.
Japan’s national earthquake reinsurance scheme has also proven particularly effective. The system at present is a private-public mixed scheme, in which domestic insurance companies retain most of their costs locally by reinsuring each other, with the national government providing backstop support. The insurance claim mechanism allows for indemnity liability to be shared, with a reinsurance system limiting exposure for any single insurance company. The Japanese government also keeps a residential earthquake relief fund, expanded in May to ?4.8 trillion from ?4.3 trillion, which is reserved to help the non-life insurance industry meet cost obligations. For the country’s general insurers, the government reinsurance system has been important in maintaining stability in the aftermath of this recent string of natural disasters. Furthermore, the Japanese government, Ministry of Finance, and GIAJ members are now starting to promote residential earthquake insurance to fill in the funding gap, as market penetration was under 25 percent as of March 2011.
However, while Japans’s insurance industry has been able to largely absorb natural catastrophe losses so far, a new report by Fitch Ratings suggests more will need to done to preserve the sector’s solvency under adverse conditions going forward. In ‘Japan Earthquake Insurance: The Great Tohoku’s Effects,’ the ratings agency forecasts that the sharp rise in global reinsurance premium pricing, driven by the greater frequency of catastrophic events across Asia and the United States, will prove particularly costly to Japanese insurers and will necessitate greater involvement in catastrophe bonds and other mechanisms designed to offset rising coverage costs.
Japan’s general insurance companies have historically had no problem affording reinsurance cover due their massive buying power in the international reinsurance market. However, with reinsurance rates already hiked between 30 and 70 percent for 2012, and more increases likely once risk modelling firms update their Japanese catastrophe models, insurers may have to further diversify their risk portfolio options. Fitch Ratings explain that catastrophe bonds could offer a solution, instead of just passing higher reinsurance coverage rates onto the consumers themselves, “As the accuracy of the Japan’s earthquake loss model are further improved, with wider acceptance among specialised investors of participating in Japanese earthquake risk as a proxy for portfolio risk diversification strategy, catastrophe bonds could potentially become more important as an alternative to traditional earthquake reinsurance.,” Fitch wrote, adding that these solutions are only available through Japan’s increased involvement in the international reinsurance markets, “Risk sharing via reinsurance or catastrophe bonds will become more important in the market place given their important role in managing this high frequency and high magnitude risk in Japan and throughout the globe.”
Outside of catastrophe losses, growth prospects for the Japanese general insurance industry have remained low due to a stagnant economy, and a mature, saturated and overtly competitive market. Overall the industry’s profitability has been on the decline, with the automobile insurance market under particular duress due to the increase in traffic accidents, injury claims, and skyrocketing prices for auto parts. This consequently has kept underwriting results for these businesses at a level and often below the break-even point. Despite these concerns however, Fitch Ratings affirmed all of the five Japanese non-life insurers it observes by June.
Fitch Ratings is a global rating agency and provides ratings and analytical services for thousands of banks, financial institutions, insurance companies, corporations, and national governments. Fitch was founded in 1913 and now features dual headquarters in New York and London with over 50 offices worldwide,
MetLife Inc, the United States’ largest life insurance group, has decided to reorganize their business infrastructure in order to better represent the increased role international insurance markets have come to play in contributing towards the company’s overall growth and development over the past few years.
On Tuesday, New York-based MetLife announced that they would be splitting their business structure from the previous two sub-divisions, with one branch representing only their home US market and another focused on the entire international insurance sector, into three new regional divisions, each tasked with managing distinct geographic areas in which the life insurer is now serving an wider number of customers. According to the company statement, MetLife’s three new regional business divisions will be the Americas, EMEA (Europe, the Middle East and Africa) and Asia. The change will enable MetLife’s business to more closely match those of its international rivals like AIG and AXA.
MetLife also outlined a raft of high-end personnel changes that will accompany this structural overhaul. Each of the company’s new regional divisions will have its own president and executive team and this has necessitated considerable movement within the firm. MetLife has appointed William J. Wheeler, who had been their chief financial officer since 2003, to be president of the newly combined Americas division, with Executive Vice President Eric Steigerwalt serving as interim CFO while the company searches for a successor. Michel Khalaf meanwhile was named president of the new EMEA division, stepping up from his previous position as chief executive of MetLife’s Middle East, Africa and South Asia region. The company is still searching for a president to run the new Asia division. In the meantime, that region will report directly to MetLife President and CEO Steven A Kandarian, who threw his support behind these new moves. “To reach its full potential, MetLife needs an organizational structure that leverages the best of both MetLife and Alico,” CEO Kandarian said in the company statement, adding that “this structure will lay the foundation for a global company. Each of our new regions have both mature and developing markets, both of which are critical to shareholder-value creation. At the same time, they will be able to draw on strengths from across each region to drive collaboration and efficiencies.”
MetLife’s reconfiguration eliminates some of the company’s previous executive positions. MetLife will no longer have a president solely representing their U.S. business, with the previous head, William J. Mullaney, now moving on to other opportunities. Meanwhile the man who served previously as president of the company’s international business sector and was integral to the Alico acquisition, William Toppeta, has plans to retire. Toppeta will remain with MetLife as the vice chair and advisor for the EMEA and Asia regions through May 31, 2012. In addition to these moves, MetLife plans to move executive vice president Maria R Morris to head the global employee benefits business unit, while Marty Lippert will lead global technology and operations division.
All of these moves are following a productive year for MetLife, one which has seen the company expand their global footprint and operating scale significantly to offset the tepid performance of their home US market. The New York based insurer reported in October that net income for the third quarter reporting period had grown by more than tenfold year-on-year, beating market analyst estimations on the back of substantial derivative gains, increased investment income and the continued expansion of its international sales division from its purchase of Alico from AIG last year. Cumulatively, for the three months ending September 30, MetLife earned US$3.55 billion, a significant improvement on the US$286 million earned for the same quarter in 2010. Total third quarter revenues meanwhile were US$20.5 billion, up from US$12.3 billion in the corresponding period a year ago. In the past 12 months MetLife has earned roughly US$5.6 billion.
MetLife has credited much of their success so far this year to their Alico acquisition and expect the new assets to contribute significantly to their bottom line going forward. MetLife’s investment portfolio had risen from US$383.2 billion to US$493.2 billion by the end of the third quarter 2011. The US life insurance giant had long been looking to develop its global reach and distribution platform, and in 2010 the company was able to purchase American Life Insurance Company (ALICO) from a struggling AIG for US$16.4 billion to accomplish this. The acquisition of Alico, who operates out of more than 50 countries, has provided MetLife with meaningful new sources of diversified earnings through their access to new Asia Pacific, European, Middle Eastern and Latin American insurance markets. In the most recent quarterly statement, MetLife’s international segment noted that operating earnings had already risen to US$578 million from the US$189 million reported last year.
MetLife’s international business has expanded in concurrence with a waning performance in the US, gradually overall approaching earnings parity between the two segments, and this has necessitated the firm’s global restructuring effort, which will target all the markets where sustainable premium growth is feasible more equally. Through the third quarter 2011, operating earnings in Metlife’s home US market fell by 23 percent, to US$655 million, due to increased insurance reserves, persistently low interest rates and overall flagging consumer confidence. According to some industry observers, MetLife’s business in the US could in fact improve through this reorganization. By bundling US insurance business together with Latin America’s, an under-penetrated and populous region targeted for growth, MetLife may find itself able to equalize mature market weaknesses in the short-to-medium term and maintain it’s margins effectively until the global economy recovers. Overall, multinational insurers such as AIG, AXA and MetLife need to find value in re-positioning their activities to ensure that they have access to the emerging protection markets that are now providing all insurers with the most profound earnings growth opportunities.
Insurance Company Mentioned
MetLife is the largest life insurance company in the United States, with total assets of US$785 billion and over US$4.2 trillion of life insurance in force. Possessing over 140 years of insurance expertise, MetLife aims to be an innovator in the field of international Life insurance. Globally, MetLife is able to offer its clients accident and health insurance, life insurance, disability income protection, and retirement and savings products.
A new special report released this month by Standard & Poor’s (S&P), the world’s foremost insurance rating and information agency, has examined how recent financial developments, including the slumping share and bond prices resulting from the ongoing eurozone sovereign debt crisis, have negatively affected the balance sheets of Western European insurers through the third quarter 2011 and how this has placed further pressure on the international insurance industry at large.
In S&P’s report, released November 4 and titled ‘European Insurance Credit Trends: Third-Quarter 2011 Market Movements Take Their Toll On Insurers’ Capital Adequacy,’ the ratings agency describes how the ongoing recession conditions, volatile financial markets and the eurozone sovereign debt crisis have all affected the performance of Europe’s insurance industry. While many of the continent’s largest insurance players had been able to largely rebuild their balance sheets from their previous low in the aftermath of the 2008-9 financial crisis by the middle of 2011, in light of recent events S&P expects greater financial oversight from company executives to be required going forward in order to better navigate the difficult market conditions sure to come as a result of European bailouts.
“In our opinion, the European insurance industry’s nervousness has grown,” S&P surmised in the report, adding that insurance company losses on bonds issued by the largest eurozone debtor nations would not pose direct threat to their financial positions but will likely be a damper on profitability for the foreseeable future. “In the past quarter, we have seen the credit quality of certain sovereigns and banks decline, and the economic outlook deteriorate. The effect has been amplified by a sharp fall in interest rates, depressed equity markets, and increased volatility. All these factors helped weaken insurers’ third-quarter economic earnings and balance sheets,” S&P said.
In general, Europe’s insurance companies should be better able to deal with systemic failures like the eurozone debt crisis than banks, as they would be able to share losses mutually with policyholders without necessarily turning to shareholders or even governments for fresh capital. However, as S&P noted, the insurance industry has developed closer ties with the banking sector over the past few decades through derivate contracts and bond portfolios, and this in turn has left them more deeply exposed to the ongoing eurozone sovereign debt crisis than need be. These ties could also adversely affect their bancassurance distribution network, as many insurers now depend on banks to sell their life and general insurance products through their associated branch networks.
This is all occurring while a soft pricing market and stubbornly low interest rates persist, and this keeps rates low, putting downward pressure on insurer profitability going forward. Attempts to increase premiums levels are met with resistance in a weak economic climate, as consumers are unwilling to pay higher rates, if in fact they can afford insurance at all. Stagnant economic growth in Europe’s principal markets have both increased the possibility of a double-dip recession and exacerbated the sovereign debt crisis in a number of peripheral eurozone countries, including Portugal, Italy, Ireland, Greece and Spain. According to S&P, European insurers now cumulatively hold roughly €60 billion (US$83 billion) in sovereign debt issued by the most risky nations (Greece, Ireland, Portugal), with a further €190 billion (US$255.7 billion) in bonds held for the larger debtor countries of Italy and Spain, both of whom have replaced their respective governments within the past few weeks.
