In a previous article, we discussed MetLife’s (NYSE:MET) potential in Asian markets with a focus on Japan. To recap, the company’s premiums from international operations have grown from $2.88 billion in 2008 to $13.29 billion in 2012 with over 60% of the premiums coming from Asia. MetLife’s Asian business spans across China, Japan, Hong Kong, South Korea, Australia, the UAE, Nepal, Bangladesh, India and Pakistan. In this article, we discuss MetLife’s growth potential in some of the fastest growing markets like India and China.
Our $39 price estimate for MetLife’s stock is at a discount of 10% to the current market price.
China is the world’s fifth largest life insurance market accounting for 5% of the world’s premiums and 14% of the premiums originating in Asia with over $130 billion in premium volume. China led the world in premium growth rates from 2000 to 2010 with a compounded annual growth rate (CAGR) of close to 20%, although the enforcement of regulations regarding distribution led to a slowdown in growth in 2011. 
Insurance penetration, measured by taking premiums as a percentage of GDP, is still quite low at less than 2%. In comparison, more mature Asian markets like Japan and South Korea have a life insurance penetration close to 8%. ((Swiss Re’s World Insurance and figures for GDP growth are taken from the World Bank’s website.))
The Chinese market consists of 30 domestic companies and around 28 foreign joint ventures including Manulife (NYSE:MFC)–Sinochem Life Insurance, MetLife Insurance, American International Insurance, AEGON-CNOOC Life Insurance and CIGNA CMC. Foreign ownership in insurance companies is limited to 50%.  Companies with foreign ownership above 25% are considered joint ventures and are subject to special restrictions and regulations. 
The Chinese government has imposed tight regulations on sales and administration, corporate and capital governance as well as risk management. Due to strict regulations and restrictions, foreign insurers have been unable to expand in the market. The market share of foreign life insurance companies peaked at 8.9% in 2005 but has since dropped to just 4.3% in 2012. 
MetLife Insurance Company in China is a collaboration between MetLife and Shanghai United Investment Company Limited. The latter holds a 50% stake while MetLife of Connecticut and MetLife hold 27.8% and 22% stakes, respectively. MetLife has a market share of 10% of the foreign-owned life insurance market in China, with regular life and participating life insurance being its main products. The company has registered capital of RMB 2.12 billion and 1,100 employees. 
We expect the Chinese market to grow to $190 billion by the end of the decade (Read: A Look At The Chinese Life Insurance Market). Based on a survey conducted by PwC, foreign insurers are targeting a collective market share of 5% during this time frame. If MetLife maintains it market share, it can earn close to $1 billion in premiums from the country.
India accounts for more than 2% of the world’s premiums and 6% of the premiums originating in Asia. The country is the tenth biggest insurance market in the world and has potential to grow exponentially in the coming years. The life premium volume from India is around $60 billion, a little over 3% of its GDP.
The Indian government allowed privatization in the insurance industry in 2000, setting up the Insurance Regulatory and Development Authority (IRDA) to issue licenses to private life insurers. Foreign direct investment (FDI) was also allowed up to a limit of 26%, which meant that non-Indian entities were allowed to hold up to 26% of equity/share capital in Indian insurance companies. As a result of this, 23 private companies, mostly joint ventures, entered the market. These companies include PNB Metlife India Life Insurance, Tata AIA Life, DLF Pramerica Life Insurance (a joint venture between Prudential Financial and DLF) and ICICI Prudential Life Insurance (a joint venture between the British insurer, Prudential plc and ICICI)
As a result of de-nationalization, new business premiums (NBP) grew by 28% while gross written premiums increased by 25% from 2000 to 2011.  However, the Indian market is still dominated by the government run Life Insurance Corporation (LIC) which has a market share of over 70%. Private sector companies have just over 40 million policies in force. 
Despite the recent growth, the country’s 1.2 billion population is still underinsured. The level of protection, measured by the ratio between the assured sum and the GDP, is around 55% – much less than that in developed markets like the U.S. and the U.K. which have protection ratios around 150% to 250%, respectively.  Based on the census conducted in 2001, the IRDA reported that there are around 600 million insurable people in the country. However, less than 50% of this insurable population is covered by a life insurance plan.  To bridge the gap between the insurable population and policies in force, the Union Cabinet passed a proposal to increase foreign direct investment in the insurance sector from 26% to 49% in 2012. This bill is still to be passed by the country’s parliament.  Under the legislation, there is a 10-year lock-in period for investment to be limited to promoter group equity investments. This basically means that insurance companies in India will have to wait for at least 10 years before a public issue of equity through an initial public offering (IPO).
MetLife has a 10-year exclusive distribution agreement with Punjab National Bank (PNB), which has a 30% stake in the company.  Under this agreement , PNB is the largest nationalized bank in India with over 5,000 branches and 60 million customers. The agreement with the bank will allow MetLife to expand aggressively in the Indian market.
As discussed in our article, A Look At The Indian Life Insurance Market, we expect the Indian insurance market to grow to $120 billion by the end of the decade. If the market share of private insurance companies increases from 30% to 35% and MetLife is able to attract even 3% of this, it can earn around $1.2 billion from the country.Notes:
- Foreign Insurance Companies In China, PWC, December 2012 [↩] [↩]
- Life Insurance In China, Forbes [↩]
- Ref:2 [↩] [↩]
- India Life Insurance 2.0, McKinsey&Company [↩] [↩]
- IRDA [↩]
- INDIAN LIFE INSURANCE INDUSTRY, Researchers World [↩]
- Insurance and pension get FDI boost, need parliament nod, Indian Express, 5th October, 2012 [↩]
- MetLife Enjoys Year-End Success on International Business Growth [↩]
- IRDA approves PNB-MetLife Insurance deal – Economic Times [↩]