With soft pricing persisting in many locations around the world and opportunities in mature insurance markets difficult to come by, diversification through acquisition into new sectors or distribution channels is a key driver of transaction activity in Asia Pacific. Increasing levels of GDP and improving insurance penetration rates are delivering premium growth across the region, benefiting both domestic and international insurers, and spurring those hungry for opportunities both from within Asia Pacific and beyond – either to build or strengthen their presence. Although interest in the region remains high, Mr Dean Carrigan and Mr Michael Cripps (Partners, Clyde & Co), Mr Ian Stewart (Partner, Clyde & Co Clasis Singapore) and Mr Vineet Aneja (Partner, Clasis Law) believe that a number of challenges continue to apply a hand brake to M&A activity.
The region’s stand-out performer – Indonesia
Despite uncertainty in Indonesia generated by this year’s general election, the country has remained on the radar of international insurers.
Recent in-bound deals include two from Japan - Dai-ichi Life Insurance agreeing to pay more than US$300 million for a 40% stake in Panin Life and Meiji Yasuda Life Insurance Co acquiring a stake in Avrist Assurance PT - and Spain’s Mapfre S.A. investing in Asuransi Bina Dana Arta Tbk PT.
We expect interest in M&A in Indonesia from outside Asia Pacific to persist. In a region that offers promising growth for the insurance industry, the country is widely held to be a stand-out market.
Markets to watch
Thailand has seen a spate of recent deals including the acquisition by ACE of Siam Commercial Samaggi Insurance PCL.
Investors from within the region have also made moves into the country including Singapore’s Phillip Securities Pte Ltd deal for Finansa Life Assurance Co Ltd and the acquisition of Osotspa Insurance PCL by Malaysia’s Tune Ins Holdings Bhd.
The fundamentals are in place for more M&A in Thailand although investors may inject a note of caution as they keep an eye on political developments following the military coup in the country in May 2014.
After a dip in transaction activity, Vietnam appears to be back on the radars of international players. Three inbound deals during the period saw Australia’s Insurance Australia Group (IAG) increase its stake in AAA Assurance Corporation following an initial acquisition in 2012, Germany’s Ergo Versicherungsgruppe AG make an investment in GIC, and Firstland Co Ltd of Hong Kong buy into Bao Minh Insurance Corporation.
With few untapped [re]insurance markets remaining in Asia, and indeed around the world, recent developments in Myanmar - political reform, the lifting of sanctions and the granting of new insurance licences to private carriers – have sparked fresh interest in the country.
Although in reality, opportunities will be limited in the short term for the international [re]insurance players; those that are looking to capitalise on the opportunity will need to move quickly to avoid being left behind, while being prepared to wait for a return on their investment.
Beyond borders
There have been a number of interesting deals in the last 12 months where emerging market insurers have demonstrated their appetite to look for growth opportunities outside their home markets.
In the biggest transaction of this type, China’s Fosun International Ltd bought an 80% stake in Portugal’s Caixa Geral de Depositos S.A.’s insurance unit for around US$1.4 billion, beating out US buyout firm Apollo Management International LLP.
Anecdotal evidence suggests that Australia may be another market on the radar of Chinese as well as Indian insurers after a number of enquiries about opportunities in the country. In the last 12 months IAG acquired the insurance underwriting businesses of Wesfarmers Limited for US$1.6 billion in a deal which also saw it take control of Wesfarmers’ retail point of sale distribution channel, Coles.
Indeed, access to distribution channels in the Australian market is likely spurring interest from foreign entities and M&A is expected in this space as consolidation takes place between small independent broking groups.
Developments in China
The majority of deals in the last 12 months involving Chinese players have been domestic. This includes the third largest transaction worldwide of the period; the acquisition by Anbang Insurance Group Inc of a US$2 billion stake in China Merchants Bank in a deal that some analysts speculated could be a step towards building a comprehensive financial platform that covers banking, insurance and securities.
In terms of cross-border activity, in early 2014, French insurer AXA acquired a 50% stake in Tianping Auto Insurance Co Ltd for a fee of around US$631 million. This deal follows the opening of China’s third-party motor liability insurance market in 2012, a move that will spur more in-bound transactions.
Indeed, M&A activity is likely to be further heightened by a number of other measures introduced over the last couple of years by the China Insurance Regulatory Commission (CIRC) designed to support the growth of the insurance market and close gaps in coverage.
Perhaps most significant for the future volume of transactions was the rule brought in from 1 June 2014 that allows insurers in China – including Chinese-based foreign insurers and domestic insurers – for the first time to buy shares in more than one company operating in competing lines of business. This brings it in line with other competition laws now in place in the country.
In addition, the way in which capital can be contributed is also changing; under the new rules, companies will be permitted to use external debt to fund acquisitions, up to a limit of 50% of the overall price, subject to approval from the CIRC.
Indian market finally set to open up further
For a number of years India has been in a holding pattern in terms of M&A activity. But there has been a handful of deals in the country recently including a tie-up between the Industrial Investment Trust and Future Generali India Life Insurance – but these have been examples of share warehousing or investing to diversify the Indian holding base rather than “pure” M&A. However, recent regulatory developments indicate that the country could be about to see heightened levels of transaction activity.
Most significantly in this regard, the National Democratic Alliance (NDA) government’s maiden budget was received with interest by insurance players operating joint ventures in India.
In his speech, the Finance Minister acknowledged the fact that the insurance sector in the country has been starved of investment and that several segments of the industry need to grow. To address this, he indicated that the Insurance Laws (Amendment) Bill that has been pending for over five years will finally be considered by parliament.
While the new prime minister continues to have backing for his reform agenda, we might expect further such liberalisation moves, which will bring opportunities for insurance players in the Indian insurance market and serve as a driver for M&A.
Disposals as a transaction driver
We have seen that disposals, driven either by government intervention as a result of distress following the global financial crisis or as a strategic decision to divest non-core assets, have been a feature of transaction activity in some insurance markets in Europe and the Americas and there has been evidence of the same trend in Asia Pacific.
For example, in Hong Kong, an Asian investor group comprising RRJ Capital, Temasek, and SeaTown Holdings International, acquired a US$1.8 billion stake in NN Group NV – the insurance arm of ING – ahead of its subsequent IPO.
ING is continuing to restructure its business as it looks to meet the conditions of its bailout by the Dutch government in 2008.
This could be indicative of an emerging trend. Since the financial crisis, all businesses are operating in a more risk averse world. If more insurers opt to re-focus on their core businesses and put peripheral assets up for sale, the resulting increase in the supply of acquisition targets could drive a rise in M&A Asia Pacific.
This article is an extract of the Asia Pacific overview from the Clyde & Co 2014 Corporate Insurance M&A Activity Report. To view the complete report, please contact daniel.clarke@clydeco.com for
a copy.