In addition to persistent widespread economic and political uncertainty, Western European insurance companies are also finding themselves stretched in order to meet the changing solvency and industry-wide accounting rules, which are coming into force relatively soon across the continent. S&P noted that the uncertainly surrounding the introduction and execution of Solvency II’s updated risk-based financial frameworks and enlarged capital requirements has proven to be a particular impediment for many European insurers. Short term concerns persist for analysts that Solvency II could lead to insurers increasing their capital position at the expense of tackling new business ventures, and thus damaging their competitiveness in the overall global insurance marketplace. The slow-moving implementation of Solvency II, now delayed to 2014, has already proven costly and could also further strain insurers with potentially stricter risk-based capital requirements.
The overall cost of introducing Solvency II across Europe is already thought to have exceeded the European Union’s estimated EUR 3 billion. In addition to this expense, there remain significant implementation details that still need to be figured out, including premium provision and risk margin. At the same time that these updated capital requirements kick in, a new International Financial Reporting Standard (IFRS) for insurance practices will also occur and this could cost companies valued staff time and resources when they can least afford it. “These trends are compounded, in our view, by the potential impact of industry-wide projects, such as implementing the EU’s Solvency II directive on insurance supervision, the International Accounting Standards Board’s Phase 2 insurance accounting project, and the Financial Stability Board’s designation of globally systemically important financial institutions, now expected in 2012,” S&P said.
Despite all these industry-wide concerns however, S&P has kept the ratings for the 125 individual European insurers it monitors unchanged, with an average long-term issuer credit classification of ‘A’ negative. Overall, the ratings agency indicated that while it has a pessimistic outlook on the European insurance sector in general, it of course remains strong in comparison to the other rated businesses active in the Eurozone marketplace. Fortunately for those outside of Europe, there remains considerable business potential for those interested in closing the trillion dollar gap in coverage between the West and the emerging Eastern economies, and this could present sufficient business opportunity for multinational insurers looking to re-capitalize and offset any further calamitous developments occurring in their mature home markets.
Ratings Company Mentioned
Standard & Poor’s
Standard & Poor’s (commonly referred to as S&P) is a business branch of publishing house McGraw-Hill. Operating out of 20 countries, S&P provides the investment community with independent credit ratings on important financial vehicles such as stocks, municipal bonds, corporate bonds and mutual funds. In addition to its risk management, investment research and credit rating services, Standard & Poor’s is known for its indexes, in particular the S&P 500 index.
Singapore’s resurgent life insurance sector may finally be showing signs of slowing down, according to a new report.
In their third quarter briefing released this month, the Life Insurance Association of Singapore (LIA) revealed that sales of new insurance products in Singapore slowed to a more ‘moderate’ 18 percent annual growth rate for the three months ending in September, down considerably from the 38 percent growth in sales reported during the first half of the year. The LIA is a non-profit trade body licensed by the Monetary Authority of Singapore (MAS), and represents the interests of 16 major life insurers and 3 life reinsurers who operate in the Southeast Asian country.
According to the LIA, Singapore’s life insurance industry accounted for a total of S$523 million (US$404 million) in ‘weighted’ new business premiums for the third quarter 2011 reporting period. The LIA calculates the weighted new business premium figure by adding 10 percent of the Single Premium Index (SPI) to 100 percent of the Annual Premium Index (API), with an adjustment for premium payment terms of less than 10 years. Overall sales growth has been tempered by cautious market sentiment as investors all over the world continue to worry about the pervasive debt contagion issues affecting the Eurozone and United States. The MAS expect the Singaporean economy to be sluggish in the first half of 2012, but could pick up later in the year if global markets stabilize.
During the period under review, the LIA attributed the life sector’s continued development largely to the performance of the bancassurance distribution channel, with savings-oriented products remaining particularly popular through the second half of the year. From August to September 2011, sales of weighted regular premium products in Singapore reached S$345.7 million (US$266.8 million) , marking a 19 percent quarterly increase over the same period last year. Single premium business meanwhile rose by 16 percent to S$177.3 million (US$136.8 million). Of this amount, the LIA noted that 16 percent of sales were accounted for by the Central Provident Fund (CPF), Singapore’s mandatory pension savings and retirement fund mechanism.
The Singaporean life insurance market is divided between players holding ‘normal’ licenses and those defined as market segment insurers (DMS). DMS insurance companies, currently comprised of the following multinational insurers Friends Provident International, Generali, Royal Skandia, Transamerica and Zurich International, are registered with the MAS to operate in only non CPF-related business and with certain minimum policy size restriction. In 2011, the LIA noted that normal license holders represented 95 percent of new sales, while DMS insurers accounted for the remaining 5 percent.
Singapore’s active life insurance companies have cumulatively paid out a total of S$3.69 billion (US$2.85 billion) to associated policyholders and beneficiaries so far this year. Of these payouts, the LIA detailed that only S$342 million (US$263.9 million) came as a result of death, critical illness or other disability claims, while the remaining S$3.34 billion (US$2.58 billion)came about from maturing policies. The association also noted that, as of second quarter 2011, Singapore life insurers were managing assets worth S$120.7 billion (US$93.15 billion), a 9 percent annual increase, with non-linked business accounting for S$96.4 billion (US$74.4 billion) and investment-linked policies making up the remaining $24.3 billion (US$18.75 billion) in assets. In terms of overall manpower, LIA member companies in the Singaporean life insurance industry now cumulatively employ a total of 5,108 office staff and 12,976 sales representatives.
Explaining the results in the LIA statement, Mr. Tan Hak Leh, the Life Insurance Association President, acknowledged that while the performance of Singapore’s insurance industry could be impacted going forward by ongoing global economic uncertainty, the emerging protection needs of Singaporean consumers should provide insurers active in the market with enough impetus to achieve sustainable premium growth. “Against the backdrop of intensified global economic uncertainties in the third quarter, the life insurance industry achieved a growth in new business of 18 per cent. It is critical that life insurance companies remain vigilant and proactively manage our business to safeguard the long term financial soundness of the industry,” Mr Tan Hak Leh commented.
In addition to gross life insurance sales figures, the LIA interim report also highlighted several other insurance industry trends occurring in Singapore this year. Through the first three quarters of 2011, sales of new health insurance policies in the small Asia Pacific island nation amounted to S$123 million (US$94.9 million), up 7 percent on the corresponding period last year. Of these new health insurance sales, the vast majority, 87 percent, went towards Integrated Shield Plans and associated riders, Singapore’s quasi-equivalent of private Medicare insurance. The growth in new health insurance coverage is driven by a wide-spread recognition of increasing medical costs, which have driven consumers to obtain Singaporean health insurance in greater numbers recently. The LIA was pleased to report that as of 30 September 2011, over 2.45 million lives are covered by health insurance in Singapore, well over half the population, with paid up premiums now totalling over S$842 million (US$650 million).
As for insurance distribution channel trends through to the third quarter, the LIA found that the 12,000-strong tied agency force had contributed almost half of all the new business written by Singaporean insurers for the year, bringing in 48 percent of all weighted new business sales in 2011 so far. This performance was accompanied by an uptrend in insurance products and services sold through banks, also termed bancassurance. Indeed, bancassurance now accounts for 35 percent of all new insurance sales in Singapore, up 8 percent from last year. Financial advisers meanwhile have contributed 13 percent of new insurance sales this year and other channels, including direct sales, have made up the remaining 4 percentage points.
The LIA also noted that consumer preferences for different types of insurance products in Singapore have remained fairly consistent over the past few years. Participating (par) whole-life insurance products have remained the most popular, accounting for 54 percent of new sales, while non-participating annuities and investment-linked products split the remaining business between them. Singaporeans clearly favour the dividend options mutual life insurance companies can provide them with.
In his concluding remarks, LIA president Tan Hak Leh reiterated that while Singapore’s double-digit growth rate in life insurance product sales may not likely continue unabated into the future, robust long term planning and savings options would become more important than ever in this time of global financial market uncertainty. “While we may not face a financial meltdown similar to that in 2008, we can see consumers exercising more caution in taking on additional financial commitments,” said Mr Tan, adding that “Nonetheless we strongly advise that consumers do not shelve plans for life insurance, as it becomes particularly essential in times of uncertainty.”
New China Life Insurance, the country’s third largest life insurer by premium volume, received approval from the China Securities Regulatory Commission this week for its planned Shanghai initial public offering, kicking off the company’s Shanghai-Hong Kong dual listing that has targeted up to US$4 billion in fresh fundraising before the end of the year. This dual listing could be the first in a series of IPOs by prominent Mainland insurance companies, as firms seek out capital to boost margins and fund expansion plans in the world’s second largest economy.
In their IPO prospectus, New China Life have outlined how they plan to sell as many as 158.5 million shares in Shanghai (A-share offering) and up to 358.4 million in Hong Kong (H-share), with an option to expand it further by another 15 percent. According to industry analysts, the A-share market has proven to be more sensitive to New China Life’s IPO, accounting for only 5 percent of the company’s total shares, and is in part why the company has allocated a smaller share to Shanghai’s bourse. While overall fundraising targets have not been officially set, market forecasts estimate that around CNY6 billion (US$945.4 million) and CNY10 billion could come in from Shanghai from Hong Kong respectively.
Many companies from Mainland China are now attempting to brave volatile global financial market conditions and sell shares in initial public offerings to fund future business ambitions. Indeed, the two largest Chinese insurance companies and New China Life’s chief rivals, Ping An Insurance and China Life Insurance, are already listed on both overseas and domestic bourses. Beijing-headquartered New China Life’s IPO could even lead the rest of Greater China’s insurers to market sooner that expected. According to industry observers, there could be over US$10 billion worth of new dual share offerings in Hong Kong and Shanghai coming to the market over the next few quarters from domestic insurance companies alone. State-backed China Reinsurance and People’s Insurance Company (PICC) announced plans to raise between US$5 billion and US$6 billion through a dual IPO back in July this year. Taikang Life Insurance, the Asian nation’s fifth-largest insurer by premiums, have meanwhile also targeted between US$3 billion and US$4 billion from a Hong Kong listing in the next couple of years.
New China Life will use the IPO proceeds to replenish capital reserves and improve solvency margins and overall profitability in order to better keep pace with the firm’s rapid business growth. The Beijing-based fine insurer earned CNY93.6 billion (US$14.3 billion) in premium income last year, translating to around a 9 percent share of the country’s insurance market, according to the China Insurance Regulatory Commission (CIRC). The company, 15 percent owned by Zurich Financial Services, has been largely successful in adapting to China’s surging insurance market demand, reporting a compound annual premium growth rate of 40 percent over the past 5 years, from 2005 and 2010. New China Life has fostered a competitive advantage in institutional sales and now has a particularly robust presence in the big cities of Beijing, Shanghai, and Guangzhou. Today, New China Life has 1,400 offices in China and serves over 24 million policyholders.
