M&A is the best policy for Hong Kong life insurers

[HONG KONG] Insurance M&A (merger and acquisition) in Hong Kong has sprung to life. Axa and MassMutual have already sold life-insurance units in the city. MetLife could be next, says Bloomberg. Stiff competition and a wash of buyers hint at more mergers and acquisitions to come.

For sellers, there are several motivations. Hong Kong is a crowded market and is dominated by AIA, China Life and Prudential, which together raked in over half of the HK$436 billion (S$33.3 billion) in premiums from firms and individuals in 2016, according to the local insurance watchdog. Growth prospects are limited. And the territory's appeal as a springboard into mainland China is waning, as foreign players will soon be allowed full ownership of Chinese businesses.

Conversely, there are attractions for buyers from China. Getting licensed in China is difficult, particularly for upstarts such as technology companies. A Hong Kong licence is the next best thing, especially combined with a Chinese brand. That way firms can sell products to mainland buyers. Beijing has cracked down on these purchases to stem capital outflows, but many reckon those curbs will ease.

Insurers grappling with bigger issues elsewhere could cash out, such as Italy's Generali, which is exiting several markets. Alternatively, firms could sell a stake to a useful partner, as British insurer Aviva did with Internet giant Tencent last year. That model could suit Switzerland's Zurich, for example, which wants to sell more online.

With limited public financials, it is hard to tell how much these businesses would fetch, but they could run into the hundreds of millions of US dollars. Bloomberg says the Metlife unit might go for US$600 million or more. Axa's deal was worth HK$2.2 billion, or 1.4 times embedded value, a key yardstick for insurance businesses.

Purchasers will be taking a calculated risk. If Beijing makes it even harder for mainland Chinese people to buy policies offshore, or bans certain products, that could torpedo a large chunk of the market. Mainlanders bought 35 per cent of the HK$116 billion of policies sold in the first nine months of 2017, official statistics show. For foreigners struggling to see a future in Hong Kong, now could be a good time to sell.

MetLife is looking to sell its Hong Kong insurance unit, Bloomberg reported on Jan 22, citing people with knowledge of the matter.

The sale could raise more than US$600 million, the report said. The New York-based firm is preparing to send information to prospective buyers in the next couple of weeks, it added.

In December, France's Axa agreed to sell Axa Wealth Management (HK), which sells life insurance under the Swiss Privilege brand, to local investment-holding firm Jeneration for HK$2.2 billion.

In August, a consortium led by Yunfeng Financial, a firm backed by Alibaba founder Jack Ma, agreed to buy US insurer Massachusetts Mutual Life Insurance's Hong Kong operations for US$1.7 billion.

A spokesman for Generali declined to comment on whether the firm could sell its Hong Kong business, but said it was exiting some markets to concentrate on those with more growth potential. A spokesman for Zurich said it had no plans to exit Hong Kong, which houses its regional headquarters, and was committed to its life-insurance business.

REUTERS