French insurer AXA is on track to double its 2011 sales in Asia by 2015 without sacrificing margins, according to a senior executive in the region, and it is all down to picking the right partner.
Earlier this year AXA leapfrogged Hong Kong-based AIG to become the top foreign general insurer in the region by market share of gross written premiums.
Now AXA is targeting a top three slot in Asian life insurance by 2015. This would be a move up from its current position as number four in terms of annual premium equivalent, behind AIA, the UK's Prudential and Germany’s Allianz.
AXA has pulled itself up the rankings over the past two years through acquisitions and tie-ups with local players, François-Valéry Lecomte, AXA Asia’s chief financial officer, told FinanceAsia in an interview.
The French insurer recently acquired HSBC Holding's property and casualty operations in Hong Kong, Singapore and Mexico for $494 million and signed a joint-venture with Industrial & Commercial Bank of China, China's largest bank by assets. In April it bought 50% of Shanghai-based Tian Ping Auto Insurance for €485 million.
Rather than go it alone, Lecomte said AXA made the decision that it would be more successful if it drew on the local expertise of incumbent players.
“You need a partner that can help navigate local markets not only from a business point of view but from a regulatory point of view,” he said.
AXA’s build out in Asia comes at a time when there is strong competition for assets. Insurers from Canada's Sun Life Financial to Japan’s Dai-ichi Life Insurance have been buying assets in fast-growing Asian economies.
“There has been increasing competition for insurance assets in Asia over the past years because that is where most people see growth,” Lecomte said, adding that AXA looks at several potential deals every year in life and general insurance and found some were too expensive.
“There have been deals we have wanted to do but decided against because they did not meet our financial thresholds,” he added.
However, Lecomte said AXA does not just compete on price but on the value it can bring to a partner over the long term: “One of our strengths is partnerships and delivering long term value to our partners.”
AXA paid 34.6 times December 2011 earnings for Tian Ping. However, Lecomte said the price was not too high given the growth prospects based on AXA’s models of discounted cash flows.
Ownership is split 50:50. Lecomte said the number of boardroom seats also reflected the split and declined to go into details about what would happen if there were a fundamental disagreement on strategy. “It’s a true partnership,” he said.
The deal still needs regulatory approval.
Share the bounty
A successful partnership is about more than just a one-off payment, insists Lecomte. AXA provides its partners in Asia with products and services for their clients and they split the commissions.
“Insurance products are a good way for banks to deepen their relationship with their clients and retain them over the long term,” he said.
ICBC gets commissions from ICBC AXA for giving the joint venture access to its 16,000 branches across China.
The same is true for HSBC. Although the UK-based bank sold 100% of its insurance business, it will still get a lot of value through commission flow.
Henri de Castries, AXA group chief executive, recently said that ICBC AXA would be profitable by 2015.
“The value that we deliver to our partners, mainly through commissions, over the length of the agreement is significant in comparison to the upfront payment,” said Lecomte.
Partners for the long haul
In recent years partnerships between insurers and banks have become longer. One partnership that is seen as successful among financiers and insurance experts is AXA’s life insurance joint venture partnership with Indonesia’s Bank Mandiri.
AXA Mandiri Financial Services was created in 2003 and now has the second biggest market share in Indonesia.
“A long-term agreement is the best way to deliver value because it enables to better align interests,” said Lecomte.