Over the past few years however, the performance of some of China’s most prominent insurers has begun to slow down due to rising competition and unstable stock markets. Indeed New China Life posted a 15 percent decline in net profit last year and has not been able been able to regularly meet regulatory requirements on adequacy ratios. Ahead of their planned dual IPO the company has had to restructure themselves slightly in a bid to meet CIRC minimum solvency requirements, which have restricted dividends and further business development. In March, the life insurer moved CNY 14 billion (US$2.2 billion) worth of shares to twelve existing shareholders through a rights issue. The transaction increased New China Life’s registered capital base, up to CNY 2.6 billion (US$405 million) from CNY 1.2 billion (US$187 million), which in turn raised its solvency margin to above the required minimum 100 percent for listing. After the IPO, the company’s solvency ratio is expected to be above 150 percent.
New China Life’s dual IPO will surely test investor confidence as international financial markets continue to struggle with a potential US recession, Asia Pacific catastrophe losses, as well as the deepening debt crisis in Europe. American and European markets have been in a prolonged slump as concerns mount over Western policymakers’ ability to adapt and revitalize the flagging global economy. This is turn has affected the regional markets in Asia. The Heng Seng Index is down by 15 percent so far this year, while The Shanghai Composite has fallen over 8 percent. This market downturn has impacted Hong Kong’s prominent IPO market, with delays and cancellations worth US$19 billion in share sales from prominent companies already witnessed this year.
Outside of these macroeconomic concerns though, China’s insurance industry remains an attractive investor opportunity due to the country’s huge middle class population, favorable economic indicators and a largely under-penetrated protection market. Market observes will be watching closely to see if New China Life can dual list in Hong Kong and Shanghai successfully this year.
Insurance Company Mentioned
New China Life
New China Life Insurance Co., Ltd (NCI?has headquarters in Beijing and was established in 1996. It is a large national insurance company, with products including traditional protection products, bonus products as well as the products that have a strong financial management function. With sustained, healthy and harmonious development of the company, the brand value of NCI is a valuable asset.
Zurich Financial Services Group is an insurance and financial services provider with a network of subsidiaries and offices in North America and Europe and also in Asia-Pacific, Latin America and other markets. Zurich is one of the world’s largest insurance groups, and one of the few to operate on a truly global basis. With 60,000 employees serving customers in more than 170 countries, our business is concentrated in three business segments: General Insurance, Global Life, and Farmers.
Government health ministers, academics and healthcare industry consultants from over 20 African countries are attending the first annual Pan-African Health Congress on Universal Coverage in Accra, Ghana this week to discuss the best ways to implement and sustain successful long term social insurance systems across the continent, and improve on the overall healthcare standards for their citizens.
The Congress, now underway between the 15th and 17th November 2011, is hosted by Ghana’s Centre for Health & Social Services with principal support by the Rockefeller Foundation and World Health Organization (WHO). The three day event has been planned to foster a recurring dialogue between healthcare industry analysts, company stakeholders and government officials, to address the current state of national health insurance schemes across Africa and to help craft policies which could expand and improve the service quality of these coverage networks. The keynote speaker is WHO Deputy Director General Dr Anarfi Asamoa-Baah. Representatives from each country and organization will present papers that analyze the effectiveness and feasibility of their respective social health insurance system, both pro universal coverage and con, and these insights in turn will be reviewed by Congress attendees to provide additional prospective on what to do going forward.
In the commencement address, Dr. James Nyoro, Africa Managing Director for the Rockefeller Foundation, outlined the necessity of building and maintaining a strong political will in order to achieve greater health coverage results in Africa. “A great deal of work has already been done in health insurance, but there is a need to draw available material together, focus on the neglected issues and integrate insights on these areas into the overall health insurance policy framework,” he said. It is hoped that by the end of the event a consensus framework for action will be drawn up that includes a platform for intra-party support and a sustainable economic plan addressing the issue of universal coverage in both sub-Saharan Africa and the developing world at large.
Over the past twenty years, health insurance has been promoted as a valuable development tool across Africa, one which can improve access to vital healthcare services because it avoids direct payment of expensive medical fees by low-income patients and pools the financial risk among all those insured. Many mutual health insurance organizations have sprung up in sub-Saharan Africa since then and, most recently, the national governments themselves are getting involved, experimenting with state-backed social insurance systems to reduce barriers to medical care and hopefully limit the contagion of communicable diseases. Because of the lack of adequate healthcare infrastructure and coverage options, developing countries have suffered disproportionately from diseases and other public health problems in the past.
Different African governments have instituted different national health insurance mechanisms, including those based on donor contributions, tax-based systems, and pension funds, all to varying effect. In several countries like Senegal, Namibia and Rwanda, local authorities, public sector employers, and third party mutuals are supposed to provide third party support for low-income constituents, resources permitting. The two countries that have made the most progress in universal healthcare coverage so far have been the United Republic of Tanzania and Ghana, which is why they are hosting the conference. Both countries offer quite comprehensive outpatient and inpatient services to policyholders, and they are eligible for treatment in both public sector and accredited non-government facilities. Tanzania was the first to introduce a compulsory coverage plan in 1999, with the National Health Insurance fund for civil servants and now covers about 10 percent of the population. Ghana’s NHI system, introduced in 2003, has proven the most successful thus far with 38 percent of the populace covered.
More prominent nations are now looking to develop their own health insurance systems. Looking at the progress made in neighbouring West African countries, the Nigerian government recently approved a compulsory national health insurance scheme for their public sector workers, to be run through private employers, with the ambitious goal of eventually covering their entire population; Africa’s largest. In Kenya, the government has also started rolling out a similar scheme to engage with lower income clientele. The most pertinent recent development though is perhaps occurring in South Africa, the continent’s largest private insurance market. In April, the South African government began testing their compulsory medical insurance scheme in 10 districts, and will expand the program out across the rest of the country over the next 14 years. South Africa have estimated that the scheme will cost R255 billion (US$31.3 billion) once completed in 2025, and could in fact be much more due to the shortage of skilled staff, limited tax-returns and failing infrastructure.
Indeed, it has been these persistent infrastructure and funding shortfalls that continue to hamper insurance sector development in most sub-Saharan African countries. A considerable majority of the region’s populace still resides in rural and largely informal economies that remain difficult to tax, monitor and fund a robust health network with effectively. When these citizens do need medical care they are forced to pay out of pocket, and this, according to the World Bank, is the number two cause of impoverishment in region, behind job losses. This lack of resources thus creates problems both when it comes time for a consumer to pay a premium, and when the insured need to use decent quality health care services. Thus, because the taxable base in Africa is low, various methods have been used by government to mobilize resources for healthcare, including now the international insurance industry.
Luckily, these multinational insurers are gladly shifting their focus to up-and-coming insurance industries in emerging markets anyway. According to The International Finance Corporation (IFC), public insurance schemes are expected to represent a US$1.4–US$2.5 billion investment opportunity in Sub-Saharan Africa over the next ten years. These low-penetration markets offer better opportunities for growth in premium returns, and could work to offset the more static performance in mature European and North American markets. While much of the international focus has thus far been on the lucrative Asia Pacific and Gulf regions, Africa should present a reasonably attractive business opportunity for multinational insurers as well. Overall market penetration for insurance products in the region is low and many standard coverage services remain untapped on the market, including most life, health, property and savings-related insurance options. The insurance premiums collected in Africa currently represent only two percent of total world premiums, and the contribution of the domestic insurance sector towards the GDP of the region remains small by international standards. This demonstrates that insurance policies are not yet being used effectively as a vehicle for protection and savings these countries.
As Africa’s economies grow, urbanize, develop and further open their markets, demand for healthcare and insurance services will increase in tow. As Ghanaian Minister of Health, Joseph Yieleh Chireh, explained at the conference, the government and insurance industry must be there and work together to meet these mounting needs. “Universal health insurance is very important to Africa’s development. It is crucial to offer all, regardless of economic standing, quality health care at an affordable cost. It is important to engage in the dialogue on ways to make universal health care work in Africa.”
It appears as if Cambodia could be the next frontier territory for multinational insurance companies looking for sustainable premium growth in emerging markets, according to the news that Canadian life insurance giant Manulife Financial is looking to establish a subsidiary in the small Southeast Asian country.
In a statement released this week, Manulife confirmed that they had received ‘approval in principal’ from Cambodia’s Ministry of Economy and Finance (MEF) to found a fully foreign-owned life insurance operation in the country. The Toronto-based insurer is now working closely with the Cambodian government to accelerate through the final stages of the business licence approval process, and are looking to establish their head office in the capitol city Phnom Penh as soon as feasibly possible. Once the business is active, Cambodia will be the eleventh Asian country Manulife has an insurance operation in.
Further details about Manulife’s upcoming insurance venture have yet to be disclosed. According to the Cambodia’s 2002 insurance laws, the new insurer would have to have a minimum paid-up capital of US$7 million to meet solvency requirements and begin operations. For a large multinational like Manulife, getting the necessary infrastructure, capital and regulatory framework up to date will probably prove easier to accomplish at first than getting the attention of the local Cambodian client base, which remains largely unaware of many insurance products and are often priced out of many of the insurance options available locally.
As part of their agreement to enter the Cambodian insurance market, Manulife said that they would support initiatives made by local government and aid organizations to help expand and professionalize the country’s domestic insurance sector. This could include public education campaigns to increase general consumer awareness of insurance matters, as a well as other programs designed to ‘build confidence in the industry.’
David Wong, Senior Vice President and Regional Executive for Manulife’s ASEAN Operations, commented in the briefing that a move into Cambodia’s life insurance market demonstrated the company’s continued “commitment to Asia and our success as a forward-thinking leading insurance company that offers strong and reliable risk protection products and services to our customers.” Wong added that Manulife were appreciative of the Cambodian government’s ongoing support and that now was time for the international insurance industry to recognize and invest in the Southeast Asian country’s emerging demands for adequate savings and protection tools. “I am very excited to see Manulife expanding its footprint into Cambodia. We hope that in Cambodia we can match the achievements of Manulife in other ASEAN markets and help develop Cambodia’s life insurance industry to better serve the emerging life insurance needs of its population,” Wong remarked.
Cambodia’s insurance industry only began in earnest in 1990 through the establishment of the state-backed company, the Cambodian National Insurance Company (CAMINCO). After decades of limited development in the local insurance sector, Cambodia’s gradual transition to a free market economy in 2000 has fostered considerable economic progress, and this in turn enabled private sector and international insurers to enter the country which would, in turn, revitalize the protection and savings market. Today, Cambodia’s insurance market comprises of six general insurance players (lead by Forte Insurance) and one life insurance company, Cambodia Life, which is a newly formed joint venture between the government and four Asian firms. There is also one domestic reinsurance company, the state-owned Cambodia Re. There are no licensed insurance brokers in Cambodia at present.
