British insurer Prudential will pay $585 million to buy the insurance unit of Thailand’s Thanachart Bank, in the latest twist and turn in the competition among global insurers to capture the growing Asian market.
On October 10, Asian insurer AIA Group said it planned to buy ING’s Malaysian life-insurance operations for $1.7 billion in cash. Then on October 19, ING agreed to sell its insurance units in Hong Kong, Macau and Thailand to Hong Kong businessman Richard Li for a combined consideration of $2.1 billion. That agreement was part of the previously announced divestment of ING’s Asian insurance and investment management activities.
In this latest deal, Prudential, through local unit Prudential Life Assurance (Thailand), will buy out Thanachart Life Assurance and establish a 15-year partnership deal in Thailand’s bancassurance business with Thanachart Bank, which has more than four million customers and more than 630 branches nationwide, Prudential said in a statement Monday.
Prudential abandoned a $35.5 billion takeover bid to buy AIA Group two years ago — and is now going head-to-head with its rival, which has a dominant position in Thailand. Thanachart, after all, is a top-10 life insurer in Thailand, with around one million policies in force.
And the market is growing. Gross premium income grew by 16% a year between 2007 and 2011. Considering bancassurance has been the main driver of growth during this period (accounting for 50% of life insurance first-year premiums in 2011, compared to 28% in 2007), this was a crucial element of the deal.
“This was a rare opportunity for Prudential to immediately double its market share in Thailand and secure an attractive long-term bancassurance partnership with a leading Thai bank,” said a source.
In the 12 months ended June 30, 2012, Thanachart Life’s net profit was $39.8 million. The transaction price of $585 million represents a multiple of 5.8 times the insurer’s book value, as of December 31, 2011.
Deal rationale
The acquisition of Thanachart Life will immediately double Prudential Thailand’s market share by gross premiums.
Thailand’s life insurance market is significant in size, comparable in premium terms to Indonesia and Malaysia. But life insurance penetration in Thailand remains low at only 2.7%, providing substantial long-term profitable growth opportunities for Prudential.
Thanachart Bank is 51%-owned by Thanachart Capital and 49%-owned by Bank of Nova Scotia, better known as Scotiabank.
The transaction is expected to close in the first quarter of 2013 subject to customary closing conditions, including regulatory approvals from the Thai insurance regulator and the commerce ministry.
Prudential was advised by Morgan Stanley, while Citi and Thanachart Securities jointly advised Thanachart.
