Posted on Oct 22, 2010 by Sergio Ulloa
MassMutual has announced the intention to dispose of their 39 percent stake in joint venture company MassMutual Mercuries Life, which, if successful, will mean the exit of another global insurer from the Taiwanese insurance industry. MassMutual will follow in the foot-steps of other global insures in exiting a life market which is projected to remain volatile in the foreseeable future.
MassMutual has joined AIG and MetLife in attempting to exit the Taiwanese life insurance market, as business is adversely affected by poor financial returns and inadequate prospects. This strategy being partly due to historical policies negotiated at base interest rates which are no longer sustainable.
Compared to the insurance market in neighboring China - which has seen a significant increase in foreign investment in the insurance sector - the Taiwanese counterpart business is not seen as an attractive financial proposition. AIG, Metlife and MassMutal have all put their Taiwanese life insurance businesses up-for-sale in a move to exit a market which has been stagnant in recent years.
Current investors are deterred by a life market which has been struggling to achieve a reasonable financial return in recent years and which has a forecast of low returns in the future. This is combined with the stringent approach adopted by the insurance sector regulators - the Financial Supervisory Commission (FSC).
A forecast by rating agency Standard & Poor (S&P) in 2010 highlighted the difficult trading environment for the life insurance market in Taiwan and the challenging times ahead. The life-insurance market in Taiwan has remained sluggish and turbulent since the recent economic crisis and is inhibited by historic business secured at rates which are no longer profitable. While regional peers Thailand
and Japan have seen profits and business growth return, the Taiwanese industry has been slow to recover from the 2007 - 2009 global economic downturn prompting some of the major life-insurers to re-evaluate their continued presence in the country.
An estimated total net worth of US$ 2.5 billion of Taiwanese based insurance assets are up-for-sale. The factors deterring current international insurers based in Taiwan is the lack of future growth opportunities, market volatility and strict accounting policies. Intervention by the Financial Supervisory Commission (FSC) - the Taiwanese regulators - has resulted in the potential sale of two life insurance business divestments - by Metlife and AIG
- being blocked.
The sale of Metlife's Taiwanese arm for US$116 million was blocked by the Taiwanese regulator. Waterland Financial placed a bid for this business in April 2010, which was subsequently blocked by the FSC in October 2010 on the grounds of disagreements among Waterland Financial shareholders and debt repayments plans.
The decision by the FSC to block the sale of the US-based MetLife business followed an earlier announcement that the America International Group (AIG) planned US$2.2 billion sale of its Taiwanese Nan Shan unit had been rejected by the regulators. Primus Financial Holdings Ltd saw their bid blocked for Nan Shan by the FSC on the grounds that it contravened Taiwan's investment policies.
Following MetLife and AIG's recent attempts to exit the Taiwanese insurance market, MassMutual is the latest global insurer to take steps to leave the life insurance sector in Taiwan. The US insurer has placed its 39 percent holding in joint venture MassMutual Mercuries Life for sale for an estimated US$97 million.
The trend for foreign insurers to withdraw from the insurance market in Taiwan in recent times is further reflected in global insurance players - Prudential, Aegon and the ING Group's have all retreated from this market, which has experienced low growth in recent years. Nevertheless, insurer ACE Ltd has not been deterred by fellow counter-parts as they are in talks with New York Life to buy their Taiwanese branch.
Since the 2007 global financial crises took effect, international insurers have been evaluating business operations and repositioning activities worldwide to take advantage of developing and emerging growth markets and exiting sectors of business failing to deliver acceptable financial returns. These factors, combined with the Taiwanese authorities' adoption of stricter accounting processes in the regulation of financial services in the country, have lead to actions by a number of the major players to seek withdrawal from the Taiwanese life insurance sector.
While global insurers are intent on exiting the Taiwanese insurance market - which is estimated to be worth US$52 billion and is the fourth largest in Asia - neighboring China and other emerging Asian markets have seen an increase in business activity in recent times benefiting from being able to initiate new business in line with current interest rates and projected growth predictions.
Insurance Companies Mentioned:
MassMutual Financial Group was established in 1895. MassMutual is a leading mutual life insurance company that is run for the benefit of its members and participating policyholders. Products include life , disability income, long term care and retirement insurance.
The American International Group is a leading international insurance organization with operations in more than 130 countries and jurisdictions globally.
Prudential 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, supported by 27,000 employees worldwide.
Nan Shan Life
Nan Shan Life Insurance Company, Ltd. was established in July 1963. After its restructuring in January 1970, Mr. K.K. Tse, the then Chairman of American International Underwriters, became the first Chairman of the company. In forty years, Nan Shan has become a super insurance company with the most professional management, the best operational performance, and a solid financial foundation. Its agency force has been recognized as the best in Taiwan's life insurance industry.
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.
The ACE Group is one of the world's largest providers of commercial property and casualty insurance. With its core operating insurance companies rated A+ for financial strength by Standard & Poor's and A.M. Best, and with nearly US$78 billion in assets and more than US$19 billion of gross written premiums in 2009, the ACE Group is distinguished by its underwriting expertise, superior claims handling and global franchise, and has a physical presence in 53 countries and commercial and individual customers in more than 170 countries.
Ageas is an international insurance company with a heritage spanning more than 180 years. Ranked among the top 20 insurance companies in Europe, Ageas has chosen to concentrate its business activities in Europe and Asia, which together make up the largest share of the global insurance market. They are grouped around four segments: Belgium, United Kingdom, Continental Europe and Asia. It is an undisputed leader in the Belgian market for individual life and employee benefits, as well as a leading non-life player, through AG Insurance. Internationally Ageas has a strong presence in the UK, where it is the third largest player in private car insurance. The company also has subsidiaries in France, Germany, Turkey, Ukraine and Hong Kong. Ageas has a track record in developing partnerships with strong financial institutions and key distributors in different markets around the world and successfully operates partnerships in Luxembourg, Italy, Portugal, China, Malaysia, India and Thailand.
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.
MassMutual Mercuries Life Insurance
MassMutual Financial Group entered the Taiwan market as an equal partner with Mercuries & Associates Ltd to from MassMutual Mercuries Life Insurance. In 2002, the company accumulated NT $ 64 billion in assets and made a post-tax profit of as much as NT $ 1.04 billion.