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Dec
22
The Insurance Industry: Mergers and Acquisitions 2010
Posted on Dec 22, 2010 by Sergio Ulloa (G+)
A number of Mergers and Acquisitions (M&As) between insurance companies have been implemented during 2010 in a bid to strengthen business activities in both mature and emerging markets. These developments have taken place as insurers strive to capture an increase in profitable markets and penetrate new markets to capitalize on shifting global demands. The M&As implemented are planned to facilitate improvements in the quality and range of services which can be provided to clients, together with uplifting profit margins and share values for companies as rationalization processes are implemented. An appetite for mergers and acquisitions within the global insurance industry has been re-activated in the last 18 months. These activities have occurred in the wake of the global financial crisis - which started in 2007/2008; the financial crisis originating in the USA with a knock-on impact worldwide. With the economies in the western hemisphere still feeling the effect of financial instability into late 2010, growth has been focused on Asia, Latin American and the Middle East as these regions have emerged more quickly out of recession than the established markets in North America and Western Europe. Asia - particularly China and India - has become pivotal for the insurance industry offsetting lacklustre returns from established markets. While the USA and Western European countries are suffering from the impact of austerity measures, the major reforms of state provided healthcare services proposed in these major nations could be beneficial for private sector insurers. There is an expectation that populations may switch to private insurance in bigger numbers as standards and waiting times worsen in public sector provision. The out-sourcing of state funded medical treatments and procedures to private facilities with spare capacity may also be adopted as a more cost effective process in countries such as the United Kingdom. Additionally opportunities for private insurers in western hemisphere countries could emerge from an attempt to rectify a estimated shortfall amounting to trillions of dollars in the pension and savings sectors in these nations; this deficit has been building up over many years and will need to be satisfied. In the emerging markets of Asia and Latin America, the increasing wealth of the large populations has resulted in a demand for a broad range of insurance products. Insurance companies are poised to penetrate the market for micro-insurance, which is estimated to be worth some US$ 40 billion (£26 billion:€30 billion) of new premium business. A report issued by Swiss Reinsurance in December 2010 highlighted the potential demand for microinsurance primarily for low income populations in Asia, Latin America and Africa countries; the fledgling market being assessed at 4 billion policies covering a diverse range of products - 2.6 billion for people living on US$1.25 to US$4 a day plus the capability of a further 1.4 billion policies with the help of financial support from governments and international aid agencies. Another niche market ready for expansion covers the development of takaful insurance primarily to populations in Islamic countries. This is based on the issue of mutually beneficial protection policies distinctly geared to markets in Middle Eastern and Asian countries. Recent mergers and acquisitions in the insurance industry indicate that the combination of multi-national and local insurers is well placed to take advantage of these opportunities: * Resolution Ltd is set to acquire Bupa's Health Assurance business in a US$164 million (£102 million:€ 122 million) deal. As part of Resolution Ltd's strategy to build a substantial share of the UK life insurance market, the company has reached an agreement with Bupa to acquire its life, income and critical illness insurance business. This enhances the previous acquisitions by the Clive Cowdrey formed company - Resolution Ltd - and follows the purchase of Friends Provident in 2009 for US$3.04 billion (£1.9 billion:€ 2.28 billion), and the US$4.4 billion (£2.75 billion:€ 3.3 billion) acquisition of AXA's UK life assurance and savings arm earlier this year. * UK based multinational insurance company Aviva plc has recently entered into an agreement with PT Asuransi Wahana Tata to purchase a 60% share of PT Asuransi Winterthur Life Indonesia (WLI). This is the first time Aviva has entered the Indonesian insurance market. Once the deal is finalized and Indonesian regulatory approval is given for the venture, Winterthur Life will be renamed PT Asuransi Aviva Indonesia. Aviva also operates in China, Hong Kong, India, Korea, Sri Lanka, Singapore, Taiwan, Malaysia and Australia.PT Asuransi Winterthur Life Indonesia is one of Indonesia's top three health insurance providers and holds gross assets of approximately US$22.7 million (£14.5 million:€17.2 million), managing pension funds valued at US$63 million (£40 million:€48 million). * The second largest insurance company in China, the Ping An Insurance Group Company (PAIGC) has joined with equity investment firm Newbridge Asia exchanging shares held by PAIGC with those held by Newbridge in the Shenzhen Development Bank. * The inauguration of MaxBupa in February 2010 covered the joint venture between local Indian insurer Max India and global insurer and major healthcare provider Bupa, with an initial network of offices in six major metropolitan areas - Delhi, Mumbai, Bangalore, Hyderabad, Pune and Chennai. * China Everbright formed a joint venture with Canadian owned Sun Life in 2002 resulting in a new company - Sun Life Everbright. The partnership generated 18 offices within China. A restructuring of Sun Life Everbright was approved in 2010 enabling additional investors to buy shares in the joint venture, which will ultimately turn the company into a wholly owned Chinese entity, although Canadian based Sun Life will continue to provide management and actuarial services. * BNP Paribas entered into a joint venture