Citigroup (NYSE:C) has picked AIA Group as its insurance partner for bancassurance distribution in 11 markets in Asia.  AIA Group beat bids from MetLife (NYSE:MET), Manulife (NYSE:MFC), Prudential Plc and FWD Group. MetLife, which earns more than 60% of its international premiums from Asia, was looking to expand its presence in the region through the alliance, which would have allowed it to market insurance products to 13 million Citi customers through 600 branches. The insurer will now have to target individual markets for further expansion and has already announced an agreement with AMMB Holdings Bhd to acquire a 51% stake in Malaysian life insurance company AmLife Insurance Bhd.  MetLife will also acquire a 49% stake in AMMB’s Islamic insurance business, AmFamily Takaful Bhd, paying a total of $249 million in cash.  The deal is pending regulatory approval.
MetLife has established operations in some of the biggest markets in the Asia Pacific region including China, Japan, Hong Kong, South Korea and Australia. The company acquired ALICO from AIG (NYSE:AIG) in 2010 which boosted its premiums from international operations, from $2.88 billion in 2008 to $13.29 billion in 2012. We expect further expansion from MetLife in the coming years. Our $49 price estimate for MetLife’s stock is in-line with the current market price.
A Brief Overview Of Malaysia
Malaysia is the tenth largest life insurance market in Asia, with annual premium volume growth of 7.4% in 2012.  Bancassurance (or the bank insurance model), in which a bank allows an insurance company to sell products to its client base through the bank’s sales channel, is the prevalent distribution model in the country, accounting for 60% of sales.  This holds well for MetLife as AMMB is the fifth largest bank in the country with over 4 million customers and 187 branches.
Around 60% of Malaysia’s 29.6 million population is Islamic, and MetLife will be able to target this demographic through AmFamily Takaful Bhd.  The country has maintained a GDP growth rate of 5% for the last two years and has a growing middle class, as indicated by the Gini index. The Gini index came down from 49.2 in 1997 to 46.2 (a Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality). In the Swiss Re Survey of Risk Appetite and Insurance: Asia-Pacific 2011, around 44% of respondents in the country indicated a willingness to pay for a 20-year term life insurance policy, higher than the average for Asia Pacific, which was around 38%. Insurance penetration, measured by taking premiums as a percentage of GDP, is still low in Malaysia at around 3%. Compare this to a mature market like Japan, which has a penetration of close to 10% and you can see the potential for growth.  We believe MetLife has made a prudent deal but needs to keep expanding its reach in the Asian market.Notes:
- Citigroup picks AIA for Asia distribution deal, December 19, 2013 [↩]
- MetLife to Pay $256 Million for AmLife Stake, December 19, 2013 [↩]
- Metlife Inc : METLIFE TO FORM STRATEGIC PARTNERSHIP WITH MALAYSIA’S AMMB AND TO PURCHASE INTERESTS IN AMMB’S LIFE INSURANCE AND FAMILY TAKAFUL COMPANIES, Press Release, December 19, 2013 [↩]
- 3/2013 World insurance in 2012. Progressing on the long and winding road to recovery , Swiss Re [↩]
- Life insurance: focusing on the consumer, Swiss Re Sigma No 6, 2013 [↩]
- CIA FactBook [↩]
- Swiss Re’s World Insurance and figures for GDP growth are taken from the World Bank’s website [↩]