To date, insurance companies in Cambodia have generated the vast majority of their premiums from their foreign corporate sector clients, who have all taken out property, motor, fire and medical insurance policies for their largely expatriate workforce. Individual insurance sales from Cambodian nationals have, so far, remained a very small proportion of business. It is estimated that only between 1 and 2 percent of Cambodia’s 14.4 million population can afford to buy any insurance at present. As per capita income levels rise, however, insurers hope to see greater volumes of insurance policy sales from clients across the country.
There is evidence that Cambodia’s native population have all become more aware of the benefits of insurance and could be willing to pay for cost-effective protection and savings solutions, like micro-insurance, if available. Figures released in January by the General Insurance Association of Cambodia (GIAC) revealed how general insurance sales have grown by over 17 percent annually over the past five years, from US$10.8 million in 2005 to US$24.8 million in 2010, and that this has outpaced the country’s overall GDP growth rate in that time. Despite these promising results however, it must be said that the overall size of the Cambodian insurance market is yet to see a substantial improvement. Cambodia ranks below many of their neighboring ASEAN nations it terms of overall country-wide insurance penetration and density (with under 0.3 percent of the population and US$1.48 per premium). Many insurance industry analysts maintain however that these figures in fact demonstrate a pronounced potential for insurance sector growth in the near future.
The most important thing, according to companies like Manulife, will be Cambodia’s ongoing commitment to aligning their economic growth with the continued overall development of the Greater Mekong region, which has given marked confidence to international investors and unlocked significant market potential for business going forward. Cambodia’s real GDP growth is projected to be 6.5 percent by the end of 2011 and 7 percent through 2012, respectively. In line with the Southeast Asian country’s sustained economic development, the government in turn expects gross premiums to surpass US$54.5 million by 2015 due to improved consumer confidence and greater overall awareness of insurance throughout the region. If the Cambodian government keeps the market open and established insurers, both foreign and domestic, can effectively leverage their expertise and capital to efficiently address the country’s emerging savings, investment and protection needs, the local industry will have the chance to prosper.
Established in 1996, Phnom Penh-based Forte Insurance has gone on to dominate Cambodia’s general insurance market, now accounting for almost half of all non-life insurance premiums in the country.
Manulife Financial is a leading Canadian-based financial services group and serves millions of customers across 22 different countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and through John Hancock in the United States, the group provide clients with a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners.
India’s nascent health insurance industry may finally be turning the corner with the news that foreign joint-venture investors in the market could at last be generating significant returns on their activity in the populous South Asian country.
In the 10 years since India’s insurance market first allowed private and international sector involvement, total insurance penetration across the country has doubled, with the domestic protection industry overtaking several more developed markets in the process. There has been a considerable rise in insurance coverage, with both the number of life insurance and non-life insurance policies increasing many times over, and combined premium income is now projected to reach between US$350 to US$400 billion in India by 2020. Health insurance, in particular, has become as one of the country’s fastest growing business lines, accounting for 20.8 percent of the overall market in 2010. With total expenditure on healthcare, through both Indian government schemes and private sector activity, expected to exceed US$200 billion by 2015, even more significant opportunities for the country’s health insurance sector will likely emerge. A recent IRDA ruling, which permits health insurance portability, has further provided private companies with the impetus to tap into India’s healthcare protection needs.
In their third quarter statement released this week, Max Bupa Health Insurance posted sales of Rs 21.9 million (US$4.37 million) worth of gross written premiums through to September 30, 2011. These figures were up 268 percent on the Rs 5.9 million (US$1.17 million) reported during the corresponding period last year. The private health insurance company, which became active in 2010 as a 76:24 joint venture between local firm Max India Ltd. and UK-based healthcare giant Bupa, added an additional 40,000 policyholders onto their books during the summer months, taking their number of active policies in India to near 100,000 since the standalone business commenced operations. Bupa would likely now look to increase their involvement with Max Bupa but under current industry regulations, Indian insurance companies are forbidden to offer more than a 26 percent maximum stake to foreign business partners when their joint venture operation is first incorporated.
Overall Max Bupa Health Insurance has done well as one of the newer entrants into India’s health insurance business, collecting Rs 356 million (US$7.1 million) in premiums so far this year, a 335 percent increase on the Rs 8.2 million (US$1.6 million) premiums reported for 2010. The joint venture insurer now has a presence in nine large cities in India and has established a robust healthcare provider network, featuring over 700 hospitals across the country. The company, which began with an equity commitment worth Rs 7 billion (US$140 million) from its joint venture partners, now expects to break-even on their initial investment by their fifth year of operations, 2015.
Max Bupa has been able to effectively distinguish themselves from their competitors in India by introducing innovative new coverage options and service plans to the market. In a country where the average sum insured by health cover has traditionally been around Rs 200,000 (US$400), Max Bupa has been able to capture the emerging middle class demand and ability to pay for greater service, with policy covers ranging from Rs 1,500,000-5,000,000 (US$3,000 to US$10,000). In line with India’s rapid macroeconomic development over the past decade, there has now emerged a sizeable segment of the population who want the most robust healthcare coverage options money can buy. Furthermore, as the average Indian consumer spending power improves, healthcare inflation and medical costs are rising rapidly in tow, and this forces even more people to address long term coverage concerns and to consider policies with a higher sum insured. Max Bupa has been amongst the first to recognize and capitalize upon this trend. Indeed, the company was the first in India to offer more robust health insurance products with cover exceeding Rs 1,500,000, and upon seeing its success many other companies have since followed suit.
Max Bupa are now aiming to report Rs 700 million (US$14.25 million) worth of new business premiums in India by the end of the fiscal year 2012. To help achieve these goals, the insurer has been working with banks, post offices, and other administrative branches to expand their distribution network and better engage with the rural and largely underinsured masses across India. Max Bupa has, until now, offered and promoted their insurance products through agents, telemarketing, direct sales or online channels. However, in order to reach the more remote areas of the country, gaining access to more entrenched business networks, like community banks and post offices, becomes important. The company is also working to further diversify their insurance product portfolio. In the third quarter, India’s insurance industry regulator The Insurance Regulatory and Development Authority of India (IRDA) approved two more Max Bupa products, Employee First Classic & Health Companion, which will come to the market shortly.
It is not only the protection and savings aspects that Bupa is concerned with in India, but also the general state of health in the country. According to their recently released international healthcare and lifestyle survey, Bupa found that around 40 percent of Indians could be classified as unhealthy, while one out of every 10 surveyed was obese. It is ironic perhaps that the rapid development of the national economy, the same thing that is enabling more citizens to spend on and insurance, is driving more middle class people in India to neglect their health and wellbeing due to the now ever more demanding hustle of everyday life. Indeed, over half of the Indians polled by Bupa in August thought that their work life was preventing them from exercising more and making healthier lifestyle choices overall. Of these respondents, it is the 25-34 age-group that will lose the most productivity due to medical illness in the coming years and they will need adequate insurance to address this. According to Bupa, diabetes and heart disease are the most common health concerns across all India.
Max Bupa has responded to this study with a new website: www.YourHealthFirst.in. On the site the company offers lifestyle and fitness advice, designed to support policyholders and encourage them to improve their health for both themselves and their beneficiaries. Efforts likes this will no doubt help Bupa establish an even stronger position in India, a market that will further expand as economic conditions strengthen. Bupa now intend to build upon this momentum and further develop their international medical distribution network, expanding the scope and rage of their operations in the Asia Pacific region in particular.
Insurance Companies Mentioned
Max Bupa Health Insurance is a 74:26 joint venture between Max India Limited and UK-based Bupa. Bupa is a leading private healthcare provider with more than 10 million customers worldwide and over 60 years experience in the health sector. The Max India Group has expertise in both health and insurance related services including hospitals, clinical research and life insurance.
Bupa is a leading international healthcare provider, offering personal and corporate health insurance, workplace health services and health assessments. The insurer today has ten million customers in over 190 countries, and over 52,000 employees around the world.As a provident association Bupa has no shareholders, because of this it uses its profits to invest in healthcare and medical facilities around the world. Bupa has operations around the world, principally in the UK, Australia, Spain, New Zealand and the US, as well as Hong Kong, Thailand, Saudi Arabia, India, China and across Latin America.
Canadian insurance giant Manulife is looking to increase its agency force in Hong Kong in an attempt to capitalize on the resurgent demand for investment-linked insurance policies throughout the Asia-Pacific region.
In an interview with the South China Morning Post this week, Manulife Hong Kong executive vice-president and CEO, Michael Huddart, explained that while global financial market volatility has slowed down the sale of investment-linked insurance policies considerably over the past few months, insurers by and large remain confident in the long-term growth prospects for these products, and that their performance would no doubt improve when the market rebounds. “The outlook for these investment-linked plans is good, especially if we see some market recovery in 2012 and beyond. There is still a great need for accumulating wealth to pay for living costs and medical costs in retirement and these plans can be a useful vehicle to achieve this goal,” Huddart said in the piece..
Hong Kong – a special administrative region (SAR) of China – is the premier Asian insurance center, and attracts many of the world’s top insurance and financial service companies. Manulife, themselves, have had a presence in the City for over 110 years and now have around 1.6 million clients in HKSAR. Hong Kong has the largest number of authorized insurance companies in Asia at 167, and thousands of supplemental agents and brokers. The level of insurer business activity in 2010 amounted to 11.8 percent of Hong Kong’s gross domestic product (GDP), compared with 11.3 percent in 2009. Insurance continues to be an integral part of the city-state’s economy.
Investment-linked products had proven to be popular in Hong Kong due to their combination of both insurance protection and investment fund savings options. However, in the aftermath of the 2008 global financial crisis, the attractiveness of these insurance policies has now been sternly tested by waning investor confidence across most business lines. Statistics released by the Hong Kong government reveal exactly how closely the sales of investment-linked insurance policies have related to overall market performance. According to the data, when the Hang Seng Index passed the 29,000 benchmark and hit a record high in 2007, sales of investment-linked insurance policies rose in tow to HK$60.04 billion (US$7.72 billion). At that time, sales of new investment-linked insurance products accounted for around three times as many as traditional insurance policies, which totaled HK$20.31 billion (US$2.61 billion) that year.
Sales of investment-linked policies then dramatically declined to HK$15.06 billion (US$1.94 billion) in 2009, or roughly half those of traditional insurance policies, as the prevailing effects of the global financial crisis took hold. Investment-linked policies have since then seen much lower sales figures than traditional life insurance policies and have yet to fully recover as investor fears about the European sovereign debt crisis and a possible recession in the United States continue. Through the first half of this year, investment-linked products still only represent 30 percent of all insurance policies sold in Hong Kong, with traditional insurance policies making up the remaining 70 percent.
