Is the Singapore Life M&A a sign of things to come?
Singapore’s insurance sector has seen a bevy of activities on the mergers and acquisitions front, over the past one year. Geopolitical uncertainties in the region continues to fuel strong appetite for acquisition and mergers as firms look to gain a competitive edge over rivals.
Robust growth in Southeast Asia economies has also helped fuel consolidation in the sector as demand for insurance services continues to grow. Insurers are aggressively looking for ways to tap new business lines and distribution channels, in pursuit of new channels for revenue.
Here’s what’s been happening.
Zurich Insurance- Singapore Life Deal
Singapore Life is the latest insurance company to underscore intentions to dominate the life assurance business. The company has acquired Zurich Insurance, life insurance business, made up of policies worth $4.5 billion. With the acquisition, the company is to become responsible for all the life, critical illness and disability policies of Zurich Life Singapore customers in the country.
“Bringing this portfolio of customers into that of Singapore Life’s is exactly in line with our strategy to accelerate quickly in becoming a preferred Singaporean insurance company for our customers’ needs,” said Walter de Oude, CEO of Singapore Life, said.
The two companies have yet to confirm the terms of the deal. However, the transaction should close before the end of the first half of the year. The selloff marks yet another step in the Swiss group overhaul plan as part of a new restructuring plan.
However, the divestiture will not affect Zurich Life Insurance’s other commercial insurance operations in Singapore. The company viewed its life assurance business in Singapore as being too small to justify further investment.
Fairfax Financial- Mitsui Sumitomo Deal
Singapore Life acquisition follows a similar deal involving Fairfax Financial Holdings and Japan Mitsui Sumitomo Insurance.
Reports indicate that Toronto based Fairfax Financial Holdings sold its Singapore Insurer, First Capital Insurance, to Mitsui Sumitomo in a deal believed to be worth US$1.6 billion. The deal was first announced in August of last year.
Under the terms of the deal, Mitsui Sumitomo is to pay 3.3 times book value to acquire First Capital. It is a high premium considering that property and casualty insurance companies listed under Thompson Reuters Classification trade at an average of 1.65 times book value.
The all-cash purchase will result in realized net investment gain of about $9 million after tax for Fairfax. The two companies have also agreed to explore broad global partnership in various sectors including reinsurance business.
First Capital Insurance is Singapore largest property/ Casualty insurer. The firm writes both personal and commercial lines of insurance, touching various classes of property, fire, marine hull, motor and personal accident
The sale came as a surprise given the Fairfax Financial has pursued a number of acquisitions over the past year. For instance, the company completed the acquisition of Allied World Assurance Co. in a deal believed to be worth $4.9 billion
Mitsui Sumitomo Insurance entry into Singapore’s insurance sector does not come as a surprise. The company is in dire need of new opportunities for growth after feeling the effects of an aging population back at home. The deal will help the Japanese insurer operate in all the 10 markets of the Association of Southeast Asian nations.
Consolidation in Singapore’s insurance sector began in 2016 after Hong Kong insurance company FWD Group made a bold move in acquiring a 90% stake in Shenton insurance company. The company is believed to have paid S$28.4 million to acquire stakes in the Singaporean group medical insurance provider.
The acquisition brought to three, the markets that FWD Group currently operates in the region. Singapore insurance sector should be an exciting market for the company given its robustness, high standards, and business-friendly environment.
“Its role as Asean’s preeminent financial services and risk management hub makes it a strategically important market for FWD – aligned to its pan-Asian growth aspirations and providing connectivity to the region,” said FWD Group in a statement.
FWD Group says it will focus its attention, with the acquisition of Shenton Insurance, on the creation of fresh customer experience with easy to understand insurance solutions. It has also reiterated plans to expand its business in the country.
Singapore is not the only country in Asean region that has seen a spike in activities on the M&A front in the insurance sector. Insurance companies in Vietnam, Thailand, and Indonesia have also been busy on the merger and acquisition front.
M&As in Vietnam
In 2016, FWD Life insurance Company acquired Greater Eastern Holdings for US$48.2 million as it sought to venture into Vietnam insurance landscape. According to Great Eastern CEO, Khor Hock Seng, the selloff should allow the company to focus on its core markets of Singapore and Malaysia.
Other notable M&A deals in Vietnam include the acquisition of a 50% stake in VietinBank Aviva Joint venture Company by Aviva Insurance Corporation. The transaction took place in April of 2017 for an undisclosed amount. Samsung Fire & Marine Insurance Company Limited also acquired a 20% stake in Pjico in May for $23.4 million.
In Thailand, Aetna acquired 100% stake in Bupa Thailand for an undisclosed amount as the leading healthcare benefits provider sought to expand its Asian presence. Established 30 years ago, Bupa is as a leading health insurance specialist in the kingdom with more than 300,000, members and a network of 400 healthcare providers.
M&A among Malaysian insurers
In Malaysia, Zurich Insurance acquired a 10% stake in MAA Takaful Berhad for $134 million mid last year as AXA Affin General Insurance Bhd acquired a 7% stake in Felda Marketing services for $24.3 million.
Record deals in 1H2017
The number of deals completed in the first half of 2017 in the ASEAN region was the highest in history. Insurance companies should continue to show strong appetite for acquisitions in 2018 as they seek to diversify their revenue streams.
Consolidation in the sector is expected to gain momentum as emerging markets of Southeast Asia continues to register robust growth resulting in new insurance opportunities. However, tightening regulations and increasing costs of compliance remains the biggest headwinds amidst growing competition in the sector.
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