Posted on May 06, 2011 by Sergio Ulloa
In the aftermath of the unprecedented natural disasters that have afflicted the Asia Pacific region, many multinational insurance companies have filed poor quarterly results for the start of the year.
However, other factors such as regulatory gridlock and increased competition have also have an effect on certain firms.
In the first quarter of 2011, Sun Life Financial Inc, Canada's third largest insurer, reported that life insurance sales had fallen by 25 percent overall in its key Asian growth markets. These figures are largely accounted for by declining sales of policies in India, where recent regulatory changes regarding premium rates and foreign equity ownership are putting pressure on multinational insurance companies.
India currently limits the amount of foreign direct investment in its captive insurance industry at 26 percent, which should be rising to 49 percent soon, pending legislation.
Sun Life operates in the country through a joint-venture called Birla Sun Life, currently one of India's top five privately-owned insurers. Birla Sun Life offers life, heath, education, retirement, savings and mutual fund products.
Speaking to industry analysts about their first quarter results, Sun Life CEO Donald Stewart confirmed that performance in India had dropped. "Sales in India of US$105 million were down 33 per cent from the first quarter of 2010," he announced.
In spite of flagging sales in India, Mr. Stewart was quick to note that Sunlife's operations in the country were improving incrementally along with other Indian life insurance companies as they deal with a shifting regulatory environment. "The sales figures represent a 46 per cent increase over the sales reported in Q4 2010, as the entire life industry continues to adjust to the far-reaching September 2010 regulatory changes."
Then Indian government has been active in limiting how much private companies can charge consumers for life insurance in the country. The federal changes to the insurance industry in India have been affecting an array of global insurance companies hoping to sell coverage and investment products to the country's rapidly expanding middle class.
In the face of these regulatory hurdles Sunlife will persist in South Asia. The insurance industry has remained one of India's fastest growing business sectors. As the country's economy continues to grow, a greater percentage of the population will be able to afford to buy insurance for health and property. Sunlife sees significant opportunities in populous emerging markets like China and India where insurance penetration is currently very low and the middle class is projected to continue rapidly expanding.
Strong insurance sales elsewhere in Asia should help to offset some of Sunlife's losses from India in the meantime. First-quarter earnings for Sunlife's Asia business segment (SLF Asia) had risen significantly to US$44 million compared with the US$4 million earned in the first quarter of 2010. Business through joint-venture operations in Indonesia and the Philippines had notably grown by 39 percent and 12 percent, respectively.
Sunlife Financial has spent 2011 continuing to build its multi-national operations through joint ventures with local operators in Asia, rather than complete acquisitions, to gain further presence in the emerging markets currently offering insurers better scope for improving premium returns.
Last year the company's 20 percent-owned Sun Life Everbright joint venture became the first foreign joint venture operation to be recognized as a domestic Chinese company by the China Insurance Regulatory Commission (CIRC).
Mr. Stewart explained how Sunlife would further focus its expansion efforts: "I generally don't comment too much on geography, because sometimes deals show up in unexpected places, but I would say that Latin America is not a probable arena of future expansion. We continue to see opportunities in different places in Asia of varying sizes. There will continue to be opportunities in Asia."
Sun Life's operations currently cover more than a dozen countries, including Canada, United States, China, India, and Japan and Mr. Stewart maintained that would probably remain the case.
In February, the company signed a deal to acquire a 49 percent stake of Filipino insurance business Grepalife Financial Inc., a unit of the Yuchengco Group,
for an undisclosed amount, expanding Sunlife distribution network in the Philippines. The deal will rebrand Grepalife into Sun Life Grepa Financial as soon as local regulatory approval has been settled.
Earlier in the year, Sunlife also opened a representative office in Dubai, where it will continue to market its products towards the Middle East and Africa regions.
One lucrative market Sunlife Financial has yet to develop is the sale of Islamic-compliant insurance, or Takaful, products. The takaful insurance market has become an important market for multinational insurance companies searching for new sectors and continued opportunities for growth. While the outlook in more established international markets remains quite static, demand for takaful insurance products, targeted towards Muslim populations prominent in Middle-East, North Africa and South Asia, has grown significantly, particularly in Indonesia, Qatar, Saudi Arabia, the UAE and Malaysia. The worldwide takaful insurance market is projected to grow by 31 Percent in 2011.
Malaysia Islamic insurance company Syarikat Takaful Malaysia Bhd recently announced they would be looking to grow their customer base of one million clients by 25 percent by the end of this year. Group Managing Director Datuk Hassan Kamil, explained Takaful Malaysia would achieve this goal through increasing the provider network and the introduction of new updated products. "This will increase our distribution channels and help to grow our company's business," he explained to journalists at the company's annual general meeting.
When asked whether Takaful Malaysia would seek to form an international joint-venture partnership to achieve their growth targest, Mr. Hassan commented that the company would only be involved in selective discussion for any potential partnership at this juncture.
"We would have to look at what value-add in terms of technical expertise and business know-how the potential partner could bring to the company to improve its operations," he responded.
Malaysia's government has committed to the gradual financial liberalization of its Islamic finance sector.
Multinational insurance powers like Sunlife should take note of this opportunity.
Insurance Companies Mentioned
Sun Life Financial
Sun Life Financial is an international financial services organization providing a range of protection and wealth accumulation products and services to individuals and corporate customers.
Sun Life Everbright Life Insurance Co. Ltd
Sun Life Everbright Life Insurance was established in April 2002. It's shareholders include China Everbright Group, Canada's Sun Life Financial Group, China North Industries Group Corporation and Anshan Iron and Steel Groups, based in Tianjin
Birla Sun Life
Birla Sun Life Insurance Birla Sun Life is a joint venture established in 1999 between Sun Life and Indian based Aditya V. Birla Group. Today, Birla Sun Life Insurance is one of the top 5 privately owned life insurers in India, and Birla Sun Life Mutual Fund is the fifth largest Mutual Fund House in the country.
Syarikat Takaful Malaysia Berhad
Syarikat Takaful Malaysia is a Malaysia-based family and general takaful insurance company. The Company operates out of Malaysia and Indonesia. Takaful Malaysia's subsidiaries include Asean Retakaful International, Syarikat Takaful Indonesia, and P.T. Asuransi Takaful Keluarga.