Posted on Apr 18, 2012 by Sergio Ulloa
Insurance Australia Group (IAG) has taken another step towards increasing its pan-Asian footprint, with the announcement of a planned acquisition of shares in Vietnam's fifth largest motor insurance company this week.
In a statement
released to the Australian stock exchange on Tuesday, the Sydney-based insurance giant confirmed that it had entered into a conditional agreement to acquire a 30 percent stake in AAA Assurance Corporation (AAA). According to IAG, the stake is valued at less than AUD 20 million (US$20.7 million), and comes with the added option to increase its shareholding in the Ho Chi Minh City-based insurer to 49 percent at a later date. As per the terms of the deal, IAG will also be given board representation, the right to appoint certain key personnel, and confirmatory voting rights over important business matters. The Vietnamese investment remains subject to regulatory approval and is expected to be completed by June 2012.
AAA is a general insurance company that focuses primarily on selling motor protection products directly to clients through a comprehensive distribution network, which comprises several regional and city-based branches across Vietnam. In its press release, IAG claimed that AAA has become one of the country's most successful insurance brands through strong underwriting control, risk management and customer service since its establishment in 2005, and now ranks as the fifth largest motor and eighth largest general insurer in Vietnam by market value.
IAG's Managing Director and CEO, Mike Wilkins, heralded the acquisition as a strategic investment that would give the company valuable exposure to Vietnam's rapidly developing insurance sector through an already well established market participant in AAA. Vietnam's burgeoning economy, with an emerging middle class more aware of insurance services, has already had a profound effect on the non-life insurance sector in particular. As per capita wealth increases, more people move from owning bicycles up to mopeds and then to cars. Similar to other Southeast Asian insurance markets, compulsory motor third-party liability coverage laws have also been a critical growth component to the overall insurance market
. Motor insurance represents the largest segment of Vietnam's non-life sector, accounting for almost a third of the country's total direct written premiums as of 2010.
According to IAG, the Vietnamese general insurance market has been expanding by a compound annual growth rate (CAGR) of 25 percent since 2009, and with coverage rates still low and economic indicators largely positive, the market is forecast to continue developing at similar levels for another three to five years. There are currently 29 insurance companies operating in Vietnam's non-life market, with more expected to follow due to this potential for growth. The intense competition has however made profitable underwriting difficult to achieve in the current environment, especially in personal and small commercial lines. As the market has opened up, the 4 big, partially state-owned non-life insurers have been losing market share to smaller largely-foreign competitors who have implemented aggressive growth strategies at the expense of cost-effective underwriting. While local insurers have controlled the market in personal lines, most lack the sufficient capacity and expertise to establish a presence in commercial lines. Foreign firms, like IAG, will be better placed to provide both personal and commercial non-life insurance in Vietnam going forward.
IAG's deal in Vietnam is part of the insurer's regional development strategy. According to CEO Mike Wilkins, IAG wants to increase its existing footprint in Asia until it accounts for at least 10 percent of the company's gross written premiums on a proportional basis by 2016, compared with approximately 3 percent as of last year. IAG has targeted six markets in the region for further merger and acquisition opportunities to attain this objective: India, China, Malaysia and Thailand, where they already have a presence, and Vietnam and Indonesia, where they would now like to.
The acquisition of a 30 percent stake in AAA follows last week's announcement that IAG's 49 percent owned Malaysian associate, AmG Insurance, could now finalize a deal to purchase smaller rival Kurnia Insurans Berhard, after receiving the appropriate regulatory approval from governmental authorities. The deal, priced at MYR1.55 billion (US$510 million), will see AmG become the largest general and motor insurer in Malaysia. The Australian insurer also recently completed an AUD228 million (US$235 million) buyout of New Zealand's AMI and confirmed a 20 percent stake in Chinese insurer Bohai Property Insurance
for US$100 million, its first foray into the world's second largest economy. In his closing remarks, Justin Breheny, IAG's Chief Executive Officer for Asia, explained that the Australian insurer's move into Vietnam would look to build upon the strong growth momentum now being generated across the Asia Pacific region. "In line with our strategy, IAG would bring to this partnership proven capabilities in the areas of underwriting, pricing and actuarial, and risk and claims management, enabling AAA to expand its operations and become a more significant player in this exciting market," Mr Breheny said, adding that "we have a successful track record with other partners in the Asian region and we look forward to working with AAA as we continue to grow this successful general insurance business together."
Insurance Companies Mentioned
AAA Assurance Corporation
Established in Ho Chi Minh City in 2005, AAA Assurance Corporation (AAA) is a privately owned Vietnamese insurance company with over 700 employees nationwide. AAA focuses primarily on motor insurance and distributes its products via a national network of over 100 branches including transaction centers, and 5,000 insurance agents nationwide.
Insurance Australia Group
Insurance Australia Group Limited (IAG) is the parent company of an international general insurance group, with operations in Australia, New Zealand, the United Kingdom and Asia. Its current businesses underwrite over $8 billion of premium per annum, selling insurance under several different brands, including NRMA Insurance, CGU, SGIC, SGIO and Swann Insurance.