Despite this prolonged downturn in consumer confidence, Manulife and other players are continuing to invest in and market the long-term appeal of these investment-linked and other insurance products to clients throughout the Asia Pacific. The Toronto-based firm has planned to increase their insurance agency force in Hong Kong by 10 percent annually for the next 5 years, moving from roughly 4,600 agents at present to a staff of 7,000 by 2015. While this is happening, Manulife will also work to improve sales from non-agency channels, including bancassurance and independents, to hopefully account for roughly a quarter of total sales by the end of 2015, up from 13 percent currently. The company is also looking to promote yuan-denominated products, which have become increasingly in demand amongst investors who expect to benefit from the Mainland currency’s gradual appreciation. The yuan has already risen by some 20 percent since 2004.
Manulife is already reaping the rewards of its expansion strategy. In the third quarter results posted earlier this month, Manulife’s Hong Kong insurance sales were worth US$59 million, representing a 26 percent over the third quarter of 2010. The company has primarily attributed this performance to the increased number of active insurance agents, increased volumes of the popular critical illness product launched at the end of the second quarter, and higher sales made through the company’s expanded bancassurance channel.
Manulife is stepping up its agent recruitment effort primarily to grow their business and better compete in the city’s lucrative mandatory provident fund (MPF) marketplace. The MPF is Hong Kong’s compulsory retirement savings system, and is administered by the Mandatory Provident Fund Schemes Authority. With a 17.6 market share, Manulife is currently the number two insurer in Hong Kong’s MPF market. With an increased sales force, the Canadian firm hopes to successfully raise their share to over 20 percent by 2016, which would put them in a better position to compete with the predominant market leader, HSBC.
The marketplace Manulife is investing in is, however, experiencing some noted volatility at present. According to the latest figures filed by the Office of the Commissioner of Insurance (OCI), sales of retirement-related insurance policies dropped by 35.9 percent to HK$10 billion (US$1.28 billion) last year. At the end of 2010, there were 59,005 MPF contracts in Hong Kong carrying net liabilities worth HK$105.5 billion (US$13.55 billion). Local market observers have attributed this drop to a recent regulatory change regarding pensions. In 2009, The Mandatory Provident Fund Schemes Authority stipulated that all MPF funds must be held through trustees.
You don’t have to venture far outside of Hong Kong to discover one of Manulife’s other priority growth markets – Mainland China. Last week the insurer renewed their framework agreement with Bank of China, the country’s oldest bank, for another two years in a bid to further expand their bancassurance distribution network and ultimately sell more insurance products in the world’s second largest economy.
In his speech at the signing ceremony in Beijing, Mr. Donald Guloien, President and CEO of Manulife Financial, explained that China, with its robust economy and growing middle class, is an important marketplace to be in for all ambitious financial-services companies, especially considering the tepid business forecasts in their mature domestic insurance markets. Indeed, China’s insurance industry, in particular, has grown more profitable and evolved at a tremendous pace over the past decade and still has plenty of room further to develop due to generally stable economic indicators and an under-penetrated insurance and investment market. In 2010, the Chinese insurance industry grew by 30.4 percent, reaching a record US$221.4 billion in total written premiums. This momentum has continued into 2011 despite international financial market volatility and record catastrophe losses in neighboring Asian countries. The China Insurance Regulatory Commission (CIRC) interim report figures show that total premium income reported by Chinese insurance companies had increased to US$123.95 billion during the first half of 2011, maintaining double-digit growth with a 13 percent rise on last year’s interim period. At the moment, China is ranked as roughly the sixth largest insurance market in the world, and the second largest in Asia. Many industry observers fully expect the Chinese insurance market to eventually overtake the United States and become the number one overall protection and investment market in the world, possibly by as early as 2020.
Indeed, much of what may determine the future success of the Chinese insurance industry could come to a head in the coming months, as multiple Mainland insurers apply for their IPOs. More capital is needed for Chinese insurers to both capitalize on their home market and expand overseas if need be. Despite global financial market volatility, Chinese insurers remain attractive investment targets for large multinational insurance companies and investors from the financial-services sector. Over the next year, almost US$25 billion worth of dual share offerings in Hong Kong and Shanghai could be coming to the market from Chinese insurance companies alone. New China Life Insurance, China’s third-largest life insurance firm applied to the Hong Kong stock exchange for a dual listing, which could go through this week. The insurer is looking for US$4 billion in fresh funds by the end of the year. Taikang Life Insurance, China’s fifth-largest insurer by premiums, has also targeted between US$3 billion and US$4 billion from a Hong Kong listing in the next couple of years. PICC meanwhile have also expressed IPO interest and would look to raise between US$5 billion and US$6 billion in a dual listing by the end of 2012. Market analysts will be watching closely to see if these Chinese insurers and more can dual list successfully and build on their enormous domestic customer base to establish a more robust presence on the global stage.
Outside of China and it’s holdings, Manulife of course recognizes Asia as the most important market for the company’s sustained future growth and development. The region, as a whole, now accounts for over half of the company’s total insurance sales worldwide. The Canadian insurance company has seen its insurance sales across Asia jump by 22 percent to US$902.4 million in 2011, with budding businesses in less-established insurance markets like Vietnam, Indonesia and the Philippines being particular highlights. Going forward, Manulife has said they will focus on expanding insurance sales channels in these Asian countries, and will continue to upgrade the range of their core policy offerings, as the emerging middle class consumer demand in these markets matures and evolves.
Insurance Companies Mentioned
Manulife (International) Limited is a member of the Manulife Financial group of companies. Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners.
A new briefing released this week by global ratings agency Fitch Ratings has warned that Italy’s insurance companies cannot expect to pass their losses onto their policyholders in the unlikely event that the Italian government defaults on its upcoming debt obligations.
The Euro-zone’s sovereign debt crisis has continued unabated this week with Italy being the next market apparently on the verge of financial meltdown, an event which could have dire ramifications for both Europe and the rest of the global economy. On Wednesday, Italian bond yields hit 7.4 percent, a point widely considered to be unsustainable, and work is underway to quickly form a new coalition government and pull Italy’s economy back from the brink of default. Multinational investors and financial institutions have however begun casting more serious doubts over Italy’s ability to weather another market downturn, and now Italian authorities are turning to the insurance industry for assistance. The country’s total debts however, now standing at over US$2 trillion, could mean that they are in fact beyond rescue while tied to the Euro, even by the insurance industry.
The European Union (EU) has been working with the continent’s leading banks and insurance companies to devise a new program to solve the pervasive sovereign debt crisis which has crippled the region’s economic output over the past few years. After much deliberation, the EU has planned out a new debt insurance model for the region, which is designed to both protect investors and offset the risks of loaning money to heavily-indebted Euro-zone countries going forward. While the plan to get all EU creditors to agree new terms may work in the long run, Italy may not be a beneficiary, as Germany and France could petition the EU to remove the country from the union for the sake of the coalition’s overall financial stability.
Italy is thus looking for help from the country’s insurance industry, hoping to obtain some protection for government bonds and to help mitigate the impact of a potential economic catastrophe. Insurance could protect the value of these bonds and work to significantly reduce the risk of borrowing to international lenders. However, no amount of insurer activity could offset Italy’s massive long term debts, so the government must hope to remain an EU member by the time their new expansive new debt insurance plan comes into force, likely next year.
For the Italian insurance companies meanwhile, ongoing domestic economic uncertainty put their operations and policyholders at significant risk. According to Fitch, there is an intrinsic link between Italian insurer performance and the nation’s overall sovereign credit rating. Italy’s insurance companies generally hold large volumes of Italian government bonds in addition to securities issued through Italy’s financial and other institutions. Furthermore, most Italian insurers have principally been domestic players with little presence in lucrative overseas insurance markets and thus are overtly linked to an economy in which impending government austerity measures are likely to further dampen private consumption and investment in protection products in the coming years.
It was based on these indicators that Fitch decided to first downgrade Italy’s outlooks for their life and non-life insurance sectors from stable to negative on October 12. The ratings agency has also assigned a ‘A+’/Negative rating on the country’s sovereign debt, which means government bonds remain at a low risk of default. However, if the unlikely event of a sovereign default were to occur, Fitch believes that the ability of Italian insures to pass further losses on to policyholders to absorb would be significantly weakened, as the return on customer portfolios may be well below the minimum guaranteed to these policyholders. Insurers would thus be liable for these additional losses. Fitch further hypothesized that if the sovereign default happens, the amount lost on Italian debt holdings could damage Italian insurer capital adequacy to a greater extent that already realized. This has become one of the principal reasons Fitch believes the Italian insurance industry deserves the negative outlook.
The current situation has been made worse for insurers in Italy than compared to those in other European economies, such as Germany, because there has never been an effective attempt to defer profit-sharing and short-term thinking in the country’s insurance market. What this means is that, in the event of a prolonged market downturn or default, most Italian insurance companies have no capital buffer from previous unrealised profits on the balance sheet to protect themselves or their clients. “Historically, Italian companies built a cushion of unrealized gains largely on domestic sovereign debt that could be used to cover guarantees when investment income was insufficient to meet the guaranteed return. This cushion has shrunk in recent months as credit spreads on Italian debt have widened, driving down the value of existing bonds and giving insurers less protection against further market volatility,” Fitch said in their research.
The insurance industry across Europe faces a multitude of problems. The continent’s sovereign debt crisis has occurred while a soft market and stubbornly low interest rates across multiple business lines persist, which keep pricing low and puts downward pressure on insurer profitability. Attempts to increase premium levels are met with resistance in a weak economic climate, as consumers are unwilling to pay higher rates, if in fact they can afford insurance at all. Added to this has been the upcoming Solvency II regulations, which require many firms to taper their business ambitions and set aside greater capital reserves. Overall, stagnant economic growth in Europe’s principal markets have both increased the possibility of a double-dip recession and exacerbated the sovereign debt crisis in a number of peripheral Euro-zone countries, namely Portugal, Italy, Ireland and Greece.
Fitch Ratings is a global rating agency and provides ratings and analytical services for thousands of banks, financial institutions, insurance companies, corporations, and national governments. Fitch was founded in 1913 and now features dual headquarters in New York and London with over 50 offices worldwide,
Manulife Financial Corporation, Canada’s largest insurance company, has signed a new two-year cooperation agreement with Bank of China in a bid to further strengthen their bancassurance distribution network and sell more insurance products in the world’s second largest economy.
The deal was announced at a signing ceremony in Bank of China’s Beijing headquarters on Wednesday. The agreement will expand upon the existing partnership between the two firms, which has begun to bear fruit for both parties over the past 12 months. Through the terms of their updated venture, Manulife and Bank of China will strengthen their cooperative efforts on insurance and bancassurance distribution in Mainland China. At the same time, Bank of China will also be able to realize other business opportunities in North America. The framework of the new partnership agreement come into force immediately and the pact will continue for a minimum of two years.
