The Life Insurance Markets of Asia (excl. Japan)

Presentation to the IAJby Paul SinnottDecember 7, 2010

2

Agenda

Overview of main life insurance markets:

Market statistics

Regional issues

M&A trends

Market Accessibility

Product landscape

Distribution landscape

Country profiles:

China

Hong Kong

India

Indonesia

Malaysia

Singapore

South Korea

Taiwan

The Philippines

Thailand

Vietnam

3

Overview of main life insurance markets

India

China

S Korea

Philippines

Hong Kong

Taiwan

SingaporeMalaysia

Indonesia

Thailand

Vietnam

4

Life insurance premium volume in 2009

In USD millionsSource: Swiss Re Sigma, “World insurance in 2009”

Comments:

• For all countries the year-end is

December, except India, South

Korea and Japan where the

financial year runs from 1 April to

31 March.

• China is the biggest market in Asia,

excluding Japan. However, it is

important to recognize that the high

volumes of single premium policies

sold in China may give a distorted

picture .

• India has overtaken Taiwan in terms

of premium volume.

5

Insurance penetration – premium as % of GDP Comments:

• This graph shows a penetration

index, measured in terms of

premium income as a percentage of

GDP.

• Taiwan maintained its position as the

country with the highest penetration,

with a penetration rate of 16.8%.

• With comparisons based on total

premium income rather than the

preferred “weighted” premium

income (only 10% of SP is included),

statistics for the markets with large

amounts of single premium business

(e.g. China, Taiwan) can be distorted

somewhat.

Source: Swiss Re Sigma, “World insurance in 2009”

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Insurance density – premium per capita 2009

Comments:

• Another commonly used penetration

index is premium per capita.

• Developing countries usually have a

lower premium per capita, compared

to developed or industrialised

countries.

• Japan, Hong Kong, Taiwan,

Singapore and South Korea has

remained the top five markets over

the last few years (in terms of

premium per capita).

• China witnessed a large increase in

premium per capita in recent years.

In USDSource: Swiss Re Sigma, “World insurance in 2009”

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Market concentration – slide to show market share by top 5 players

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Market accessibilityMarket Foreign ownership New licenses

China 24.9% in a domestic, 50% in a joint venture Available

Hong Kong 100% Available

India 26% Available

South Korea 100% (Available)

Singapore 100% HNW niche only

Malaysia 70% Not available

Taiwan 100% Available

Indonesia 80% (but dilution of domestic partners possible) Available

Thailand moving to 49% in 2013 (was 25% direct but with local holding company structures common) Not available

Philippines 100% Available

Vietnam 100% Available

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Product landscapeMarket Traditional Universal

LifeInvestment

Linked Health Retirement Variable Annuities

Hong Kong

Singapore

Taiwan

China

India

South Korea

Indonesia

Malaysia

Thailand

Philippines

Vietnam

PrevalentSome sales but not in great volume

Low or no sales

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Distribution landscapeMarket Tied agents Banks Brokers DMTM/Others

Hong Kong

Singapore

Taiwan

China

India

Korea

Indonesia

Malaysia

Thailand

Philippines

Vietnam

Prevalent

Some sales but not in great volume

Low or non-existent sales

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A “heat map” of recent Asian M&A

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ChinaTotal premium income continues to be robust. Domestic insurers

continue to dominate market share. IPOs

– Valuation of listed companies have been very high, with new business multiple in the range of 30x, but reduced considerably in recent months

– Companies are eyeing into IPOs – PICC Group, China Re, New China Life, Taikang Life and Sunshine Group

Banks buying into insurance– Bank of Communications ↔ China Life-CMG– Bank of Beijing ↔ ING-Capital Life– China Construction Bank ↔ Pacific Antai– Industrial and Commerce Bank of China ↔ AXA-Minmetals

Recent bancassurance circular from CBRC– Banks must not use insurance staff to sell within bank branches– Maximum number of insurers per local branch limited to 3

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ChinaNew accounting rules effective as of end of 2009

– Little guidance provided by regulator– Business results look better as risk-free rates is higher than valuation interest rates.

Liberisation of pricing interest rates for traditional products possible Investment rules relaxed

– Real estate, private equity, infrastructure projects and unsecured debts are now allowed

Regulator allows controlled roll-out of VA with GMxB– Insurers qualification:

• 3+ years in running unit-linked business• RBC ratio > 150% in the last two quarters• Possess suitable IT infrastructure for policy administration

– Product requirements:• Guaranteed period of over 7 years• Total sales capped at USD 1 billion per insurer• CTE 70 as reserves

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ChinaMarket share of top 10 domestic players

Source: China Insurance Regulatory Commission

Comments:

• Market is still dominated by

domestic players, accounting for

95% of total market share.

