April 20, 2018 / 8:28 AM / 6 months ago

Australia's IAG set to sell SE Asia businesses in regional retreat: sources

HONG KONG/SINGAPORE (Reuters) - Insurance Australia Group (IAG.AX) is set to sell its four Southeast Asian businesses in deals that could be valued at about $500 million, under a review of its Asian operations, three people with knowledge of the matter said.

FILE PHOTO: Pedestrians walk past the headquarters of Insurance Australia Group Ltd (IAG), Australia's largest general insurer, located in central Sydney, Australia, October 15, 2015. REUTERS/David Gray/File Photo

IAG, Australia’s biggest general insurer by market share, has ventures in Malaysia, Thailand, Vietnam and Indonesia in Southeast Asia, and could complete the sale process by the third quarter, the people said.

Despite years of investments, Asia has proved a challenge for IAG. The insurer posted an underwriting loss in Asia of A$6 million ($4.63 million) in its fiscal first half of 2018, although that loss narrowed from A$9 million in the second half of 2017.

Asia’s overall earnings contribution decreased to A$10 million in 2017 from A$26 million a year earlier.

A spokeswoman for IAG in Australia said the insurer had announced plans to review Asia strategy, not to exit the region. She declined to comment on whether the company had made a decision to exit those specific markets.

IAG also operates in India and owns a 16.9 percent stake in Bohai Property Insurance Company Ltd in China.

IAG said in February that it was reviewing its Asian operations in the face of a lack of buying opportunities to boost growth in a region attractive for its low penetration rates but which is also very competitive.

An exit would mean IAG joins other Australian financial firms, including Commonwealth Bank of Australia (CBA) (CBA.AX), that are retreating from Asian insurance markets to focus on their home businesses.

SOUTHEAST ASIA INTERESTS

IAG owns a 49 percent stake in its Malaysian venture, AmGeneral Holdings Bhd, the general insurance arm of AmBank Group. It has a 99 percent stake in Thailand’s Safety Insurance, according to its February investor report.

The insurer also holds an 80 percent stake in Indonesian non-life insurer PT Asuransi Parolamas and has 63 percent of AAA Assurance Corp in Vietnam.

Malaysia and Thailand account for the bulk of its premium income in Southeast Asia, said one of the people with knowledge of the matter.

The Malaysian entity could be appealing to firms including Maybank Holdings’ insurance venture, Etiqa, Japanese insurer Tokio Marine and Chinese insurer Fosun, the people said, declining to be named as they were not authorized to speak to the media.

Fosun did not immediately respond to Reuters queries. Tokio Marine and Maybank declined to comment.

One source said bids for IAG’s businesses in Thailand, Indonesia and Vietnam were expected in a few weeks. The Malaysian divestment process is likely to be completed in the current quarter or early third quarter, another person said.

This month, IAG said it expected a “potential inflow” of capital from Asian divestments.

It did not provide financial details on the impact of the review, but Macquarie analysts estimate it will ultimately exit most markets in the region and free up about A$800 million ($621 million) of capital in the next few years.

Reporting by Sumeet Chatterjee in Hong Kong and Anshuman Daga in Singapore; Additional reporting by Paulina Duran in Sydney and Taiga Uranaka in Tokyo; Editing by Neil Fullick.

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