Manulife has already established a presence in China through its joint venture wealth management and life insurance company, Manulife-Sinochem Life Insurance (MSL), which the Toronto-based insurer formed alongside China Foreign Economy and Trade Trust Co in 1996. Today, Manulife-Sinochem, which remains 51 percent owned by Manulife, has around 11,500 insurance agents, 1,100 employees, and branches in 49 cities throughout China. In May, the company signed an agreement with Bank of China, the country’s oldest bank, to distribute life insurance products through their bank branches in Beijing, Guangdong, Jiangsu, Shanghai, Shenzhen, and Zhejiang. The Bank has also become the custodian bank and distributor for Manulife’s other joint venture fund company in China, Manulife-TEDA Fund Management.
In his speech at the Beijing signing ceremony, Mr. Donald Guloien, President and CEO of Manulife Financial, explained that this new deal would enable both companies to grow their business and would build upon the bancassurance deal signed last May. “As more and more Chinese and Canadian companies and citizens look to each other’s home country for business opportunities, academic pursuits or simply as a holiday destination, we view closer cooperation between Bank of China and Manulife as an opportunity to realize business opportunities together.”
Mr. Guloien also noted that China, with its robust economy and growing middle class, will continue to be an important marketplace for all financial-services firms across Canada, especially considering the stagnant forecasts for growth in their mature domestic insurance markets. Indeed, Manulife’s decision to recommit to Bank of China follows similar moves made Canadian firms this season. In August, Power Corp. of Canada decided to enter China’s emerging fund-management industry with the purchase of a 10 percent stake in China Asset Management Co. for US$271 million. This was followed by Bank of Nova Scotia’s move in September to acquire a 19.99 percent stake in China’s Bank of Guangzhou for US$707 million. For Manulife, the bancassurance partnership between their joint venture life insurance company MSL and Bank of China will be an important source for growth in the future.
Xu Chen, a Bank of China General Manager of the Financial Institution department, was also on hand at the signing ceremony to express a similar degree of confidence in the business arrangement between the two firms. “I strongly believe that, Bank of China will continue to adhere to its customer-oriented banking philosophy, constantly and consistently offering high quality and efficient financial services to all customers. We are confident that this mutually beneficial cooperation will further promote our business development and achieve win-win prospects for both institutions,” Chen said.
China’s insurance industry has experienced rapid growth and development over the past decade and still has ample of room to grow as a result of generally stable economic forecasts combined with an under-penetrated protection market. Despite the volatility of the global financial market, Chinese insurers have remained attractive investment targets for large multinational insurance companies and investors from the financial-services sector. In 2010, total written premiums in the Chinese insurance industry reached US$221.4 billion, a 30.4 percent year-on-year increase. This considerable momentum has been able to continue through 2011 despite persistent international financial market turmoil and record catastrophe losses. According to the China Insurance Regulatory Commission (CIRC) interim report figures, total premium income reported by Chinese insurance companies exceeded US$123.95 billion during the first half of the year, a 13 percent rise on 2010 amounts. At the moment, China is ranked the sixth biggest insurance market in the world and as the second largest in Asia. Many industry observes expect the Chinese insurance market to overtake the United States and become the number one overall protection and investment market, possibly as early as 2020.
Manulife recognizes Asia as the most important market for the company’s future growth. Asia now accounts for over half (55 percent) of Manulife’s total insurance sales worldwide. Over the past nine months, the Canadian company has seen its insurance sales across Asia jump by 22 percent to US$902.4 million, with operations in Vietnam, Indonesia and the Philippines being the particular highlights. Going forward, the Toronto-based company will continue to focus on expanding insurance sales channels in these countries, in addition to innovating the range of their core offerings as the middle class consumer demand in these markets evolves and matures. Further investor involvement in this part of the world is only set to increase, as the emerging insurance markets in Asia are widely expected to outperform those in Europe and North America, with China likely leading the way.
Insurance Companies Mentioned
Manulife (International) Limited is a member of the Manulife Financial group of companies. Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners.
Manulife-Sinochem is a joint venture company between Manulife and China Foreign Economy and Trade Trust Company (a member of the Sinochem group). It was the first Chinese-foreign joint-venture life insurance company established in China. Manulife-Sinochem began operations in November 1996. To date the Company has more than 11,000 professionally trained agents and employees, providing financial and insurance services to over 500,000 customers. The company is now has operations in over 40 cities including Shanghai and Beijing, and in provinces including Guangdong, Zhejiang, Jiangsu, Sichuan, Shandong, Fujian, Chongqing, Liaoning and Tianjin.
Prudential PLC, The largest UK-based insurer by market value, has posted a 10 percent rise in group insurance sales through the first nine months of the year, beating analyst estimates on the back of sustained double-digit premium growth in the key Southeast Asian insurance markets of Singapore, Indonesia, Malaysia and Hong Kong. Prudential are now confident that the continued strong performance of its Asian and US businesses would enable the insurer to outperform its immediate rivals and meet its medium-term financial targets despite the ongoing Euro-zone sovereign debt crisis.
Following last year’s highly publicized and controversial failed bid to acquire AIA, AIG’s coveted Asian insurance arm, for £21 billion (US$35.5 billion), Prudential has since focused on generating cash reserves and improving company margins to improve it’s position in the global insurance marketplace, especially in rapidly growing Asian markets. Had the bid for AIA been improved, Prudential would have become the largest pan-Asian insurance firm. The deal broke down when Prudential’s shareholders forced the firm’s executives to renegotiate the price, a move that was rejected by AIG and left Prudential with £377 million (US$605 million) in fees. Despite this unsuccessful bid however, Prudential has been able to grow its Asian insurance network and generate significant increases in sales activity over the past year. The demand for Prudential’s saving and protection products has been driven by the rapidly expanding economies in Southeast Asia, where rising per capita wealth in countries like China, Malaysia and Indonesia are driving premium growth.
According to a company statement filed on Tuesday, Prudential made £2.7 billion (US$4.3 billion) in revenues from new business sales for the first nine months of 2011, compared with £2.46 billion (US$3.95 billion) reported during the same period a year earlier. Market analysts had largely expected the insurer’s revenues to be slightly lower, around the £2.68 billion (US$4.3 billion) range. Prudential’s nine-month profit from new business meanwhile increased by 14 percent to £1.5 billion (US$2.41 billion) from £1.35 billion (US$2.17 billion) a year earlier. This considerable rise in profit enabled the London-based insurance conglomerate to increase its margins from 55 percent to 57 percent during the period.
Prudential attributed much of this growth to the particularly strong performance of its varied Asian insurance operations, where new business sales have cumulatively risen by 8 percent year-on-year to £1.147 billion (US$1.84 billion) through September 30th. The company noted furthermore that if the results from India were excluded, as new industry regulations are adversely affecting business there, sales in Asia would be up 19 percent to £1.107 billion (US$1.78 billion) for the period. According to the company filing, Prudential’s profitable growth in Asia has been driven by its four leading regional markets, with sales in Singapore up 38 percent, Indonesia up 27 percent, Hong Kong up 17 percent and Malaysia up 16 percent through the first nine months of the year. Prudential is looking to double its profits in the region over the next two years in an attempt to further capitalize on the growing demand for protection and investment products among the expanding middle class consumers in the other emerging Asian markets, such as the Philippines, Thailand and Vietnam.
“These results confirm the value of our strategic focus on the fast-growing and highly profitable markets of South-East Asia…Our main strength is Asia. We grow anywhere between 15 percent and 25 percent per year in Asia, which shows business doubles every three to five years. We’re still well on track to do that.” Prudential Chief Executive Officer Tidjane Thiam said in the briefing.
Broken down more succinctly, Prudential’s ongoing success in Asia has been boosted in particular this year by the performance of the Indonesian insurance market. With a 37 percent growth in third quarter sales to £81 million (US$130 million), and more than 108,000 agents, Indonesia has outpaced the rest of Asia in 2011 to become Prudential’s biggest insurance market in the region for the first time. Meanwhile in China, Prudential’s share of new business volume from local joint venture operation, Citic Prudential Life, is up 10 percent to £46 million (US$73.8 million), and plans are underway to accelerate staff recruitment and productivity efforts to capitalize on this tremendous market. Prudential also singled out the performance of its Singapore division, which had a robust third quarter with new business of £60 million (US$96.34 million), up 40 percent over last year.
Success in these and other Asian insurance markets has enabled Prudential to offset its losses in India, where sales were down by 46 percent to £26 million (US$41.75 million) from last year’s third quarter. For the past year, the Indian market has proven to be a particular challenge for many multinational insurers due to the mandate from the national insurance regulator (the IRDA) that all companies would have to re-register their insurance products in the country by the end of 2010. Despite this noted administrative obstacle, Prudential remain confident about their long-term prospects in India, noting in the statement that domestic sales figures would improve from fourth quarter 2011 onwards, which is when last year’s IRDA regulatory reforms kick in.
Outside of Asia, Prudential reported that new business profits in the United States were up by 17 percent to £968 million (US$1.15 billion) for the year, while the company’s home UK market experienced a more modest 4 percent growth rate to £569 million (US$913.59 million). Prudential’s overall regulatory surplus capital now stands at £3.9 billion (US$6.26 billion) and this compares favorably to its largest British rival Aviva, who have seen their capital position plummet by 33 percent to £2.7 billion (US$4.34 billion) this summer in the aftermath of the eurozone debt crisis.
The company briefing concluded with Prudential Chief Executive Officer Tidjane Thiam insisting that their continued growth in Asia, combined with their ability to gradually de-risk their balance sheet from Southern European debt, has enabled the multinational insurer to remain competitive and become better protected against the current market turmoil engulfing the Eurozone. According to Prudential, the insurer’s sovereign debt exposure now amounts to £49 million (US$78.67 million) in Portugal, Ireland, Italy, Greece and Spain, with a further £1 billion in reserve for use if a second global economic downturn comes to pass. “In volatile times, capital, balance sheet and risk management are more important than ever…The group’s balance sheet remains strong and our capital position is robust. Our prudent and pro-active approach to capital and risk management has led us to retain a defensive stance since the 2008 financial crisis.” Mr. Thiam concluded.
Insurance Companies mentioned
Prudential PLC has been in the insurance and financial services business since 1848. Today they operate throughout the UK, US and Asia offering international health insurance and retirement planning services.
Indian private hospital chain Fortis Healthcare Ltd have announced that they will fully acquire their Singapore-based sister firm Fortis Healthcare International for US$665 million, in what will be the biggest ever deal struck in India’s healthcare services industry.
