Mitsui Sumitomo purchases Aviva's general business

Japan''s number two general insurer makes large push into Asia.

Japan's second largest general insurer, Mitsui Sumitomo Insurance Co Ltd (MSI), has gained a larger foothold in the region with the purchase of Aviva plc's general franchise in key Asian markets. The deal, which will cost the Japanese insurer $450 million in cash, will net it the British-based firm's entire general insurance business in Asia.

According to Aviva, the decision to sell the general side follows a refocusing on the long-term savings businesses in the region and expanding its presence in more developing markets. Currently Aviva has life insurance franchises in Singapore, Hong Kong, India and China, which all boast successful bancassurance partnerships with domestic banking institutions.

The sale to Mitsui Sumitomo marks Aviva's second major insurance clearout in the past two years. In 2002, the group offloaded its general insurance arms in Australia and New Zealand to Insurance Australia Group (IAG) for an estimated A$1.86 billion ($1.26 billion).

Although it is exiting the general business in Asia, the Aviva brand name and indentity will continue to remain a local fixture thanks to its life insurance arm, which runs on a separate management, platform and distribution network.

"We remain fully committed to further developing our long-term savings business in the region," stresses Richard Harvey, Aviva Group chief executive. "We've established a strong platform in Singapore and Hong Kong and have developed businesses in the emerging and rapidly growing life insurance and long-term savings markets in India and China. We will continue to increase our focus and resources into the region, which represents a significant long-term growth opportunity for us."

In the short term, Aviva's regional life insurance business will not be popping up in any more new markets. Instead, the insurer will focus augmenting its highly successful Hong Kong and Singapore life businesses. Along with its bancassurance partner DBS, it currently commands more than a 50% market share of the regular savings market in the Lion City.

In an added boon for Aviva's new life insurance direction, the Guangzhou-based mainland joint venture with China Oils and Foodstuff Co. (COFCO) has just received licences to open branches in Beijing and Chengdu.

Mitsui Sumitomo's purchase of Aviva's general business is by far its largest acquisition in non-Japan Asia this year and comes on the heals of a recent aggressive drive into the region. Already in 2004, Japan's second largest insurer has acquired a 25% stake in Asia Insurance (Cambodia) Limited, a 24.9% purchase of Thailand's Ayudhya Insurance and through its Thai subsidiary, a 10% piece of the unlisted Bangkok Life Assurance.

Under the purchase, Mitsui Sumitomo will also acquire the general insurance assets of Aviva Asia Pte Ltd (Singapore), Aviva Insurance Berhad (Malaysia and its Brunei branch), Aviva Insurance (Thai) Co Ltd, PT Aviva Insurance (Indonesia), and Dah Sing General Insurance Co Ltd (Hong Kong). In addition, the acquisition will also include Aviva's branch operations in Hong Kong, the Philippines, Marianas, Macau and Taiwan.

For its substantial investment, Mitsui Sumitomo will take over a regional business that generated net written premiums of $218 million in 2003 and produced three top ten players, as measured by written premium, in the Singapore, Malaysia and Thailand general insurance markets in 2002.

In the eyes of insurance watchers, Mitsui Sumitomo's continued push into regional insurance markets is unsurprising given the margin pressure and saturated insurance market in Japan. With 29 general insurers operating in Japan at the end of 2003, and underwriting income falling in the 2003 fiscal year, domestic companies operating in the world's second largest insurance market have increasingly broaden their scope to include regional nations to boost premium numbers.

According to reports, Mitsui Sumitomo's Asian insurance operations netted the group Y42 billion ($381 million) in premium revenue last year and it is expected the number may approach or succeed Y70 billion ($636 million) in the future.

Insiders also suggest that the Japanese insurer may move to increase its non-domestic life business over time, but will immediately focus on the core general services to Asian clients. Presently, MSI has a market cap of around $15.2 billion and has stretched its legs into 13 non-Japan Asian countries.

Subject to regulatory procedures and shareholder approval, Aviva expects the sale to be completed in most markets by the end of 2004, with the remainder following shortly thereafter.

Commenting on the sale, Harvey is optimistic that both the shareholders and their respective companies will benefit greatly. "This is an excellent deal for Aviva's shareholders and the price is equivalent to approximately 2% of our market capitalisation," he says. "It's also a very good deal for staff. MSI is committed to maintaining the existing operating structure and will run the businesses as a separate division, complementing its current focus on Japanese customers in the region."

The acquisition news also helped lift MSI's stock price in morning trade, eventually closing at Y988, up 0.91% for the day.