IAG sees ‘limited’ Asia opportunitiesFebruary 15 2018 by Nick Ferguson
Insurance Australia Group (IAG) is conducting a strategic review of its A$800 million (US$630m) investment in Asia that may see the company quitting some markets.
In its latest earnings announcement, the company said that its Asia strategy has focused on growth through market consolidation and increased ownership, and that its “current assessment is that such opportunities are limited”, despite a 5.2% increase in gross written premiums in Asia. It plans to finish the review by the end of this year.
“We have always taken a measured approach to Asia and we believe this is the right time to review the immediate and longer term strategic options for our individual Asian businesses given the limited expansion opportunities,” said chief executive Peter Harmer.
This follows a decision in October to shelve its growth strategy for the region as a result of what it described as declining commercial and regulatory conditions. Instead, the company said it would shift its focus back to its Australian and New Zealand markets.
Roughly half of the company’s premiums in Asia currently come from Thailand, while India and Malaysia contribute about a quarter each, plus a very small amount of business from Vietnam and Indonesia. Overall, Asia contributes 3% of its gross written premiums.
Harmer said in October that the company had spent 18 months scouring the region for expansion opportunities, particularly in its three biggest markets, but had failed to come up with any attractive options.
The company says that it has invested A$806 million in the region, with roughly 80% of that spent in Thailand and Malaysia.
In Thailand, it owns 98.6% of Safety Insurance, which is the third-largest motor insurer in the country, while in Malaysia it owns a 49% interest in the joint venture AmGeneral Holdings and in India it owns a 26% interest in SBI General Insurance. It also controls 63.17% of AAA Assurance in Vietnam and 80% of Asuransi Parolamas, a small general insurer in Jakarta.
And while it does also own a 16.9% interest in Bohai Property Insurance in China, this is no longer treated as part of the business in its accounts and is instead included in its investment portfolio.
The region produced profits of A$15 million in the first half of IAG’s financial year, up from A$2 million in the same period last year, thanks to better results across the three main markets. Premium growth was driven by the India business, while there were softer conditions in Malaysia after the country’s tariff liberalisation on motor and fire policies.
In Thailand, the company has already reduced its commercial lines exposure, though this has been offset by a resumption of growth in the motor market. However, the company nevertheless reported an insurance loss of A$2 million across the region. The change of strategy in Thailand helped to reduce losses there, but this was partially countered by a higher combined loss in Vietnam and Indonesia.
IAG says that it is “examining all options available” in its strategic review, which could obviously result in it selling some businesses. Or all of them. The company complains in its earnings report of “uneconomic pricing undertaken by competitors” in Thailand and premium growth that is under pressure in Malaysia. While actions are being taken to address both these challenges — from a focus on underwriting discipline in Thailand to risk-based pricing, portfolio optimisation and claim management efficiency in Malaysia — it remains to be seen if IAG has the appetite for these markets after its review.
While the company clearly sees the Indian market as a strong growth opportunity for insurers, it also notes the government’s “emphasis on majority Indian ownership and control”. Despite regulations allowing foreign shareholders to own up to 49% in Indian insurers, IAG has maintained its holding at the previous 26% limit. Indonesia and Vietnam also clearly offer abundant growth, but its businesses there are small.
IAG’s struggles in Asia reflect the challenges that many international insurers face in the region. Everyone knows the growth opportunity is there in the long term, but generating meaningful profits can be difficult and expensive, often hampered by regulators or market structures, and shareholders can be impatient in the meantime.
- January 17
The Australian firm is mulling another retreat from an Asian market.
- January 16
John Philipsz has been appointed as deputy chief executive of the reinsurance business in Australia.
- January 8
Insurance Council of Australia wants more information from the Australian Securities and Investments Commission.
- January 8
Key roles combined under Simon Weaver after the departure of Andrew Boal.