Former professional soccer player Mark Tucker is drilling his team at the world’s fourth-largest life insurer by market capitalisation. His strategy is working.
Since taking the job as chief executive in 2010, Tucker has broadened AIA Group’s Asian footprint with acquisitions in Malaysia and by setting up shop in Myanmar.
In December, he also inked a multi-billion dollar deal with New York-based Citigroup to distribute its policies across the region. AIA, which separated fully from bailed-out AIG in 2012, now has exclusive rights to distribute insurance products via its branch network in 11 Asia-Pacific markets to Citibank’s corporate clients as well as to about 13 million retail cardholders and banking customers.
“All aspects of this are incredibly exciting for future growth,” Tucker said in an interview with FinanceAsia.
The proof will be in the telling. AIA is scheduled to release its 2013 full year results on February 21 and analysts are keen to hear details about how AIA’s partnership with Citi will work.
“How we actually access Citi’s customers depends on the country and regulation — that’s something the teams are now sitting down and working on,” Tucker said.
When Tucker was at the helm of British insurer Prudential he set up a similar partnership with Standard Chartered, which proved rather successful. Analysts at Goldman Sachs have used the example of the Prudential-Standard Chartered tie-up to put a value on the Citi deal and have come up with a roughly 3% to 11% addition to the value of new business, providing a forward indicator of AIA's potential future earnings.
Much will depend on implementation.
Are we exclusive?
Code named Project Compass, Citi’s decision last year to auction the rights to sell insurance at its branches across Asia was a major change in direction for the US bank.
Long an advocate of selling several different insurers’ products, known as an open architecture approach, it is switching to exclusively selling those of AIA.
The debate rages among insurers, regulators and banks as to which approach is better for the consumer. Instinctively, greater choice should mean a more suitable solution for the client. However financial advisers in banks often don’t have the time to learn the complexities of protection products such as health and accident insurance and, as a result, go for a quick sale of investment-style products.
In an open architecture relationship the bank is less likely to spend time on rolling out more complex protection products such as health insurance, since that requires investment and training of bank staff.
“Banks are realising that in order to maximise fee income from insurance in the long run, open architecture might not always be the best idea,” said Marie-Soazic Geffroy Dernoncourt, co-head of Morgan Stanley’s Asia Pacific ex-Japan financial institutions group.
An exclusive relationship eliminates the sheer administrative burden of handling different insurance providers. Citi had about 150 different bancassurance agreements with life insurance companies across Asia before focusing on AIA.
Some insurers, regulators and bankers think a small number of insurance providers is optimum. To maintain an open and competitive arena South Korea’s regulator caps bancassurance volume from a single insurer at 25%.
To be sure, Citi isn’t entirely exclusive with AIA. MetLife sells credit insurance over its network globally, a particularly profitable product.
Deploying players effectively is nothing new to British national Tucker, who played for English football clubs Wolverhampton Wanderers, Barnet and Rochdale.
AIA had 309,000 dedicated agents as of May 2010, just before its initial public offering of shares in Hong Kong, according to its prospectus — 70% of sales are still generated by agents.
“Agency remains the lifeblood of our business and we will continue to invest, support and grow it,” said Tucker, who remains an avid Chelsea supporter; room for debate with his new business partner, the Asia head of Citi Stephen Bird, who is a Manchester United fan.
One criticism from analysts that has dogged Tucker since he took the helm of AIA was a lack of a meaningful bancassurance partnership in bigger Asian markets such as Hong Kong and Singapore.
AIA has been growing and deepening its bancassurance partnerships. Even though it had 120 bancassurance relationships as of May 2010, many were not exclusive such as its tie-up with ICBC in China.
About 30% of AIA’s sales were via banks as of the first half of 2013, up from 5.1% at the time of IPO.
“If we limit ourselves to only one distribution channel then we would limit the ambition and scale of the company,” Tucker said.
But AIA’s strategy is not just about growth. Since the IPO, Tucker has stressed that growth has to be profitable.
“Traditionally, bancassurance in Asia has been about volume not value,” Tucker said. “We’re trying to create a more protection-focused world where we are supporting the health, mortality and morbidity [incidence of disease] needs of customers — and the Citi guys are right behind us on this,” Tucker said.
Citi targets mainly the mid-to-upper middle class and in some markets have high minimum account balance requirements — this helps AIA to target clients who will demand most financial planning and protection products. “This is a perfect fit to AIA’s protection-oriented product strategy,” Linda Sun-Mattison at BernsteinResearch said in a report.
Citi was one of the last regional banks to go exclusive. Britain’s Pru teamed up with Standard Chartered long ago; meanwhile France's AXA signed an exclusive property and casualty 10-year distribution deal with HSBC in some Asian markets, as well as a life insurance partnership with ICBC in 2012. HSBC has its own integrated life insurance company.
AIA paid Citi $1 billion upfront for the privilege and is likely to pay billions more to Citi during the 15-year span of the deal, in a mixture of commissions and profit-related payments, according to people familiar with the matter.
“M&A valuations have also been driven by scarcity as quality targets have become rarer; all the more so if you want bank distribution as well,” said Morgan Stanley’s Geffroy Dernoncourt.
Bancassurance sales have grown much faster in Asia in recent years compared with what's been generated by door-to-door sales agents. Reinsurer Swiss Re estimated that a decade ago only about 2% of the new life insurance premiums sold in Asia were via banks — that number by 2012 had grown to more than 70% in Taiwan, 50% in Thailand and 40% in Hong Kong.
“It’s no accident that at the time Citi was thinking about how best to address clients’ insurance needs,” said Don Lacey, an investment banker at Citi who worked on the deal with AIA. “There were a lot of insurance companies looking at the same need — people see the same opportunity.”
Relationships between banks and insurers are also getting longer.
Citi and AIA’s partnership will run for 15 years. “Many of the people who helped cement this relationship know that they have to make it work as it will last the length of their careers — that focuses people’s attention,” Tucker said.