English
May
25
Insurance companies continue to struggle under European debt crisis
Posted on May 25, 2012 by Sergio Ulloa (G+)
As the European debt crisis continues to take its toll on affected countries, numerous companies are revamping their businesses strategies to keep their heads above the waves. Britain's second-biggest insurer, Aviva, has increasingly felt the impact of Europe's unstable economy and recently came under fire when its large exposure to the eurozone crisis contributed to a drop of 38 percent in share prices. Aviva previously announced it would be reconsidering its investments in 45 businesses and cutting ties where they no longer predict sufficient growth. Insurance companies holding stronger positions in the market, such as AIA and Prudential, are looking towards expanding in Asia to overcome Eurozone difficulties. However, due to recent incidents, Aviva needs to improve its shareholder value as quickly as possible and therefore seeks to exit non-core operations and focus on their home markets. Aviva first teamed up with Malaysian CIMB in 2007 when it paid USD $119.4 million for a 49 percent stake in two of the company's units. Sources with knowledge say the group is now in the process of exiting this joint venture and has hired Morgan Stanley to oversee the sales process. In Sri Lanka, the acquisition of Eagle Insurance in 2010 resulted in the formation of Aviva NDB. Based on recent figures, the company has a market value of 36 percent which would value Aviva's 51 percent stake at USD $18 million to prospective buyers. Sources predict AIA group, Manulife Financial and Prudential will be among potential bidders. Aviva entered South Korean markets in 2008 when the company teamed up with Woori Financial and purchased LIG Insurance for USD $115.3 million. It has now been speculated that the two partners have informally discussed exploring the sale of Aviva's 41 percent stake in LIG; but Woori declined further comment. Other European financial institutions appear to be taking similar measures to secure their base markets with Royal Bank of Scotland selling a share in its investment banking operations to CIMB and ING Group N.V beginning the process of selling its Asian Life Insurance and asset management business. While some companies are exiting Asian markets, others are re-considering their investments in Europe. Insurance Australia Group feels that with the current UK economic conditions, now is a suitable time to reassess their UK business investments and strategies. IAG CEO, Mr. Mike Wilkins, aims to prioritise returning the groups UK businesses to profitability. Positive progress has taken place so far this year so IAG is now discussing the most efficient way to maximize shareholder value given the UK's current economic climate. With equities in Red Star, the UK's fifth largest motor insurer, one option for IAG is to refine their business strategy so as to solely focus on motor insurance. IAG also discussed continuing to improve the group's performance within their current operating model or explore what options are available for a sale in part of or all of their UK business investments. Continued instability within the European business climate will undoubtedly lead to additional companies undergoing strategic reviews such as these and as a result, interesting but unpredictable developments are sure to be in store for international insurance companies.