The board of Fortis Healthcare, owned by the billionaire brothers Malvinder and Shivinder Singh, had approved the merger of their privately held Asia-Pacific healthcare services firm into their majority-owned publicly-listed firm Fortis Healthcare (India) in September, but agreed to leave the terms of the buyout (an all-cash deal) to be set later by an independent valuation agency due to the fact that the transaction involved related party assets. The move follows the similar intra-group acquisition of the previously privately held diagnostics firm Super Religare Laboratories from Fortis shareholders earlier in the year.
On November 1st, Fortis Healthcare revealed that the committee of independent directors had valued the deal at US$695.7 million, based on the recommendations of independent valuation agency Haribhakti & Co. Fortis’ board however agreed to a lower price of US$665 million, around 4.4 percent lower, to complete the buyout. Managing Director Shivinder Singh explained in a company statement that the purchase price was intended to only cover the cost of investments made by the founders of Fortis International for their overseas acquisitions and the multiple international businesses set up in the past year. “We felt that as a family we did not want to profit from this deal, and we therefore requested the independent committee and requested them to lower the price,” Singh explained.
The proposed transaction is still subject to regulatory approval in certain jurisdictions and is expected to be concluded by mid-December 2011. According to Fortis officials, the acquisition will initially be financed through bank loans, which will increase the Indian parent company’s total debt to around US$1 billion. Once the transaction is complete the firm then plans to raise capital and reduce the combined entity’s debt-equity ratio starting next year, although exact details have not yet been forthcoming. “We have multiple capital raising plans already in place to do at various entities and we will announce so at the right time,” Malvinder Singh said.
While questions remain about whether in fact Fortis Healthcare, with just Rs 48 crore (US$100 million) in available cash as of March 31, can fund such an expensive acquisition at this time, investors certainly indicated that they were confident enough about this development. After Fortis Healthcare announced the valuation of the upcoming transaction last Tuesday, the company’s share prices rose by over 3.6 percent to close at Rs 128.35 a piece in India. At that price, the firm has a market cap worth little over US$1 billion.
Fortis Healthcare International is the group’s Singapore-based healthcare delivery firm, with a multi-line presence across primary healthcare facilities, hospitals, speciality day care healthcare, and other diagnostic operations. The Singh family set up the Singapore branch, first named Fortis Global then later Fortis Healthcare International, in October 2010 to continue the group’s international healthcare operations in the aftermath of their aborted corporate takeover for Parkway Holdings Ltd, which they lost to Malaysian sovereign wealth fund Khazanah last year. Since then, the new firm has embarked on an aggressive overseas expansion strategy, using acquisitions and setting up new private hospital across the Asia Pacific region, to match the soaring global demand for quality healthcare services. Fortis’ international operation have now in fact become the same size of their home Indian market operations.
Today, Fortis Healthcare International operates out of nine prime international markets including Australia, Canada, Dubai, Hong Kong, Mauritius, New Zealand, Singapore, Sri Lanka and Vietnam. Amongst its most important global medical assets, Fortis Healthcare International owns Quality Healthcare Ltd, Hong Kong’s largest primary healthcare network, as well as the Dental Corporation Ltd, the largest dental care group active in Australia and New Zealand. The company also holds a majority stake in two specialty hospitals in Singapore and the UAE, as well as shares in the 350 bed Lanka Hospitals Corporation, Sri Lanka’s biggest specialty hospital. Most recently, Fortis Healthcare International acquired a 65 percent stake in one of Vietnam’s largest private healthcare provider groups, Hoan My Medical Corporation, for US$64 million in August. According to company filings, overall international operations are expected to generate roughly US$500 million in sales this year.
The deal will integrate Fortis Healthcare International and the public-listed Indian parent company into a combined entity, renamed Fortis Healthcare Ltd. Management structure will of course change in tow. Vishal Bali, previously heading Fortis Healthcare International, will become CEO of Fortis Healthcare Ltd. Aditya Vij will head the company’s Indian operations, while Eng Aik Meng will run international business and further overseas expansion activity. Malvinder and Shivinder Singh will continue acting as executive chairman and executive vice-chairman of Fortis Healthcare respectively.
As a consolidated firm, Fortis Healthcare will be the owner of over 74 hospitals (with more than 12,000 beds combined), 190 diagnostic facilities, 580 primary care clinics and 191 day care centers across 10 countries, making it one of the leading integrated healthcare delivery networks active in the Asia and number one in India, overtaking Apollo Hospitals in the process. The newly combined company will pool the strength of over 23,000 employees, including 4,000 doctors, to better challenge the previously potential purchase, Parkway Holdings, for supremacy amongst private healthcare service providers in the Asia-Pacific region. While these two conglomerates are concentration on international expansion aimed primarily at treating local clients, their ever-expanding global healthcare networks will no doubt also be used as valued multinational medical tourism destinations where global travelers can find high quality medical treatment at competitive prices.
In the company statement Malvinder Singh concluded that consolidating their Asian health businesses at this time would enable them to establish a firm position in a market that is only looks to grow and grow. “Our vision is to create a leadership position in integrated healthcare delivery in the pan Asia-Pacific region. This integration is a fundamental step in that direction. With the region’s increasing urbanization, ageing population and greater access to new medical technologies, the demand for more and better healthcare is rising sharply. Fortis is keen to capture this opportunity. This integration provides us the model and the scale to harness the opportunity.”
Fortis Healthcare Limited
Founded in India in 1999, Fortis Healthcare is a healthcare provider that currently operates 46 hospitals in India, which are organized as a hub and spoke model around their specialty hospitals. They offer laboratory, wellness, information technology, travel and financial services through the wholly owned Religare Enterprises Limited
Parkway operates 16 hospitals in Asia, with over 3,400 beds throughout Singapore, China, Malaysia, India, Brunei, and the UAE. Parkway also boasts a nursing and health science college, extensive diagnostic, imaging and laboratory resources and the largest foreign owned medical network in Shanghai.
The number of Mainland Chinese citizens choosing to venture abroad for medical treatment has increased significantly in recent years in conjunction with the overall rising affluence and geo-mobility of the nation’s emerging middle class population. However, while most outbound health tourists are driven by the skyrocketing healthcare costs occurring in their home countries; Chinese consumers have been motivated by other factors.
Traditionally it has been the rising healthcare costs in mature largely-western economies, combined with the falling costs of global travel and communication, which have encouraged private citizens to voyage overseas for more cost effective destinations when seeking health and wellbeing services. As part of this development, world class healthcare facilities have been establishing themselves all across the world, providing international clients, who are seeking alternative healthcare solutions to what is available in their home countries, with many more treatment options at competitive prices.
In China however, domestic healthcare costs have not been the principal motivator for health tourism. Outbound Mainland Chinese clients have tended to have high-middle to upper class income levels and are instead going abroad to receive a quality of service, care and discretion not widely available in their home country. Overall, China’s rapid development into the world’s second largest economy over the past few decades has generated with it a huge number of people wealthy enough to demand the highest quality of care available worldwide and pursue a multitude of elective medical procedures if need be. The country’s healthcare system has not ascended in tow during that period, and while base treatment costs have remained cheap by some global standards, the range in services provided is too narrow for many patients and service quality varies considerably based on region. International healthcare providers have found that these Chinese consumers are among the most willing to pay top dollar for quality services and privacy, and healthcare providers are tailoring their services to better cater to Chinese consumer needs. Realizing this huge market potential, some medical tourist organizations in countries like South Korea and the US have established specialized Chinese-speaking healthcare operations to accommodate Chinese patients exclusively.
According to the Beijing Medical Doctor Association, the most popular destinations for Mainland Chinese medical tourists over the past few years have been Japan, South Korea, Singapore, Hong Kong and the US. These locations have proven popular not for the comparative cost of treatment (India, Thailand and Malaysia remain the most attractive in that regard) but for their exacting healthcare standards and the other, more conventional high-brow shopping and tourist attractions they can provide for Chinese consumers outside of their hospitals.
The number of outbound Chinese medical tourists has increased from just a few thousand at the start of the decade to nearly 60,000 annual travelers in 2010. An aging population and rising individual incomes have increased the demand for medical and healthcare products and services throughout the country in that time. According to data released from China’s Ministry of Health, Mainland citizens aged 60 or above accounted for about 13.3 percent of the country’s total population in 2010, a considerable increase on the 10.3 percent reported 10 years ago. At the same time, the disposable income of urban Chinese residents has climbed roughly threefold between 2000 and 2010 to CNY19,109 (US$3,000).
These broad socioeconomic trends have been reflected in the types of medical treatment Chinese consumers are choosing to receive abroad. According to the Shanghai Medical Tourism Products and Promotion Platform, anti-aging therapy, cancer screening, high-end diagnostics, and treatment and care for chronic diseases have become the most common type of procedure sought out by China’s medical tourists. For those who want to venture abroad for treatment but haven’t yet: language barriers, lack of private health insurance coverage and cost concerns were cited as the principal obstacles to partaking in overseas medical treatment.
There is one other medical tourism factor that has become quite unique to Chinese health travelers and that is the wave of expectant mothers leaving the mainland to give birth in a foreign country, a practice now widely known as maternity tourism. For Chinese nationals there are a number of reasons to give birth outside of the People’s Republic, the country’s notorious population control legislation, or “One Child Policy,” being the chief among them. Under the policy’s complicated rules, only couples that belong to ethnic minorities or those coming from one-child families themselves (and certain other specialized scenarios) are allowed to have second children. The PRC government also grants local authorities considerable leeway in how they enforce the policy and this can result in severe fines or physical punishment for Chinese couples who defy the rules. In Guangzhou for example, the fines associated with having a second child can exceed CNY180,000 (US$ 27,450), a prohibitive expense for most of the region’s inhabitants. As a result, Mainland Chinese couples who are seeking siblings for their children, or the all-important male heir, are deciding to go abroad to give birth rather than risk fines or further punishment from their local governments.
Hong Kong has proven to be the most popular destination for expecting Mainland Chinese mothers so far. While the city-state is now officially part of the PRC, it is exempted from the Mainland government’s population control policies and children born within its borders are ensured Hong Kong residency, and all the rights to local social services that entails. In 2010, however, Hong Kong’s medical facilities were put under serious duress when 40,648 Mainland mothers gave birth to children in city hospitals, roughly 46 percent of the city’s 88,000 total for the year. This has resulted in legislation written by Hong Kong’s food and health secretary earlier this year, which will cap the number of non-residents allowed to give birth in the city to 34,000 in 2012 and beyond. With no end to Mainland China’s population controls in sight, maternity tourism will no doubt continue to be an issue, but one that can hopefully be ameliorated by the accompanying demand by Chinese clients for more advanced and expensive international healthcare.