with the Taiwan Cooperative Bank in April 2010 - split 49%, 51% respectively - in order to sell a diverse selection of life insurance products. The joint venture, named BNP Paribas Assurance TCB Life Insurance Co, uses the bank's 300 outlets to distribute policies to clients in the difficult Taiwanese insurance market. * In Malayasia, the Singapore listed company Great Eastern Holdings has acquired the Tahan Insurance Company in a transaction amounting to US$ 4.7 million (£3.3 million: €3.5 million); the takeover being completed by Great Eastern Holdings wholly owned Malaysia insurance company, Overseas Assurance Corporation Malaysia (OACM). * The Danish Investment Bank FIH Erhvervsbank (FIH) has been taken-over by a consortium involving Danish based pension company ATP, PFA Pension, CPDyvig and Swedish insurer Folksam; the deal worth US$879 million (£567 million: €670 million) relieving FIH of liabilities incurred by its previous takeover of failed Icelandic bank Kaupthing. * London based insurance company, Brit Insurance, is recommending acceptance of an offer by private equity groups Apollo Global Management and CVC Capital Partners Ltd, which would conclude an acquisition proposal under discussion since June this year. Brit Insurance - which specializes in the major insurance and reinsurance business - has decided to recommend to its shareholders acceptance of an approach by Apollo Management and CVC Capital Partners. The bid is valued at US$1.3 billion (£850 million:€900 million), with the potential for a further 2.3% increase in value if certain targets are achieved. *.Prudential Financial Incorporated, one of American's largest life insurance company, raised US$2 billion (£1.3 billion:€1.45 billion.) through the sale of over 18.3 million shares of Prudential Financial common stock, together with public offering of senior notes to help fund the purchase of AIG Star Life Insurance Co and AIG Edison Life Insurance Co from its American rival AIG. The acquisition of the two Japan-based insurers increased Prudential Financial reach across the world's third largest economy. * The German based major insurer Allianz took control of Allianz Seguros its Brazilian subsidiary in January 2010, when it purchased the remaining 14 percent of the company from Ita'u Unibanco. The acquisition will provide Allianz with access to gross written premiums of approximately US$905 million ((£584 million:€689 million) per year primarily in the Brazilian property and casualty insurance markets. *The private equity fund manager Horizon Capital has agreed the purchase of Fortis Life Insurance Ukraine, with Belgian based Ageas Insurance International. The transaction fits with Ageas continuing their portfolio restructuring and follows the sale of their Turkish life & pensions business to the insurance unit of France's BNP Paribas in June 2010. *The Industrial and Commercial Bank of China (ICBC) has agreed to buy a major stake in the French-Chinese joint venture AXA-Minmetals Assurance Company. The move by the Chinese Bank ICBC will make them the majority shareholder and add to its non-banking revenue stream. The initiative by ICBC to acquire the 60 percent share in AXA-Minmetals Assurance comes as the Chinese bank announced that it gained a 27 percent increase in profits during the third-quarter of 2010 with net income of US$ 6.4 billion (£4.1 billion:€4.8 billion) up from US$ 5.05 billion (£5.9 billion:€3.8 billion) in the previous year. *Zurich Insurance Co. Ltd., a subsidiary of Zurich Financial Services AG, the Swiss insurer, announced the acquisition of Compagnie Libanaise D'Assurances (CLA), a privately-owned Lebanese insurance company founded in 1951, with branches in the United Arab Emirates, Kuwait and Oman. The Zurich Financial Services Group also announced that it has entered into an agreement with its Spanish partners Unnim to sell them its 50 percent stake in their Spanish joint venture life and general insurance operation. Zurich's decision to sell its equal stake in the Spanish insurance venture follows the merger between Caixa Sabadell, Caixa Terrassa and Caixa Manlieu in July 2010 to form Caixa d'Estalvis Unió de Caixes de Manlleu, Sabadell i Terrassa - also known as Unnim. The financial industry is predicting a growth in business mergers and acquisitions during 2011 as companies emerge from the 2007 - 2008 global financial tsunami, with cash reserves available for new transactions. The insurance industry is expected to continue to be involved in these initiatives. Companies Mentioned: Aviva
Europe's fourth largest insurance company, with more than 300 years of experience in the global insurance industry, Aviva is committed to the safety and satisfaction of its customers. They sell a broad range of insurance products including motor and property insurance, protection and health insurance, business insurance, life insurance and pensions.
Bupa
Bupa was established more than 60 years ago in the UK and is now has ten million customers in over 190 countries, and over 52,000 employees around the world. Bupa is a leading multinational healthcare insurance company, offering personal and corporate health insurance, workplace health services and health assessments. 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.
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
AIG
The American International Group is a leading multinational insurance company with operations in more than 130 countries and jurisdictions globally.
Zurich
Headquartered in Zurich, Switzerland, Zurich Financial Services Group is an insurance-based financial services provider with a network of subsidiaries andoffices 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.
ICBC
By the end of 2008, ICBC had altogether 385,609 employees and 16,386 domestic and overseas branches, providing extensive and high-quality financial products and services to 190 million personal clients and 3.1 million corporate clients.
Ageas
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.
Swiss Re
Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life, health and special lines - such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.