Manulife ousts Aviva to clinch US$1.2b tie-up with DBS

Singapore

CANADIAN life insurer Manulife Financial Asia has edged out incumbent UK-based Aviva by agreeing to pay local lender DBS bank US$1.2 billion (S$1.6 billion) so that it can distribute its life and health insurance products through bank branches in Singapore, Hong Kong, China and Indonesia.

The 15-year exclusive regional deal signed in Hong Kong, starts on Jan 1, 2016. It paves the way for Manulife to expand its currently limited market share in Singapore, as it looks to tap the lucrative savings-rich population in the region, particularly here.

Under the partnership, Manulife, which has had a presence in Singapore since 1898, will gain access to the lender's more than 200 branches and sales force of over 2,000, in the four markets. It will also be able to ride on the lender's Internet and mobile banking platforms.

The two companies said in a filing on the Singapore Exchange (SGX) on Wednesday evening that the initial payment of US$1.2 billion to DBS will be funded by internal resources.

"This payment will be amortised by both parties over 15 years. There will also be ongoing, variable payments, which are based on the success of the partnership, and Manulife expects the agreement to be accretive to core earnings per share in 2017," said the two.

The initial payment is expected to reduce Manulife's regulatory capital ratio by 10 points on or before Jan 1, 2016, they added.

The latest Life Insurance Association Singapore data suggests that bank distribution makes up 36 per cent of weighted new business premium (NBP) and 14 per cent of policies in Singapore, said Philip Chung of S&P insurance ratings, who added that the deal will make a material difference to Manulife's market share. But he noted that insurers with the highest market share (in terms of weighted NBP) also have significant agency force.

"The deal will enhance distribution capability and hence absolute profits should benefit. However, depending on the products that will be sold through the bank channel, the value of new business (VNB), or a measure of the expected profits from new premiums written, could vary."

In an interview with The Business Times last November, Manulife CFO Steve Roder had said that the company is targeting the retirement space in the region and that there were plans to grow its agency force here. Manulife has over 50,000 agents in Asia.

This deal marks the end of Aviva's tie-up with DBS, which started in 2001. The partnership was extended in 2009 until end 2015.

Said Chris Wei, CEO Global Life and chairman Asia of Aviva plc: "Given the strength of our relationship with DBS, Aviva was well-placed in this process. However, the cost to renew the agreement was far in excess of what we saw as economically viable or justifiable to our shareholders. Aviva remains highly disciplined regarding capital allocation."

Aviva on Wednesday said that products sold through DBS in 2014 represented about 20 per cent of Aviva Singapore's VNB. Aviva Singapore had said in March that sales through the bancassurance channel accounts for 66 per cent of total sales in 2014.

However, Mr Chung said that going by the numbers provided, "the 20 per cent decline in VNB is not immaterial". But he pointed out that it is "not a 20 per cent drop in net profits". Insurers generally see higher volumes and lower margins from bancassurance business so NBP reduction could be sizeable.

Aviva will retain the existing book of business, associated profits, and customer rights and relationships which were purchased in the original transaction with DBS in 2001. "The anticipated acquisition of Friends Life Group adds Friends Provident International to Aviva's Asian portfolio of companies, expanding its capabilities in the affluent and wealth management segments in Singapore, Hong Kong and Dubai," it added.

Aviva had been one of the players that had bid for the DBS deal, along with London-based Prudential and Hong Kong-based AIA Group.

This closely-watched bancassurance deal is the last major agreement of its kind between the region's insurers and banks. It was reported that the next big tie-up will be in 2022, when HSBC considers a new deal. In 2013, AIA sealed a deal with Citibank in Asia for US$800 million. Last year, Prudential also extended its agreement with Standard Chartered, which first started in 1998, by paying US$1.25 billion in fees.

DBS' counter closed up 15 cents to S$20.47, before the announcement was made.

Morgan Stanley had advised DBS, while JP Morgan advised Manulife.