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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Sri Lanka a growth market, not a cost play – AIA

Sri Lanka a growth market, not a cost play – AIA

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Malika1990

Malika1990
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Asian giant explains key reasons for its entry into Sri Lanka, growth prospects and initial strategies midst competition from 21 other firms

Despite over 20 firms in the industry, the low insurance penetration along with post-war rebound in the socio-economic development has made Asian giant AIA to consider Sri Lanka as a growth market and AVIVA NDB’s prowess as the best to tap the potential.

This broad view was shared by AIA Regional Chief Executive Huynh Phong Thanh and Group Chief Distribution Officer Bill Lisle during a briefing on Friday after the conclusion agreements in connection with AIA’s $ 109 million investment in acquiring 92% stake in Aviva NDB Insurance. The deal itself is the biggest in Sri Lanka’s insurance industry.
At present Sri Lanka has 22 registered insurance companies and a question was asked with so many around what prospects AIA sees in Sri Lanka.
In response, AIA’s Thanh said in Hong Kong which has a population of only 7 million, there are over 70 companies in the insurance market. He also said that Sri Lanka which has a population of 21 million has a low insurance penetration with only one out of 10 having a protection scheme.
This low penetration as well as high economic growth and rising per capita income following the end of the conflict as well as AIA’s own plans for growth were among compelling reasons for it to enter Sri Lanka.
“Insurance penetration in Sri Lanka is nowhere near to some of Asian peers. So both micro and macro factors were considered. With our pre-eminent solutions, AIA hopes to bridge the protection gap in Sri Lanka and we see a huge opportunity. It is not about sharing the pie but making it bigger,” pointed out Group Chief Distribution Officer Bill Lisle.
“We did a rigorous assessment as during the past two years AIA had been presented with 30 to 40 new opportunities in the region including mergers and acquisitions. So Sri Lanka is a growth market and not a cost play,” the Company’s Regional Chief Executive Thanh said adding “Our entry into Sri Lanka is both timely and relevant. Since it is the first acquisition since our $ 17.8 billion IPO in October 2010, the acquisition of Aviva NDB is very special as well.”
AIA operates exclusively in the Asia Pacific region including India and China. Sri Lanka becomes its 16th Asian market, further expanding its Pan-Asian leadership position.
AIA is a market leader in the Asia Pacific region (ex-Japan) based on life insurance premiums, and holds number one positions in six of its geographical markets. It had total assets of US$119.5 billion as of 31 May 2012.
AIA has a 90-year history of commitment to the Asia Pacific region and is the fifth largest insurance company in the world by market capitalisation.
Aviva NDB is the second largest in life insurance with a share of 22.36% in 2011 whilst in general it is the fifth largest with a share of 5.67%.
AIA officials said that though the Company is a specialist in life insurance, it has a slew of policies for general insurance market which are popular in several Asian markets.
Whilst noting that bancassurance too hasn’t grown rapidly in Sri Lanka, AIA believes its model will work. Over 60% AIA’s business in Philippines and Indonesia are derived from bancassurance whilst overall in Asia Pacific it is close to 28%.
“Bancassurance is still in its nascent stage in Sri Lanka and with the right model, there is huge opportunity,” Lisle added.
It appears AIA’s intent is solid as it has signed a 20 year bancassurance deal with NDB. AIA will also pursue growth via its world class distribution strategy.
With regard to new law that all composite insurance firms must segregate their life and general business by 2015, AIA said that it will comply with not only that rule but all other regulations currently in place. AIA officials during their visit last week also paid a courtesy call on Insurance Board of Sri Lanka and gave a similar reassurance.
AIA officials noted that Hong Kong was among the highly regulated insurance markets in Asia hence it was very conscious about regulations. “We will work with the IBSL very closely,” they added.
Since Sri Lanka has only one home-grown qualified actuary, AIA has also agreed to extend support to increase the numbers. Aviva NDB has several part qualified personnel in its 12-member Actuarial Team.
AIA officials however acknowledged that Sri Lanka has “amazing talent” in the insurance industry overall whilst Aviva NDB team was singled out even in the AIA Group CEO’s statement on the acquisition.
“Aviva NDB Insurance, with its experienced management team, high quality employees and agents and an attractive long-term bancassurance relationship, represents an excellent platform from which to participate and grow in the highly attractive Sri Lankan market,” said AIA Group Chief Executive and President Mark Tucker.
“We are delighted to be entering Sri Lanka, a country with a compelling combination of strong economic growth prospects and low existing levels of insurance penetration. We look forward to playing a leading role in the development of Sri Lanka’s insurance sector as we meet the long-term savings and protection needs of increasing numbers of Sri Lankan individuals and families,” Tucker added.
AIA officials said within the region in all emerging markets, skills remain a challenge for the industry and in Sri Lanka it will further invest in people, training and development to remain competitive.
Established in 1987, Aviva NDB Insurance 800 employees and a high-quality tied agency force of 3,100 agents. In the year ended 31 December 2011, Aviva NDB Insurance recorded gross written premiums of US$ 81 million with Life premiums accounting for approximately 75% and Non-Life premiums 25% of the total premiums.
Last year overall Gross Written Premium income for long term insurance business and general insurance business was Rs. 78,512 million reflecting a growth of 18.5% over 2010.
Long term insurance sector contributed GWP of Rs. 35,181 million (2010: Rs. 31,152 million) and general insurance sector contributed GWP of Rs. 43,331 million (2010: Rs. 35,101 million)
According to Insurance Association of Sri Lanka in the first half of 2012 general insurance saw 22% growth whilst life enjoyed 25% increase over the corresponding period of last year.
AIA in its announcement said the acquisition of Aviva NDB reflects the quality of the Sri Lanka business, operations, and management, and its position of strength in the Sri Lankan market. “Customers will benefit from the strength, security and certainty associated from being part of the AIA Group, which is the fifth largest insurance company in the world by market capitalisation,” AIA added.
“We are here to stay,” AIA’s Thanh and Lisle said noting that it hasn’t pulled out of any markets where it operates.
Over the next few weeks and months, AIA along with senior management at Aviva NDB will go through a strategic review process of the operations whilst Aviva NDB Managing Director Shah Rouf said it was business as usual for his company, staff and customers.
“Becoming part of AIA is a fulfilment of our own vision to be the premier insurance company in Sri Lanka,” Rouf added.
http://www.ft.lk/2012/10/01/sri-lanka-a-growth-market-not-a-cost-play-aia/

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