Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

After $6 billion M&A spree, insurer FWD eyes China foray ahead of potential IPO

Published 31/07/2019, 05:12
Updated 31/07/2019, 05:16
After $6 billion M&A spree, insurer FWD eyes China foray ahead of potential IPO

After $6 billion M&A spree, insurer FWD eyes China foray ahead of potential IPO

By Sumeet Chatterjee

HONG KONG (Reuters) - Fast-growing insurer FWD is seeking to launch operations in China ahead of any public offering and plans to bolster its non-life business in Asia, its chief executive said, as a potential shake-up looms in the region's insurance sector.

FWD, controlled by Richard Li, the entrepreneur and son of Hong Kong's richest man Li Ka-shing, made headlines earlier this month with the $3 billion (£2.4 billion) purchase of Siam Commercial Bank's (BK:SCB) life insurance unit in Thailand, just days after agreeing to buy the Hong Kong operations of U.S. insurer MetLife Inc (N:MET) - a deal worth about $300 million, according to a person familiar with the matter.

Having spent more than $6 billion on half a dozen deals in the last six years, FWD has built up a presence in Hong Kong and Macau, Singapore, Japan, Thailand, Indonesia, Malaysia, the Philippines, and Vietnam.

FWD has applied for a licence to operate a majority-owned joint venture in China, the world's No.2 insurance market, which, according to a Swiss Re Institute report, is forecast to account for 20% of global premium by 2029, up from 11% in 2018.

"It would be good to have China, but having a growth story in ASEAN (Association of Southeast Asian Nations), having a stable profitability in Japan, having a strong base in Hong Kong will be pretty compelling," said CEO Huynh Thanh Phong, while discussing the potential for an initial public offering (IPO).

Huynh refused to be drawn on the timing of any IPO, saying it was for the board and shareholders to decide. But separately two people with knowledge of the plans said FWD was aiming for the second half of next year - depending on progress in China.

ASIAN BATTLEGROUND

Billionaire Li laid the foundation of FWD in 2012 with the acquisition of ING's Hong Kong, Macau and Thailand units for $2.1 billion and has continued this bolt-on approach since.

"If you look at a typical life insurance setup, you can either grow organically in five to seven years or you do bolt-on acquisitions to shorten that time-frame," Huynh, who joined FWD in 2014 a year after its formal launch, told Reuters.

"(Insurance) M&A in Asia is very limited (and) we have to be very opportunistic," he said, identifying India, where the company is looking for a potential partner, and Australia as other markets FWD is interested in.

The Asian market, worth $1.7 trillion in premiums, is expected to account for 42% of global premiums by 2029 from about a third currently, the Swiss Re Institute report showed.

"Not many leading Asian insurance firms need to plug product or geographical gap via acquisitions, so it's a good time to be a buyer if you have the capital and the reason to do deals," said a M&A banker, who advised FWD on one of its deals.

Asia is also bracing for the spin-off of the international businesses of the UK's Prudential (L:PRU), led by its Asian business boasting 15 million life insurance customers and $117 billion in assets, according to its 2018 annual report.

The spin-off will give Prudential Asia unit access to more capital which could be used for acquisitions, investment bankers have said.

FWD FINANCES

Compared with regional giants such as AIA (HK:1299) and Prudential, FWD is still small: its five million customers give it $30 billion in assets, according to the company, compared with $230 billion for AIA.

Besides Li, other minority shareholders in FWD include Swiss Re, which came on board with a 12.3% stake in 2013, Singapore wealth fund GIC, and Chinese private equity firm Hopu Investments.

FWD has so far used a mix of equity and debt to finance its acquisitions, said the two sources cited earlier. Huynh said the company's shareholders were "very supportive" about its expansion and the company was "very financially disciplined", but declined to give specific details about its leverage.

Speculation about its IPO plans or other funding options have grown as FWD has expanded. Earlier this month, ratings agency Moody's cut it outlook to negative from stable after the acquisition of the MetLife Hong Kong business.

Fitch also put the company on "rating watch evolving" citing uncertainty about the impact of the acquisition on the company's capital, debt service capabilities, and financial flexibility.

FWD Life HK, which accounts for nearly half of the group assets and is the ninth-largest life insurer by premium in Hong Kong, has doubled its revenue since its launch and was at $2 billion in 2017, according to a July 10 Moody's report.

Hong Kong, Thailand and Japan are its top three markets in terms of customers.

In Japan, where it launched in 2017 with the purchase of the life insurance business of American International Group (N:AIG), new business premiums rose 39% to $378 million last year. The same measure in Thailand dropped 10% to $198 million, according to company documents seen by Reuters.

NON-LIFE PUSH

FWD's next round of acquisitions is expected to be focussed on non-life insurance business, which covers automobile, real estate and travel insurance, said Huynh.

FWD is "actively looking" for non-life insurance businesses in Southeast Asia to compliment existing operations in Hong Kong and Singapore, Huynh said, adding life insurance would remain a dominant part of its business.

FWD has in recent months hired senior executives, some of them from AIG to work on its non-life business plans, said the two earlier sources, who declined to be named as they were not authorised to speak to the media.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.