Canadian insurer Manulife will pay DBS an initial $1.2 billion for the right to sell its insurance and wealth management products to the Singapore bank's increasingly affluent six million clients across Asia for 15 years.
The deal takes effect January 1, 2016 and covers four markets: Singapore, Hong Kong, Indonesia and China, the financial institutions said in a joint statement on Monday.
The sale is likely to be the last major pan-regional deal of its kind, known in the industry as a bancassurance distribution tie-up, as other big players have already found partners. Citigroup inked a deal with Hong Kong-headquartered AIA in 2013, Standard Chartered renewed its alliance with Pru last year while HSBC came to an agreement with Allianz for some of its Asian markets in 2012 and has no plans to divide its profits in key markets Hong Kong and Singapore.
Due to the tie-up's rarity value the Canadian insurer had to fend off fierce competition from other insurers such as Hong Kong-headquartered AIA, Britain’s Prudential, Canada’s Sun Life Financial and incumbent Aviva, according to a person familiar with the matter.
Aviva said in a separate statement that it viewed the price tag as economically unviable.
“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," said Aviva's Chris Wei, chairman of Asia.
This is Manulife’s largest deal in Asia to date and a big step forward in its bid to expand in Asia’s underpenetrated insurance markets. It has been scouting Asia for such a deal for some time and bid for the bancassurance deal with Citi but was beaten by AIA.
“This 15-year agreement builds on our existing successful relationship with DBS. It accelerates our growth in Asia, deepens and diversifies our insurance business, and gives us access to a much wider range of customers," said Manulife’s president and chief executive officer Donald Guloien in the joint statement.
Manulife was one of the few major insurers left not to have an exclusive multinational distribution partnership in Asia. This attracted DBS because it reasoned it would be the Toronto-headquartered insurer’s sole focus in terms of a tie-up in the region and there would be no competing allegiance, the person said.
The Pru was at a disadvantage in the bidding process because it already has a regional bancassurance tie up with Singapore’s United Overseas Bank and DBS was concerned about sharing client data in its largest market with one of its domestic rivals, the person said.
Also DBS had worked with Manulife on a non-exclusive basis for many years in Hong Kong, Indonesia and Singapore, so it knew and understood its prospective suitor. Manulife has been in Asia 118 years, longer than AIA, which was established in Shanghai 90 years ago.
Manulife’s Asia chief executive officer Roy Gori, who joined as of March 1, was very focused on securing this deal, the firm’s biggest in Asia to date, the person familiar with the matter said. Gori joined Manulife from Citi, where he was most recently head of consumer banking, North Asia and Australia, and regional head of retail banking, Asia Pacific, which included responsibility for Citi’s insurance and wealth management businesses.
Manulife already operates in twelve Asian territories: Hong Kong, Macau, China, Taiwan, Japan, Indonesia, the Philippines, Malaysia, Singapore, Thailand, Vietnam and Cambodia. It has more than 9,600 employees and 53,000 agents, and accounts for roughly one-third of Manulife’s earnings.
The 15-year duration of the exclusive partnership is in line with recent similar deals, Generally the longer the tie-up the more lucrative it can be for both partners. FinanceAsia first flagged the auction in the February edition of its magazine last year.This $1.2 billion payment will be amortised by both parties over 15 years.
There will also be ongoing, variable payments, based on the success of the partnership, and Manulife said it expects the agreement to be accretive to core EPS in 2017. The initial payment for this regional agreement is expected to reduce Manulife's regulatory capital ratio by 10 points on or before January 1.
AIA paid Citi an exclusivity fee of $800 million for 15 years access across 11 Asian markets and 600 branches where it has licenses. Citi chose to account that upfront payment over the life of the partnership. The economic value of the partnership is split 50:50.
Manulife engaged JP Morgan to help them win; AIA hired Goldman Sachs; Britain’s Prudential chose Bank of America Merrill Lynch and Aviva hired Credit Suisse, according to people familiar with the matter. DBS mandated Morgan Stanley to conduct the auction.
The dating game
It can take years to recruit an army of salespeople to go door-to-door selling products, so insurers have increasingly been drawn to selling through bank branches because they are able to reach Asia's burgeoning middle class more swiftly. Bancassurance now represents 30% to 60% of insurance sales in most Asian markets.
For banks, meanwhile, such an arrangement can create an additional stream of fees and a handsome upfront payment. At a time when financial resources are scarce these partnerships also need little capital allocation and boost the return on equity.
"Bancassurance is a key focus for DBS and an important part of our overall customer value proposition,” said DBS CEO Piyush Gupta.
DBS started selling Aviva products to its customers in 2001 and extended the tie-up in 2009 until the end of 2015. The relationship represented 20% of Aviva’s new business in Singapore by value as of end 2014. However it ran into disagreements with DBS over how the joint venture should be run.
Aviva said in its statement that its bancassurance agreement with DBS will conclude at the end of the year and that it 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.
In December Aviva agreed to acquire British peer Friends Life for $8.8 billion, which rebalanced its business towards Europe. Aviva said the acquisition adds Friends Provident International to Aviva’s Asian portfolio of companies.
DBS has over 270 bank branches across Asia and about six million customers. Manulife will target DBS’s customers in bank branches as well as by telemarketing and mobile applications.
Manulife said it will set up a regional team dedicated to the partnership and there will be joint sales.