MassMutual’s sale of its Asian arm to a group of Asian investors for $1.7 billion is a bet that it can upgrade its staid life insurance business by working with internet-savvy fintech firms.
Two of the buyers of the unit, called MassMutual Asia, are backed by Chinese ecommerce giant Alibaba, namely a small Hong Kong-listed robo-advisory firm, Yunfeng Financial Group, and the world's largest mobile and online payments platform Ant Financial.
As part of the deal the US mutual life insurance company will take a 24.8% stake in Yunfeng FG and has negotiated a strategic alliance with Ant Financial in the US to work on digitising insurance. They will explore the use of big data analytics in risk-selection and risk-based pricing of insurance products.
Ant Financial inked a deal in May to intall its payments systems in US retail outlets and it is in negotiations with US foreign investment watchdog Cfius to complete its purchase of Texas-based money transfer firm MoneyGram. Insurance products will give it a longer-term relationship with clients who are quick to switch to the latest shiny fintech platform.
Western insurance companies have been selling their Hong Kong units at eye-popping valuations in recent years to Chinese property developers and conglomerates looking for a footpint in the Territory. Such deals include China's Thai Hot Group acquiring Dah Sing Financial Holdings' insurance business at 2.8 times embedded value.
Instead of going for a huge pay-out, MassMutual accepted a relatively lower valuation for its Asian unit, which still covered its investment costs in the region and gave it skin in the Chinese internet boom. The price to embedded value multiple was around 1.2 to 1.4 times off 2016 year end financial results.
Insurance companies have been a relatively sleepy backwater of finance, mostly shielded from the fintech revolution taking place in, for example, retail banking. It is only a matter of time before the owners of tremendous repositories of data and clients, such as Ant Financial, Google and Facebook, look to take business from well-established insurers.
Founded in 1851, Springfield-headquartered MassMutual, formally known as Massachusetts Mutual Life Insurance Company, is trying to stay in the game.
Competition is certainly heating up. China’s first online insurance company, Zhong An Online P&C is growing fast and attracting investment capital. In January Aviva set up a digital platform in Hong Kong with Tencent and private equity firm Hillhouse to sell basic life insurance products, allowing the British firm to bypass door-to-door salesmen who charge high commissions up front, putting strain on growing businesses.
To be sure, life insurance is not being disrupted as much as, say, property and casualty insurance by digital start-ups. But online is steadily growing in importance as a way to reach new clients in Asia, where there are relatively few bank branches and distances between townships for the travelling salesman are time-consuming.
"Acquisitions, stakes and partnerships will proliferate as businesses seek to acquire the skills and tools required to prosper in an age of digitalisation," said consultancy Towers Watson in a report.
Robo-advisor
Yunfeng FG, which led the group of Asian buyers, sells investment products to China’s emerging affluent. Despite the best efforts of regulators, many of these mainland Chinese still buy insurance policies in Hong Kong as a way of shifting capital off shore.
Yunfeng FG’s technology-enabled wealth management platform alows clients to register and log on via their mobile phones. Its robo-advisor helps clients with their asset allocation and which mutual fund to buy – all at a fraction of the cost of, say, an investment bank or more to the point a traditional insurance firm with an army of door-to-door salesman.
Today, robo-advisers are pretty basic. Investors input their risk parameters and the algorithms behind the platforms assign the money into applicable exchange-traded funds. The market leaders are quite small. Research firm ETFGI estimates $4.1 trillion is invested globally into ETFs, while the combined assets under management at the two largest US robo-advisers — Betterment and Wealthfront — is $12.4 billion. And while around 200 robo-advisers operate in the US, Asia Pacific has only about 50, according to fintech research company Burnmark.
Tomorrow’s robo-advisers will use AI algorithms to analyse masses of big data on market movements, economic conditions and asset valuations, before making investments. In essence, they will act more like active fund managers.
Big data and better AI analysis tools could allow active fund houses to amass far more data on the financial health of individuals and whether they represent an acceptable risk for the firm.
MassMutual is not alone in feeling insurers could do more; 74% of global insurers believe their sector has failed to show leadership in digital innovation according to a survey conducted by consultancy Willis Towers Watson.
Nearly all respondents expect distribution to be the area where digital technologies have the greatest impact over the next five years according to the survey of 200 senior-level executives in the insurance industry in 2016.
Big data is also offering ways to make insurance sales less risky by analysing citizens' habits. In some countries in Southeast Asia where data protection is more lax than say the West, supermarket point cards can be analysed to see if eating habits are healthy while bank deposits and withdrawals could be checked to judge ability to pay premiums.
In the next two years, 77% of insurers say web and mobile delivery channels are the digital technologies they expect to have the biggest impact on the sector, while they anticipate big data, automation, robo-advice and sensors to emerge in importance over the next five years.
Regulations
The insurance regulator in Hong Kong must still approve MassMutual's sale before it can be completed. It is charged with making sure policy holders in the Territory are protected so may take note of the fact that Yunfeng FG does have experienced insurance executives such as the CFO Chan Man Ko, who used to work at China Taiping Insurance. Yunfeng FG will keep the existing management team.
MassMutual can nominate two persons to act as non-executive Directors.
Yungfeng FG will own 60% of MassMutual Asia while the other Asian investors will hold the remaining 40%. They are Meyu International with a 9.8% stake, GIC’s private equity group 7.5%; Ant Financial Services 5%; Sheen Light Development 5%; SINA Corp 5%; Harvest Billion International 4.9% and Giant Network Group (2.8%).
MassMutal executives were upbeat about the prospects for cooperation with the new investors in its Asia arm.
“We will continue to participate in the growing and attractive Asian markets through our ongoing stake in the combined Yunfeng FG and MassMutual Asia business,” said Roger Crandall, Chairman, President and CEO of MassMutual in a statement.
Citigroup served as MassMutual International’s exclusive financial advisor on the transaction; MassMutual International’s legal advisor was Skadden.
Reorient Financial Markets and J.P. Morgan served as Yunfeng FG’s financial advisors on the transaction; Yunfeng FG’s legal advisor was Simpson Thacher & Bartlett.
For the year ended December 31, MassMutual Asia reported premium income of HK$6,875 million, total assets of HK$44,460 million and total equity of HK$6,783 million.
