AIA paid Citi an upfront fee of over $1 billion for the distribution rights and the US bank is likely to garner billions of dollars from its share of commissions from the partnership, which is valid for 15 years, according to a person familiar with the matter.
The sale coincides with a surge of interest from global insurers in selling their products to Asia’s fast-growing middle class. North American, European and Japanese insurers are beset by low growth at home and rising regulation costs. They have been buying other insurers in Asia and teaming up with local banks to sell their products in an effort to boost profits.
In a separate deal, MetLife said on Thursday that it has agreed to buy 50% plus one share in AmLife Insurance for $259 million. The deal includes a 20-year bancassurance agreement with AmLife's parent, AMMB Holdings, which is the fifth-largest bank in Malaysia.
Reinsurer Swiss Re forecasts that the value of life insurance premiums in Asian emerging markets will grow at a rate of 9.9% in 2014, compared with 3.9% globally.
The auction for the rights to sell across Citi’s network was hotly contested with some of the world’s largest insurers battling it out. The US’s MetLife, Canada’s Sun Life Financial and Manulife, as well as Hong Kong entrepreneur Richard Li’s FWD Group made it to the final five contenders.
The highest price was not the only criteria for Citi. Other factors included the insurer’s footprint in Asia and its product array. AIA has operations in 17 markets in Asia-Pacific and its first move into the region was through an office in Shanghai 90 years ago.
“By partnering with one of the world’s leading insurance companies, we will be able to offer our customers access to high quality, tailored life insurance products and services that offer them protection suited to their needs,” Citi's Asia-Pacific chief executive, Stephen Bird, said in a statement.
Insurers distribute their products in different ways. Some have armies of salesmen who sell policies door-to-door. This has been the favoured approach in Asia where referrals from families and friends can be an effective sales method.
Another channel is via bank branches. Insurers place salesmen in the branches or train bank personnel to sell insurance policies alongside banking products.This sales avenue has been gaining traction in Asia. It is cheaper for the insurer than maintaining large numbers of salesmen. However, they have to split commissions with the bank.
So-called bancassurance partnerships have become longer recently as banks have sought to sell distribution rights, and interest from global insurers is fierce. Insurers are also keen to develop long-lasting partnerships, which will allow them to see the fruits of their initial investment in training and technology.
The Citi deal comes as governments and development agencies across Asia are promoting insurance products to their citizens. They are trying to plug the gap left by shrinking cradle-to-grave state safety nets, which are becoming unaffordable as their populations expand.
Savings and insurance products help cushion citizens if a wage earner in the family dies prematurely, reduces the need for state pensions and make healthcare more affordable.
However, governments are also clamping down on mis-selling of products via banks, and insurance experts expect regulations will continue to tighten across the region.In China and India new regulations have knocked the sale of insurance products via banks hard in recent years.
Insurers also sell policies over the internet. But while this channel has largely replaced the door-to-door salesmen in Europe and North America, sales over the internet are largely in their infancy in most of Asia.
AIA will sell through all of Citi’s retail distribution channels, including branches, telemarketing and online. The markets included in the agreement are: Hong Kong, Singapore, Thailand, China, Indonesia, Philippines, Vietnam, Malaysia, Australia, India and Korea.
AIA’s products range from retirement savings plans and life insurance to accident and health insurance.
Citibank has more than 34 million retail accounts in Asia-Pacific with over $218 billion of clients’ assets under management and a deposit base of $250 billion across its retail and institutional businesses.
The deal covers both retail and group life insurance product areas, and provides access to Citibank’s corporate clients as well as about 13 million existing retail cardholders and banking customers in the 11 markets.
“This highly attractive distribution agreement further consolidates AIA’s leading position in Asia’s fast growing life insurance markets,” said Mark Tucker, AIA’s chief executive and president.
The new partnership arrangements will be implemented in each territory during 2014.
