AIA has become Malaysia’s biggest insurer after paying €1.33 billion ($1.73 billion) for ING’s insurance operations in the country.
The pan-Asian insurer announced the acquisition on the same day as its third-quarter results, which showed a 22% increase in new business to a record $300 million.
ING Insurance is the third-biggest provider in Malaysia, with more than 1.6 million customers across a range of different products, including life, general and employee benefits. AIA is the fourth-biggest insurer in the country.
The proposed deal, which is subject to regulatory approvals, also gives AIA a 60% stake in Islamic insurer ING Public Takaful Ehsan, a joint venture with Public Bank.
“It's a very rare, attractive opportunity and a very good fit with our strategic vision,” said Mark Tucker, AIA’s group chief executive. “Financially, it's compelling from day one — it's immediately accretive to earnings and offers substantial upside. Companies of this scale, quality and opportunity rarely come on to the market.”
The deal values ING’s Malaysian insurance operations at 16.9 times 2011 earnings and 2.2 times book value (at the end of the first half of 2012). ING said that it expects the sale to deliver a net gain of about €780 million.
AIA has total assets of about $120 billion and will fund the deal with a combination of cash and external debt. Standard & Poor’s said the acquisition would not affect AIA’s AA- rating thanks to its strong capital position and solid business profile.
Since the company’s listing in 2010, Tucker’s plan to keep the new shareholders happy has involved growing the business and improving margins across the group.
Most of the growth has been organic so far — an expansion into second- and third-tier cities in China, an increased focus on bancassurance and long-term strategic partnerships, leveraging the firm’s licences for Islamic products in Malaysia and Indonesia, and a focus on higher-margin products.
But the group is also entering new markets. Last month, it agreed to pay $109 million for a 92% stake in Sri Lank’s Aviva NDB Insurance.
AIA’s biggest markets are Hong Kong and Thailand, which together earned more than 50% of the group’s operating profits during the first half. Singapore contributed 15%, while China, Korea and Malaysia added roughly 7% each.
The addition of ING’s Malaysian unit to the group will more than double the size of AIA’s business in the country.
“It extends our pan-Asian leadership and gives us a unique position to capture the immense growth opportunities in a fast growing Southeast Asia market,” said Tucker.
According to its 2012 interim report, ING Insurance had M$16.8 billion ($5.5 billion) of assets in Malaysia at the end of June and earned M$63 million in pre-tax profits to that point. To the end of May, AIA’s Malaysia business earned a half-year pre-tax profit of M$29.5 million, with total assets of M$22 billion.
The Dutch insurer is selling the businesses, as well as its Malaysian investment management unit, as part of the conditions attached to its €10 billion rescue loan from the Dutch government in October 2008.
“Today’s announcement is the first major step in the divestment of our Asian insurance and investment management businesses and shows that ING continues to make steady progress in the restructuring of our company,” said Jan Hommen, chief executive of ING Group, in a statement.
AIA is aiming to complete the acquisition by the first quarter of 2013, assuming it can win approvals from Malaysia’s central bank, finance minister and securities regulator, as well as a statement of no objection from the Dutch central bank.
AIA is the world's fifth-biggest insurance company by market capitalisation, with a business that spans 15 markets in Asia. The company has a long-standing presence in Malaysia, having first established operations there in 1948.
Deutsche Bank, Morgan Stanley, Evercore Partners and CIMB advised AIA on the transaction, while Debevoise & Plimpton provided legal advice.