• The top 3 players (China Life,

Ping An Life and China Pacific

Group) have experienced some

decline in market share in recent

years.

• Among the major domestic

players, Ping An and PICC Life

have experienced strong growth of

31% and 82% respectively.

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ChinaRelative market share of top 10 foreign players

Source: China Insurance Regulatory Commission

Comments:

• This chart shows the relative

market share of the top 10 foreign

players in the market.

• AIA, while still being the top

foreign company in the market,

only grew by 6% in 2009, while

some smaller players experienced

much stronger growth.

• Of foreign companies, total

premium income of Generali China

Life grew significantly by 113%.

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Hong Kong

Total weighted industry premium income rose slightly in 2009.

Investment linked sales reduced significantly in both 2008 and 2009 due to the financial crisis.

HSBC Insurance has seen very strong growth recently; it is now the new business market leader.

New York Life sold to ACE.

More consolidation in the middle ground expected.

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Hong Kong Products and distribution

– Wave of agency poaching recently– Many banks nervous of life insurance sales post-Lehman minibonds scandal– More focus on traditional life products after the global financial crisis– Zurich Life introduced a new franchise distribution model– Strong sales of short term, limited pay endowments recently (e.g. 2 pay 5),

especially through the bancassurance channel; reported as regular premium and so can distort industry statistics.

Regulatory developments– Restrictions on bank distribution of investment linked products.– Healthcare reform – proposed details of health insurance scheme just

announced.– Policyholder Protection Fund– Independent OCI

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Hong KongTop 10 players (by total weighted premium income in 2009)

Source: Office the Commissioner of Insurance

Comments:

• Top 10 players account for 78% of

total market share.

• AIA maintained its dominant

position in the market, with a

market share of 17%.

• HSBC Life continues to register

strong growth in new business, in

particular in its investment-linked

business.

• New business premium written by

BOC Group Life has considerably

increased due to sales of 3-year

endowments.

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India

Regulatory changes governing unit-linked products (ULIPs) w.e.f. 1 September 2010– Cap on maximum charges, including surrender penalties– Guaranteed yield on pensions (currently 4.5%) most insurers are not keen

to launch these plans– Likely significant reduction in distributor compensation

Also new guidelines on universal life (“variable insurance products”) w.e.f 23 November 2010– Companies were required to immediately withdraw previous universal life

product range on 22 October 2010– Caps on overall (expense+commission) charges; but impact on commissions

expected to be less onerous than ULIP guidelines, giving hope for someuniversal life products in the future.

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India

Significant falls in business volumes in October 2010– A 15% fall in business volumes (annualised premium income) in October 2010,

compared to September 2010 (volumes for private sector fell by 34%; LIC up 3%)

– A 20% fall in business volumes (annualised premium income) in October 2010, compared to October 2009, private sector fell by 43%.

Private companies assessing future strategy – Agencies being trimmed (agents and managers), and cost cutting in short term– Alternative product strategies expected, with increased focus on conventional

(par and non-par), protection oriented products and products with guarantees

Possible enhanced focus on bancassurance distribution– Given that the channel may still sustain the low levels of commission under the

new ULIP/VIP regime, especially with captive bancassurance where it should be relatively easier to manage commission levels.

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India

Focus on cost efficiency and productivity improvement by insurers expected over the next 12 months– Anecdotally, a cost reduction of 20% to 50% expected

Norms on IPO disclosures expected soon– But insurers may be less keen to tap the market until the short-term issues

are sorted out

Further delays possible in changes in FDI cap (to 49%)– Due to opposition by the coalition parties at the center (until the elections in

the state of West Bengal are over in summer 2011)

Continued capital constrained faced by domestic promoters– Private equity options were being pursued

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IndiaTop 10 players (by new weighted premium income, YTD Oct’10)

Comments:• LIC is still the dominant player in the

market, with a market share of 60%,

having gained back from private

players in recent months.

• Among the private players, ICICI Pru,

SBI Life and HDFCSL top the chart.

However, one has to see the

performance once these companies

start taking corrective steps in

response to the ULIP norms.

• Bancassurers may be expected to

perform relatively better in the future,

unless the agency oriented

companies drastically transform.

Source: IRDA

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Indonesia Takaful

– The Ministry of Finance increased capital requirements to IDR50bn, IDR5bn and IDR12.5bn for fully-fledged takaful operators, takaful windows and retakaful windows. Takaful operators and windows are also required to separate takaful and shareholder’s funds as part of new accounting standards for Shariah insurers.