Prudential Financial Inc, one of the world’s largest life insurers, has posted a 23 percent rise in third quarter profit. Prudential has attributed much of its growth in the past year to the particularly robust performance of its Asian operations, and has been looking to further develop its business in the region to better protect itself against the market turmoil currently engulfing the United Sates and Europe.
In an interim statement released by the Newark, New Jersey-based company today, net income rose to US$1.53 billion on nearly US$10 billion in revenue for its third quarter reporting period ending September 30th. This was up from US$1.24 billion in income claimed for the same period a year earlier. Earnings per share were US$3.06, compared to just US$2.46 last year. Despite this double-digit growth in profits however, Prudential’s after-tax adjusted operating income, which excludes certain one-time losses or gains before the company went public as well some other investments, fell to US$520 million from US$1.004 billion during the third quarter in 2010, a considerable 48 percent decline. Earnings per common share based on the adjusted operating income thus were US$1.07, compared to US$2.12 last year. Overall, Prudential’s returns fell short of market analysts’ expectations, as charges chipped away at overall operating income. Analysts had predicted earnings of US$1.53 per share.
John Stangfield, Prudential’s chairman and CEO, dismissed analyst estimates and explained in the statement that given volatile market conditions, the company had done admirably. “While our third quarter results reflect the turbulent financial markets, underlying performance of our businesses was solid,” Stangfield said. The CEO explained furthermore that Prudential’s business performance in the U.S. retirement market and abroad would continue to grow, and would be complimented by the integration of the two new Japanese businesses acquired earlier in the year from the American International Group (AIG). “Looking forward, we are confident that we can continue to execute our strategies successfully, and we believe our balanced mix of businesses and risks support our ability to achieve our long term objectives over a variety of market conditions,” Stangfield added.
Prudential’s confidence is founded on the back of their recent performance in the international insurance segment, which reported adjusted operating income of US$751 million for the third quarter. This was up almost 40 percent from US$540 million a year ago, due primarily to organic global business growth and a US$79 million boost from operations of the recently purchased Japanese businesses. These results were further amplified by the strengthening of the Japanese yen versus the dollar and interest-rate derivatives, which buoyed investment gains.
In February, Prudential Financial bought two Japanese firms, Star Life Insurance Co. and Edison Life Insurance Co, from AIG in a US$4.8 billion deal, in order to expand their presence in the world’s second largest life insurance market. The dual acquisition was funded through US$4.2 billion in cash and a further US$0.6 billion in third-party debt. The deal had been under discussion since September 2009 and will compliment Prudential existing business platform in Japan, which has now been active for over two decades. According to the company spokespeople, the addition of the Star and Edison operations will solidify Prudential’s status as one of the top foreign life insurance companies in Japan based on in-force policy values, and will enable the firm to bring their products and services to more customers throughout the Asia Pacific. For AIG meanwhile, the capital raised from the sale of their two former Japanese life businesses will be allocated towards paying back the US$182 billion loan they received from the US federal government in 2008 to bailout the international insurer from financial insolvency in the aftermath of the global financial crisis. AIG and the US government recently agreed terms for the insurer to pay back the remaining US$21 billion owed.
As part of the takeover, AIG’s Star Life Insurance and Edison Life Insurance have been made of subsidiaries of Gibraltar Life Insurance, Prudential’s pre-existing brand in Japan. So far, the bancassurance channels between the two companies have integrated, and the full cut-over of Star Life and Edison Life’s core businesses is expected by early 2012. Existing AIG Star Life Insurance and AIG Edison Life policyholders have not been affected by the change in ownership.
According to Prudential Financial Vice Chairman Mark Grier, the gradual integration of AIG’s Japanese assets has gone smoothly thus far, enabling the insurer to maintain their ambitious growth strategy in the country. Although the Japanese life insurance market is mature and highly concentrated, there is plenty of room for Prudential to grow because around US$10 trillion is held in savings accounts and deposits in Japan. The Asia Pacific country accounted for 18 percent of the world’s cumulative life insurance policy sales in 2010, according to a Swiss RE study.
The next major Asian market on the horizon for Prudential Financial appears to be China. In August, the US-based financial group received regulatory approval from the China Insurance Regulatory Commission (CIRC) to acquire a maximum 50 percent stake in a life insurance company sponsored by Fosun Group, China’s largest private investment conglomerate. This will be the second business partnership embarked on by these two groups in the past year. In January the two firms agreed to form a US$600 million private equity fund, which has enabled Fosun to better develop its financial services arm. The new Shanghai-based joint venture expects to launch within the next 12 months. Now Prudential Financial will be given the opportunity to establish a presence in the country’s CNY1 trillion (US$156 billion) life insurance market.
Prudential will be entering a Chinese life insurance market lead by China Life, Ping An Life and China Pacific. These entrenched state-owned companies have extensive strength in terms of branding and infrastructure and operate on a tremendous scale even by the standards of the multinational insurers originating from mature Western markets. The Chinese life insurance market is fast moving however and there has been increased competition in recent years as local and multinational insurers (28 foreign players at last count) attempt to strengthen their reach in the country. While overseas companies are permitted to enter the Chinese insurance market on their own, they are faced with considerably more obstacles, including a more active regulatory authority, entrenched business interests and different cultural norms. This has lead many foreign insurance companies in China to instead pursue success through direct investment and establishing join venture partnerships alongside preexisting local insurers and banks, as Prudential Financial now appears to be doing. The emerging insurance markets in Asia are now widely expected to outperform those in the West, with the likes of China and India leading the way.
Insurance Companies Mentioned
Prudential Financial Inc.
Prudential Financial Inc. is a financial services leader, with approximately US$750 billion of assets under management as at September 2010. Prudential Financial operates in the United States, Europe, Latin American and Asia, with approximately 42,000 employees worldwide
The American International Group is a leading international insurance organization with operations in more than 130 countries and jurisdictions globally.
ING Insurance Asia N.V., one of the largest active foreign insurers in Malaysia, has been granted an important exemption by the country’s Securities Commission, which will enable the company to abstain from making a mandatory offer for the remaining equity stakes in its ING Public Takaful Ehsan Bhd and ING Funds Bhd operations as a result of corporate restructuring elsewhere.
In a statement released by the insurer today, ING explained that the mandatory offer obligation for its other ventures would have come about due to an internal corporate restructuring and streamlining proposal, which involved ING Group’s insurance operations both in the United States and across the European-Asian region. As part of the restructuring deal reached between ING and EU banking authorities in 2008, the Dutch group agreed to split its global insurance operations in the aftermath of the global financial crisis. Under the terms of the GBP 7 billion bailout package, the European Commission regulators demanded ING to sell its insurance business within four years and to instead focus on its banking operations.
In conjunction with this grand intercontinental corporate restructuring exercise, ING Insurance International will attempt to transfer its 100 percent equity interest in ING Management Holdings (Malaysia) into ING Insurance Asia. After this proposed transfer is finalized, ING Insurance Asia will hold both an indirect 60 percent equity interest in ING Public Takaful as well as an indirect 70 per cent equity interest in ING Funds. Under law, such a development would necessitate a bid for the remaining stakes in both branches, but this will now not be the case. The remaining shareholders of ING Public Takaful (who are Malaysia’s Public Islamic Bank and Public Bank) and of ING Funds (namely TAB Inter-Asia Services Sdn Bhd) had provided undertaking letters that they would not accept a takeover offer if such an offer is made. And on that basis the Dutch insurance conglomerate made an application to the Securties Commission Malaysia on Sept 14 seeking the exemption. “The exemption was granted by the SC on Oct 25,” the company’s statement read.
ING first entered the Malaysian insurance market in 1987 and have gone on to become a market leader in the individual life insurance and employee benefits businesses in the Southeast Asian country. The company offers all classes of insurance, including individual life, group and general insurance products. Today, ING Insurance Berhad is the fourth largest insurer in Malaysia in terms of total gross written premium. In the Employee Benefits market, ING is the number one provider in the country.
Malaysia has fast become one of Asia’s most promising insurance markets and is attracting considerable attention from overseas investors looking to new regions for sustained premium growth. According to a recent industry report issued by Bank Negara Malaysia (BNM), Malaysia’s central bank, both the standard insurance and takaful (shariah islam compliant) sectors have seen a surge in domestic demand for savings and protection products. In the past 5 years, the Malaysian insurance industry has experienced a compound average growth rate of 27 percent per anum in terms of net premium contributions, with family takaful policies leading the way.
Growth has been driven by a strong post-2009 economic recovery, rising per capita GDP, and thus increased Malay consumer capacity for common life, non-life and investment-linked protection insurance services. The Malaysian government is working hard to pursue substantial investment programs with the goal of doubling GDP per-capita and turning Malaysia into a high income country by 2020. New parliamentary initiatives such as the New Economic Model (NEM), Economic Transformation Program (ETP) and the Tenth Malaysian Plan will, according to industry observers, eventually contribute to sustained growth in demand for insurance products and services. Demand for adequate protection products is only expected to rise as the market still remains largely untapped with only around 54 percent of the Malaysian population currently holding either a life insurance or family takaful policy.
In conjunction with overall macroeconomic development, more regulatory measures are expected in the near future to update Malaysia’s insurance market to increase professionalism and more closely match international standards. A new tax break and incentive scheme introduced by the Malaysian government for their 2012 budget could work to encourage more citizens to purchase protection products to plan for their future and boost the local insurance industry. The BNM has also recently come out with revised guidelines on motor insurance, aimed at curbing fraud and ensuring consumers understand the appropriate market value of their motor vehicle when applying for coverage. The new rules came into effect on August 1st 2011 and have already worked to address many grievances in the claims heavy motor insurance sector. In addition, Malaysia’s government has committed to the gradual financial liberalization of its Islamic finance sector and plans are also underway to introduce compulsory travel insurance cover for all Malaysians traveling overseas by year’s end.
The most consistent industry growth driver going forward will be the overall changing consumer attitude towards insurance throughout the Asia Pacific region, which have become more readily apparent in the past few years. According to research conducted by ING themselves, 83 percent of all Malaysian consumers believe that there is now a much greater need to insure their family and property now than compared to even 12 months ago. Rising healthcare costs and overall lifestyle expectations has enabled the attitude towards, and awareness of, insurance to change very quickly, and is now seen as an integral savings and investment tool throughout the region’s emerging middle class populace. Overall, the rise in income, healthcare, education and housing opportunities across most of Asia, have given families in the region greater access to a lifestyle they would now like to protect. Multinational insurance powers like ING are taking note of this incredible opportunity.
ING provides banking, investments, life insurance and retirement services and operates in more than 50 countries. It serves more than 85 million private, corporate and institutional customers in Europe, North and Latin America, Asia and Australia.
Bank Negara Malaysia
Bank Negara Malaysia is Malaysia’s central bank, tasked with overseeing the nation’s economic and financial systems.