BEA selling life insurance arm in US$653m deal with AIA

[HONG KONG] AIA Group has agreed to buy the life insurance unit of Bank of East Asia and ink a distribution partnership with the Hong Kong-based lender in a US$653 million deal.

As part of the agreement, Bank of East Asia will distribute AIA's life and long-term savings products exclusively to its retail banking customers in Hong Kong and mainland China for 15 years, according to an exchange filing on Wednesday. The announcement confirmed an earlier Bloomberg News report. AIA will also acquire a closed portfolio of life insurance policies underwritten by Blue Cross (Asia-Pacific) Insurance.

Bank of East Asia expects to book a profit of HK$1 billion (S$173.2 million) from the disposal and plans to give part of the proceeds to shareholders, the lender said in a separate filing. The parties aim to complete the deal by the end of this year.

Shares in Bank of East Asia fell 1.8 per cent in Hong Kong on Wednesday, while AIA dropped 3.7 per cent amid a slide for the city's equities market.

The sale is part of Bank of East Asia's efforts to boost profitability and lift its shares. The lender in September kicked off a process of divesting its life insurance unit and had attracted bidders including China Strategic Holdings, an investment firm backed by billionaire Henry Cheng, Bloomberg News reported last month.

Wednesday's deal takes the value of transactions involving Hong Kong companies to S$45 billion this year, according to data compiled by Bloomberg. That's up about 7 per cent on the same point in 2020, the data show.

Bank of East Asia, whose shareholders include Paul Singer's Elliott Management, is one of the few remaining family-run banks in Hong Kong as the local lenders have been squeezed by larger competitors like HSBC Holdings and Bank of China. In 2009, China Merchants Bank bought Wing Lung Bank for about HK$17 billion, while state-backed Yue Xiu Group completed acquiring a majority stake in Chong Hing Bank in 2014.

BEA Life, the bank's wholly-owned life insurance arm, grew its new premium income from whole life and annuity products by 9.5 times in 2020 from a year ago, according to the bank's latest financial report. That drove an 83 per cent increase in BEA's commission income from sales of life products.

The bancassuarance partnership will also allow Bank of East Asia to sell AIA products in mainland China. The lender has branches in 11 cities in the Greater Bay Area, giving it one of the most extensive branch networks among foreign banks there, according to the statement.

"We are very excited, the opportunities coming out of China," Adrian Li, co-chief executive officer of Bank of East Asia, said in an interview. "The integration of the Greater Bay area will enable us to grow our business, not just on the mainland but also in Hong Kong."

AIA traces its roots to 1919 in Shanghai, when Cornelius Vander Starr began an insurance business. The Hong Kong-based company is now one of the largest pan-Asian life insurers with a presence in 18 markets including China, Thailand, Singapore, Australia. It had total assets of US$326 billion as of the end of December. It shares in Hong Kong have risen 45 per cent in the past year, giving the firm a market value of about US$144 billion.

BLOOMBERG