Market entry– Zurich completed acquisition of 80% of PT Mayapada Life in November 2010– Aviva complete acquisition of 60% of PT Asuransi Winterthur Life Indonesia, and

company now PT Asuransi Aviva Indonesia– Meji Yasuda Life acquired 5% of PT Avrist Assurance in November 2010 – Much continued interest in the market and further market entries, acquisitions

expected– Several banks believed to be assessing insurance strategies (eg BCA, Danamon,

BNI) Health sector new business growth in 2009 Exclusive bancassurance partnerships

– Prudential/Permata Bank, AXA Mandiri/Bank Syariah Mandiri

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Indonesia Top 10 players (by total weighted premium income 2009)

Comments:

• Prudential continues to be the

leading player, supported by a

predominantly unit-linked

portfolio. (which also provides

high margin)

• Bumiputera does well to

maintain second position .

• AIA Financial, Manulife and

Allianz have significant shares .

• Mega Life writes much short

term business through Bank

Mega followed by AXA Mandiri .

• Avirst and Sequis are the largest

domestic ‘agency’ players.Source: Indonesia Life Insurance Association

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Malaysia

Takaful - 4 new Takaful licences granted to:– Great Eastern (70%), Koperasi Tentera (30%)– AIA (70%), Alliance Bank (30%)– AM Bank (70%), Friends Provident (30%)– ING (60%), Public Bank (20%), Public Islamic Bank (20%)

Market trends– New business robust in Malaysia. Market expected to continue to expand given the

currently low penetration rates, especially in the takaful sector.

Company news– Mitsui Sumitomo Insurance took 30% stake in Heong Leong Assurance for RM 940

million– Uni Asia is rumoured to be for sale– RHB Bank and Tokio Marine Life formed an exclusive 10-year bancassurance deal– MAA rumoured to be seeking a partner for life insurance

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Malaysia Top 10 players (by total weighted premium income 2008)

Comments:

• The top 5 players remain in the

leading positions over the last few

years (in terms of total premium).

• Great Eastern and Prudential both

experience stable growth of 6% and

7% respectively. Allianz and Hong

Leong both registered impressive

growth of around 22%.

• In terms of new premium, top players

such as Great Eastern, Prudential

and ING maintained their respective

positions, with Prudential witnessing

a higher market share over recent

years.

Source: Bank Negara Malaysia Statistics

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Singapore New business

– Weighted premium growth of 28% in first half of 2010: 26% growth in regular premiums (SGD 518 million) and 36% growth in single premiums (SGD 2.1 billion)

Product landscape– Margins have historically been attractive and have held up well over recent

years. – Several companies have recently launched universal life products through

banks; Prudential is the most recent through Standard Chartered Bank – Margins for universal life likely to be lower particularly for European MNCs who

look at MCEV / Solvency II– Continued interest in the high net worth sector (eg Generali), following success

of several players, e.g. Zurich, Transamerica, Friends Provident, Swiss Life and Royal Skandia.

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Singapore

Company news– Reports suggest that The Monetary Authority of Singapore has rejected the

life insurance license application of the Life Insurance Corporation of India, pending the parent getting a credit rating

– Prudential UK acquired the United Overseas Bank (UOB) Life Assurance in January 2010 and integration is now well advanced.

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SingaporeTop 10 players (by total weighted premium income)

Comments:

• AIA, Great Eastern and Prudential

continue to be the top 3 players in

the market, with AIA and Prudential

both observing a moderate growth

rate of 8%.

• Overseas Assurance Corporation

(“OAC”) experienced a decline of

14%, the only insurer with a negative

premium growth in 2009.

• Impact of global financial crisis has

resulted in sluggish new business.

For example, AIA saw a decline in

new business of 31%.

Source: Monetary Authority of Singapore

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South Korea

Market recovering from severe effects of financial crisis

Tong Yang Life, Korea Life and Samsung Life IPOs (Mirae Asset IPO

postponed)

Korean Accounting Standard Board decided full adoption of IFRS from 2011

Full implementation of Risk Based Capital (“RBC”) from 2011

Mandatory introduction of cashflow pricing in process of being implemented

Moving away from lifetime guarantees on morbidity risk (i.e. 3-5 year

renewable riders)

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South Korea

Enhanced secondary guarantees in variable products

− Sliding scale of return of premium (“ROP”) guarantees (e.g. 100% →120% →150%)

− 3-year rachets

− ING recently launched a 1-year rachet product

− Some domestics offered 150% guaranteed ROP

New reserving regulations for variable annuities from 31 March 2010 –

stochastic approach.

Pace of overseas expansion slowed

Mid/low tier M&A expected

Some companies have encountered problems with general agency “phantom

policies”.

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South KoreaTop 10 players (by total unweighted premium income)

Source: Korea Life Insurance Association

Comments:

• Samsung Life remains

the market leader , followed by

Korea Life and Kyobo Life.

However, they are observing a

declining market share.

• Rankings of the life insurers remain

largely unchanged.

