SINGAPORE/HONG KONG (Reuters) - The race to win a bigger slice of Southeast Asia's insurance market is heating up as AIA Group (1299.HK), Manulife (MFC.TO) and Prudential PLC (PRU.L) compete for mid-size acquisitions in the region totaling up to $1 billion, sources said.
The three insurance groups as well as France's AXA (AXAF.PA) and Canada's Sun Life (SLF.TO) have submitted initial bids for the Malaysian life insurance joint venture between CIMB Group (CIMB.KL) and Aviva (AV.L), a deal estimated to be worth at least $400 million, the sources, who had direct knowledge of the matter, said.
The moves come against the backdrop of a $7 billion auction for ING's ING.AS Asian insurance business as some foreign insurers exit the region to focus on their core markets, while some larger ones and new entrants try to gain bigger exposure to Asia.
"Many of the recent opportunities have been driven by distressed sellers, whether because of government bailouts, the impact of Basel III or lack of focus and investment resulting in underperformance," said Anna Tipping, a partner at law firm Norton Rose, who specializes in insurance.
AIA and Manulife are also in the running for ING's Asian insurance business, while Prudential is seen as a strong contender to buy Thai Thanachart Bank Pcl's (TCAP.BK) insurance operations in a deal worth about $500 million, sources have said.
The fundamentals appear compelling. Life insurance premiums in emerging Asia are forecast to grow 9.6 percent this year and 8.7 percent next year, compared with the world average of 3.1 percent and 3.7 percent in the two years, respectively, according to estimates by Swiss Re.
That projected growth comes after the life insurance market grew 15.4 percent annually over the last 10 years, far exceeding the global growth rate of 5.7 percent per annum over that period, according to estimates by Credit Suisse late last year.
And Southeast Asia accounts for less than 0.25 percent of the world's insurance market share, according to research by Norton Rose, with insurance penetration low in Indonesia, Malaysia and Thailand.
Easy foreign ownership rules are also creating greater interest for foreign insurers, analysts said. Malaysia allows foreign insurers to take as much as 70 percent stake in domestic insurers, while foreign insurers can buy up to 80 percent of an Indonesian insurer.
Indonesia, which has a life insurance penetration of only 1.3 percent, is attracting interest from foreign players including Swiss, Japanese and Korean insurers.
Indonesia's capital market regulator Bapepam-LK has said it will not change foreign ownership cap norms in the insurance sector despite the central bank's planned move to cap ownership in banks at maximum 40 percent.
"We see tremendous interest from many foreign investors, even from U.S. pension funds who are keen to invest in the sector given the current regulatory situation and the underpenetrated market," said Julian Noor, executive director at the Indonesian General Insurance Association.
Last year Japan's largest property and casualty insurer, MS&AD (8725.T), bought a 50 pct stake in PT Asuransi Jiwa Sinarmas, the life insurance unit of Indonesian conglomerate Sinar Mas, for about 67 billion yen ($825 million) at a record valuation of around 5 times book value.
"Last year's landmark deal is proof that Indonesia's prospects are very promising as our insurance penetration is low," said Indra Widjaja, president commissioner of PT Sinarmas Multiartha (SMMA.JK), the group's financial arm which controls Asuransi Jiwa Sinarmas.
"Our GDP (per capita) is above $3,000 and closing on to $4,000. This is when all financial assets such as insurance will see a boom," Widjaja told Reuters.
Insurer and reinsurer ACE Ltd ACE.N said last week it will buy Indonesian general insurer PT Asuransi Jaya Proteksi for about $130 million, while PT Panin Financial (PNLF.JK), controlled by Indonesia's powerful financier Gunawan family, is also planning to sell up to a 40 percent stake in its life insurance business. That deal, which would be worth about $200 million, is attracting Japanese bidders, sources told Reuters earlier this year.
The new entrants will be competing against industry leader Prudential, whose domestic Indonesian unit recorded a total premium income of 14.8 trillion rupiah ($1.57 billion) in 2011 - a 47 percent increase from the previous year. It had 1.4 million policy holders in the country.
The auction of the Aviva-CIMB business in Malaysia comes after Britain's second-biggest insurer laid out plans last month to exit non-core markets, a strategy aimed in part at raising money to protect against its euro zone exposure.
Aviva is selling its 49 percent in the Malaysian joint venture, while CIMB could sell a significant portion of its 51 percent stake, the sources told Reuters.
The auction is being handled by Morgan Stanley (MS.N) and CIMB, the sources said. The initial bids are of a non-binding nature. "They will come back to the bidders in a week or so," said one of the sources.
The shake-up will help the new buyer control the destiny of the joint venture in a market where life and non-life premiums grew 5.4 percent in 2011 to $10.7 billion, according to central bank data. According to Swiss Re, life insurance premiums are forecast to grow 5.3 percent this year.
A successful sale will also heighten competition between the foreign companies and domestic players such as Great Eastern (GELA.SI), which enjoys a leadership position in Singapore and Malaysia.
Aviva entered Malaysia in June 2007 by investing 500 million ringgit in the insurance joint venture with CIMB, according to CIMB's website.
AIA, Aviva, AXA, CIMB, Manulife, Morgan Stanley and Prudential declined to comment. Sun Life, which has an insurance partnership with CIMB in Indonesia, said it is focused on growing its business in Asia both organically and through acquisitions, but declined to comment on this transaction.
The sources declined to be named because the details of the bidding process are not public. ($1 = 9425.0000 Indonesian rupiahs)
Additional reporting by Ngui Yantoultra in Kuala Lumpur and Janeman Latul in Jakarta; Editing by Muralikumar Anantharaman and Daniel Magnowski