Developments In Southeast Asian Insurance

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 |  Includes: AAGIY, EU, EWH, HSBC, MFC, PRU, UL
by: Peter Pham

During the last 5 years the South East Asians are increasingly coming to understand the merits of insurance. Thus, multinational insurance companies are now becoming more confident to make huge investments in these emerging SE Asian Markets. For instance, AIA Group (OTCPK:AAGIY) [1299.HK], Manulife (NYSE:MFC) and Prudential PLC (NYSE:PRU) are now competing for mid-size acquisitions in the South East Asian region totaling up to $1 billion. And there are smaller insurance companies that are now starting to do initial bidding on different sectors of the SE Asian insurance market. Let's take a look at the developments in a couple of markets.

Malaysia

AIA Group in December 2012 completed its acquisition of ING Malaysia ING Insurance Asia the third largest insurer in Malaysia with the addition of more than 1.6 million clients and 9,200 new agents to its network in the Southeast Asian nation. The transaction involves the acquisition of the entire issued shares in ING Malaysia by AIA Co., an investment of approximately euro 1.34 billion (US$1.73 billion), which was paid in cash on completion. The acquisition of ING Malaysia represents an attractive opportunity with strategic and financial benefits for AIA Group.

The sale of ING Malaysia came as part of the plan to repay the remaining €3 billion ($3.84 billion) it still owes in state aid. In 2008's economic crises the European Union ((NYSEARCA:EU)) granted ING €10bn euros ($12.7 billion) and a further €5bn in 2009 in state aid. ING said it agreed to sell more than 50 percent of its Asian insurance and investment-management operations by the end of next year and dispose of the rest by the end of 2016. Accordingly, it must divest at least 25 percent of its U.S. arm by the end of 2013, more than half by the end of 2014 and the rest by 2016.

Vietnam

There was a time when Vietnam was one of the new frontiers of insurance in the Asia Pacific, but the sector has moved into a more exciting phase of its development. Foreign insurance companies (particularly in the life segment) are present now and see Vietnam as a natural extension of their regional or global footprints. New products are being developed. Agency networks are being built.

HSBC (HBC), in association with its strategic partners Baoviet Insurance and Bao Viet Life, has unveiled a new banc assurance product enabling HSBC customers to protect their whole family while planning for the future. Family Endowment Universal Life is a groundbreaking policy, which covers three generations of a policyholder's family and offers higher interest rates, superior benefits and greater flexibility than standard insurance products in the market place.

Manulife Vietnam, one of the top-three life insurers in Vietnam, officially launched two new universal life ((NYSE:UL)) products named "Manulife - My Dream," designed for younger customers, and "Manulife - My Love" for people age 40 and above. "Manulife - My Dream,",is targeted to younger customers while "Manulife - My Love" is designed to appeal to middle-aged people. With Vietnam's demographics heavily weighted under 35 the former product is an extremely important one to Manulife's strategy.

In addition, Manulife Vietnam's agency force development continued in the third quarter, with around 3,500 new hires. Selecting new agents carefully and providing them with professional training remains a key focus of the company's development strategy. Manulife Vietnam had a network of over 11,200 professionally qualified agents at the end of the third quarter. Trained staff is one of the real challenges to business growth here in Vietnam.

Vietnam is one of the fastest growing insurance markets in the world. It has seen double-digit growth for the past few years and it is expected to witness the same growth trend in the coming years also. Thus, Vietnam's insurance market is expected to grow at a CAGR of 22% during 2011-2014. Insurance premiums this year totaled VND40.858 trillion (US$1.946 billion), representing an increase of 11.7 per cent over 2011.

AIA's acquisition is a very strong move; it has significant representation in the iShares MSCI Hong Kong Index ETF (AMEX:EWH) at 11.6% of AUM. Manulife's willingness to build an insurance infrastructure in Vietnam will pay handsomely in the coming years as the country continues to right itself after the last credit bubble.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.