• Total premium income declines for

both ING Life and Mirae Asset.

Other players such as Metlife and

Shinhan Life has experienced

strong growth.

• In addition, new business for Korea

Life and Mirae Asset is significantly

reduced.

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Taiwan

Strong premium growth– Driven by traditional products, particularly interest sensitive deferred

annuities. – FYP grew by 40% in the first 8 months in 2010.

Multinationals continue pulling out– Aegon, Metlife and New York Life

Economic Cooperation Framework Agreement (ECFA)– ECFA only promised to treat Taiwan companies with leniency, not treated as

domestic company in the mainland. M&A

– Primus/Nan Shan deal officially terminated. Market waiting for next steps.– Kuo Hua Life is taken into receivership by the government officially. The

government so far failed twice to sell it.

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Taiwan

Challenges for insurers

– Falling yields, equity losses, and irrational pricing

– IFRS adoption expected to have a significant impact given the historical

negative interest spreads and low prevailing risk-free interest rates

– Long term health / cancer mis-pricing

– Over-concentration in the market

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TaiwanTop 10 players (by total weighted premium income)

Comments:

• The top two insurers, Cathay Life and

Fubon Life, registered growth of 1.5%

and 87.4% of total unweighted

premium in 2009.

• Allianz Taiwan Life has outperformed

other foreign insurers with a growth of

77% in total unweighted premium and

96% in new unweighted premium.

• Nanshan, although still the biggest

foreign player in the market, has

experienced declining total premium

income of 6%.

• Domestic players account for almost

70% of the total market share.In NTD millionsSource: Taiwan Institute of Insurance

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Thailand

Healthy growth in new business premium income, against a backdrop of

economic recovery yet continuing political instability.

Baht at unprecented levels against USD, SET Index has risen sharply in 2010.

Deepening of bancassurance sales and expansion of direct distribution.

Tax deductible allowance on life insurance premiums increased to encourage

long term savings; proposals to increase tax relief for contributions to pensions.

New risk based capital (“RBC”) rules still being finalised; implementation on

track for 2012 (2011 financial year-end). Recent pilot exercise suggest modest

capital injections required by the life industry under the proposed basis.

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Thailand

Low interest rate environment impacting new business profitability since

products typically have high embedded guarantees and options.

M&A – Bangkok Life IPO, Kasikorn Bank/Muang Thai, CIMB Millea Life

Thanachart Bank is buying Siam City Bank to become 5th largest bank. Both

banks have a life and non-life company.

Office of Council of State ruling on 2008 amendments to the Insurance Act

imply significant changes to foreign holding company structures and possible

transformation of insurers to public company status by Feb 2013.

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ThailandTop 10 players (by total weighted premium income)

In BHT millionsSource: Thai Life Assurance Association

Comments:

• The top two players in the market, AIA

and Thai Life, only observe moderate

premium growth of 4.7% and 10.5%

respectively.

• Other major players experience much

stronger growth. The impressive

growth experienced by Bangkok Life

(29.3%), Muang Thai Life (29.6%)

and Siam Commercial New York Life

(35.5%) is a reflection of the

increasing importance of

bancassurance in Thailand.

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The Philippines

Sales picking up after the financial crisis

Life insurance premium tax reducing from 5% to 2%. Documentary stamp tax

(“DST”) to move to a graduated system based on the face amount of a policy.

Regulation for pre-need firms transferred from the Securities and Exchange

Commission to the Insurance Commission.

Problems for many companies to meet the new minimum capital requirement

of P100m by end of 2009.

Rural, co-op and thrift banks have been allowed to distribute micro-insurance

M&A and restructuring – Philam Life/BPI, Grepa Life/Great Life

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The Philippines Top 10 players (by total premium income)

Comments:

• Philam Life remained its market

leader position but has experienced

a decline in total premium of 20%.

• Generali Philipinas recorded strong

growth in total premium of 136%

and first year premium of 208%,

attributed to more attractive

products and stronger distribution

network.

Source: The Philippines Insurance Commission

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Vietnam

Strong new business growth in 2009, although not as good as before the

financial crisis

Some recent new entrant activity e.g. Vietcombank Cardif Life, Generali

opened representative office, Dai-ichi Life opened general agent office

New bancassurance partnerships – Bao Viet/HSBC, AIA/Viet Bank,

Prudential/Military Bank, Prevoir Life/Asia Commercial Bank

Disclaimer

This presentation is intended solely for educational purposes and

presents information of a general nature. It is not intended to

guide or determine any specific individual situation and persons

should consult qualified professionals before taking specific

actions. Neither the presenter, nor the presenter's employer, shall

have any responsibility or liability to any person or entity with

respect to damages alleged to have been caused directly or

indirectly by the content of this presentation.