Sun Life’s President in Asia Kevin Strain is a busy man. He is integrating and investing in two recently formed joint ventures and scouting for more opportunities to grow the business.
Strain sees huge potential for organic expansion in the region but is also on the lookout for bolt-on acquisitions in the fast-growing economies of the Association of Southeast Asian Nations.
“We really like ASEAN so we would be interested in other transactions in the region but it would have to be where we can see a route to scale,” Strain said in an interview with FinanceAsia in Hong Kong.
Over the past two years Canadian-based Sun Life has boosted the number of sales personnel in its wholly-owned Asian businesses by 50%. In 2013 it also launched joint ventures in Vietnam and Malaysia, expanding its presence to seven Asian markets.
In Vietnam and Malaysia Sun Life picked local partners that it believes will help it to ramp up business quickly. It teamed up last year with Khazanah Nasional, the Malaysian government’s investment arm, to buy 98% of a Malaysian life insurer for $596 million. As part of the deal, the joint venture partners won an exclusive 20-year agreement with Malaysian bank CIMB to sell their policies to its 7.8 million customers across its 312 branches.
The relationship may extend eventually beyond Malaysia. As an investment firm Khazanah owns lots of business with connections to companies, customers and databases, while CIMB is one of the fastest-growing financial institutions in the region.
“The more we can partner with CIMB and Khazanah across the ASEAN region the better; both are strong partners and know the markets well,” said Strain in his feng shui-styled office in Hong Kong.
In Vietnam, Sun Life has partnered with PVI Holdings, the Hanoi-listed unit of state oil & gas conglomerate Petrovietnam and the biggest non-life insurer in the country. PVI has a presence in 54 of the 63 provinces and cities of Vietnam and has close ties to many of Vietnam’s industrial companies. PVI also has ambitions to expand abroad.
Strain noted that Sun Life has a sales agency in all its seven markets in Asia except for Malaysia and has bancassurance relationships in all of them except for Hong Kong. The firm strongly believes in multi-distribution channels, he said.
Roger Steel was given an expanded role last year as president of new markets and business development in Asia, which includes M&A strategy. He was previously head of Sun Life in Hong Kong.
Sun Life’s growth spurt in Asia was reflected in its 2013 results released mid-February. Total Asian life insurance sales climbed to C$692 million from C$620 million a year earlier. However, the expanded platform also brought bigger costs. Operating expenses climbed to C$344 million from C$254 million and commissions rose to C$113 million from C$84 million.
The stunning wealth creation being seen across Asia’s emerging economies is making insurance more affordable to the region’s growing middle class.
The life insurance real premium growth rate in Asia's emerging economies Asia is expected to grow by 10% in 2015 compared with 3.2% across the world's industrialised economies, according to reinsurer Swiss Re.
“In Asia the way to create long term profitability is to grow because the markets are so new and everyone is building scale,” said Strain.
Competition is fierce for the few available deals. “Public markets’ valuation of insurers and their M&A values in the private market have decoupled,” said Marie-Soazic Geffroy Dernoncourt, Co-Head of Morgan Stanley's Financial Institutions Group for Asia Pacific excluding Japan, who cites scarcity as a major reason, particularly if the insurer wants a bancassurance arrangement as well.
“Our Malaysian deal was highly sought after,” said Strain, by way of example. On bancassurance, where the bank agrees to distribute the insurer’s products over its network, he said banks are demanding more due to the rarity of such arrangements. “The banks push for as much up front as they can get, but there is a place for staggering payments and negotiations should be about finding the right balance,” said Strain.
As a result, swift integration and maximising results are a must for insurers in Asia. Sun Life’s Malaysia joint venture is already up and running with insurance experts speaking directly to CIMB’s customers.
“In Malaysia we want to have specialists in the branch meeting face-to-face with the customer,” said Strain. “We recognise that they’re CIMB customers but also think of them as ours.”
One area with strong potential, he said, was the mainland Chinese market in Hong Kong. Many high net worth mainland Chinese citizens looking to migrate to Hong Kong build up their Hong Kong dollar savings in the territory by buying insurance policies, a scheme encouraged by the Hong Kong government that already accounts for about 30% of new insurance business in the former British colony. “It’s an opportunity,” said Strain.
Sun Life’s signage in one of Hong Kong’s major shopping districts Causeway Bay faces mainland China for a reason it seems.