Posted on Jun 20, 2012 by Sergio Ulloa
As part of a general wave of European institutions putting their Asian operations up for sale, five insurance firms have expressed an interest in purchasing British Firm, Aviva's, 49 percent stake in its joint venture with Malay bank, CIMB. These sales come on the back of an increasingly unstable European economy which has affected both Aviva and Dutch company, ING, also currently looking to sell their Asian insurance business.
While some European companies are leaving APAC, the increasing number of potentially attractive acquisitions in Southeast Asia has paved the way for a number of large global insurance firms, including AXA and Manulife, to increase their exposure in the region's relatively small but rapidly growing life insurance market.
According to Norton Rose, a law firm that specializes in insurance, Southeast Asia holds less than 0.25 percent of the world's insurance market share. However, this year alone life insurance premiums are expected to grow by 9.6 percent, 5.9 percent greater than the world's average. These positive predictions follow the Southeast Asian life insurance market growing 15.4 percent in the last ten years, a lot more than the 5.7 percent growth seen worldwide.
Aviva's imminent exit comes only five years after the firm entered the Malaysian insurance market in June 2007. According to CIMB, the Malay bank that it entered into a joint venture with, Aviva paid 500 million ringgit ($164 million) to purchase the 49 percent stake that it is now looking to sell. Their decision to sell their Malaysian venture is part of larger plans to sell their underperforming businesses globally, including those in Sri Lanka and South Korea in an attempt to raise money to protect it against Euro Zone exposure.
Aviva has had problems with their insurance products in Asia, specifically their range of Global Lifecare plans which the company has since canceled
Sources have indicated that the sale of Aviva's stake could result in a new bancassurance (BIM) deal between CIMB and any potential buyer, who will also control the future of the venture. Furthermore, depending on the nature of the sale, competition between foreign and domestic companies could increase in the Malaysian life insurance market currently dominated by local life insurance company, Great Eastern Life.
According to sources with knowledge of the Aviva-CIMB auction being handled by Morgan Stanley, the five interested parties, AXA, AIA, Prudential, Manulife and Sun Life have all submitted non-binding bids that will be considered by Aviva and CIMB in "a week or so". Of the five, Prudential boasts the strongest presence in Southeast Asia as it is currently an industry leader in Indonesia with 1.4 million policy holders.
Low life insurance penetration rates throughout Southeast Asia have been identified as one of the reasons for the huge amount of interest in securing slices of market share. In Indonesia for example, where Swiss, Japanese and Korean insurers have expressed an interest in investing in its insurance market, the life insurance penetration rate is a mere 1.3 percent. The attractive nature of the Southeast Asian markets has also been compounded by the relatively easy foreign ownership regulations. In Malaysia, foreign owners are allowed to buy up 70 percent of a domestic insurer, while in Indonesia they're allowed to purchase 80 percent.
Insurance Companies Mentioned:
British firm Aviva is the sixth largest insurance firm in the world. Based in London, it has approximately 43 million customers in 21 countries. In the United Kingdom, Aviva leads the market in general, life and pension insurance in the UK.
Formed in 1991 Dutch institution ING is a group that specializes in a number of financial services including insurance. It currently has a presence in more than 45 countries with a client base of 85 million individuals.
AXA is a French insurance firm based in Paris, France. Ranking in as the ninth largest company in the world, AXA specializes in life, health and other forms of insurance.