News Digest
Northwestern and Nippon Life join
forces…
Call for increased US retirement
age…
SCOR boosts its home
market position…
Outsourcing specialist
exits insurance…
Prudential boosts Asian
marketing reach…
ASSET MANAGEMENT
Northwestern and Nippon Life join forces
Nippon Life of Japan and Northwestern Mutual of the US, two of the
world’s largest mutual insurers, are to assist each other in
pursuing investment opportunities in their respective home
countries with the goal of strengthening their respective asset
management operations.
Opportunities envisaged for Nippon in the US include private equity
and mezzanine co-investments, while for Northwestern Japanese
equity investment is a potential area of interest. The companies
will also share investment insights and consider an exchange of
personnel.
As part of the agreement, Nippon has acquired a 5 percent equity
stake in Russell Investments, a Northwestern unit with $211 billion
of assets under management and individual, institutional and
adviser clients in more than 40 countries.
ACTUARIAL
Call for increased US retirement age
The American Academy of Actuaries (AAA) has called on US
policymakers to give serious consideration to increasing the age at
which Social Security benefits become payable.
The action, believes the AAA, is required to address long-term
financial challenges facing Social Security as a result of
increased longevity.
Increased from 63 to 67 by legislation in 1983, the AAA proposes
the retirement age should be increased to 70. This is in keeping
with increasing life expectancy which the Social Security
Administration actuaries predict will for men aged 65 increase from
16.7 years in 2007 to 18.8 years in 2040.
For 65-year-old women, life expectancy is predicted to rise from
19.2 years in 2007 to 20.9 years in 2040.
“The [Social Security] programme is facing a demographic problem
that demands a demographic solution,” said Tom Terry AAA
vice-president for pension issues.
He continued that the strains on Social Security’s financial
resources are not just a function of the wave of baby boomers now
entering retirement.
“Long after all the baby boomers have departed, Social Security’s
income will cover only about three-quarters of its costs,” added
Terry.
MERGERS AND ACQUISITIONS
Swiss Re snaps up Barclays run-off unit
Strengthening its position in the UK, closed life book market
reinsurer Swiss Re is to acquire Barclays Life Assurance Company
(Barclays Life) for £753 million ($1.5 billion). Barclays Life will
be absorbed by Swiss Re’s specialist closed life and health
insurance business unit Admin Re which first entered the UK market
in 2003.
Barclays Life brings with it about 760,000 policies representing
about £6.8 billion in invested assets.
Barclays Life’s book comprises unit-linked life and pension
policies with a smaller block of protection business, including
term life and permanent health insurance.
Barclays Life, which closed to new business in 2001, still
generates annual premium income of about £350 million from
contributions to remaining policies. Since 2001 Barclays’ life
insurance activities have focused on a bancassurance alliance with
UK insurer Legal & General.
Barclays Bank anticipates that the deal will result in an after tax
gain of about £330 million.
MERGERS AND ACQUISITIONS
SCOR boosts its home market position
Consolidating its position in its home market French reinsurer SCOR
is to acquire 100 percent of life and health reinsurer Prévoyance
Ré from Malakoff Médéric, a French provider of life and health
insurance and pensions products. To be financed by an issue of
shares held in SCOR’s treasury, the deal is valued at €53 million
($82 million).
In addition to the shares to be issued by SCOR, Malakoff Médéric is
committed to acquiring additional shares on the market which would
give it a total 3 percent stake in SCOR at the conclusion of the
transaction.
Founded in 1997 by provident institutions, Prévoyance Ré recorded
gross written premiums of €93.3 million, net written premiums of
€77 million and a net income of €4.6 million (financial data
recorded under French GAAP). At 31 December 2007, the company’s
shareholder equity stood at €33.7 million and net technical
reserves at €147.6 million.
Under the terms of the agreement Malakoff Médéric will enter into a
five year commercial agreement with SCOR. Prévoyance Ré’s primary
clients are provident institutions and other mutual insurance
organisations.
In 2007 SCOR reported gross written premium income of €4.76
billion, divided almost equally between life and general
reinsurance.
MERGERS AND ACQUISITIONS
Outsourcing specialist exits insurance
UK business process outsourcing (BPO) specialist Liberata has sold
its life insurance and pensions unit Liberata Financial Services
(LFS) to Indian BPO service provider HCL Technologies for an
undisclosed sum.
Under terms of the deal, HCL will acquire LFS’s four processing
centres in the UK which employ 800 people and manage 3.5 million
policies in open and closed books for customers including AXA,
Barclays, Resolution and JPMorgan.
Commenting on the sale Liberata CEO Robert Gogel said: “While we
are confident our financial services business has an attractive
long-term future, we believe it is likely to develop more
effectively as part of a larger organisation.”
In April 2008, UK financial regulator the Financial Services
Authority fined LFS £525,000 ($1.04 million) for what it said were
failures in LFS’s systems and controls for producing and issuing
documents to life and pensions policyholders.
COMPANIES
Securitisation boosts Aegon’s resources
As part of its recently announced strategy to enhance capital
efficiency Netherlands life insurer Aegon has completed a private
securitisation in which it raised €315 million ($490 million) in
new core capital. Structured by Barclays Capital, a unit of UK bank
Barclays, the securitisation was rated single A by rating agency
Fitch.
According to Aegon the securitisation has enabled it to monetise
the value of a portion of future profits from a book of unit-linked
business within its UK operations.
In addition, each year for the first three years, Aegon has the
option to contribute new business to maintain the level of
financing outstanding.
“The fact that we have completed this transaction in the current
financial environment reflects confidence in Aegon’s continued
financial strength,” said the insurer’s CEO and chairman Alexander
Wynaendts.
BANCASSURANCE
Prudential boosts Asian marketing reach
Consolidating a successful bancassurance partnership in Asia that
began in 1998, UK financial services companies Prudential and
Standard Chartered Bank have agreed an extension until 2016 and
expand its scope significantly.
The decade-old partnership between the two companies has enabled
Prudential to market its investment-linked, savings and protection
insurance products to Standard Chartered customers in Hong Kong,
Singapore and Malaysia.
Under the expanded agreement the insurer will add Standard
Chartered’s customers in Japan and Thailand to its target
market.
In addition to its expanded geographical reach the amended
agreement includes what the partners termed “deeper co-operation”
on accident, health and Takaful (Islamic) insurance products.
Prudential and Standard Chartered have separate bancassurance
arrangements covering China, Korea and Taiwan, bringing the total
collaboration to eight markets in the region.
In total Prudential has insurance and fund management operations in
13 Asia-Pacific markets that now account for over half of its new
business profits.
MERGERS AND ACQUISITIONS
Improved offer for Nationwide Financial
US composite insurer Nationwide Mutual Insurance Company
(Nationwide) is set to gain full control of its life insurance and
retirement product subsidiary Nationwide Financial Services
(NFS).
In a cash deal worth $2.4 billion, Nationwide intends to acquire
the 33.7 percent of NFS common stock currently held by minorities
for $52.25 per share.
The offer price represents an improvement over the original $47.20
per share mooted when Nationwide announced its intention to buy out
minorities in March this year. The increased price represents a 38
percent premium to NFS’ share price immediately prior to the March
announcement.
Nationwide CEO Jerry Jurgensen said: “A simpler ownership structure
will open up new opportunities for stronger
top-line growth by attracting new customers as well as retaining
current customers with a broad and integrated product
offering.”
In the first half of 2008 NFS reported total operating revenue of
$2.21 billion. Assets at 30 June stood at $110.77 billion.
DEVELOPING MARKETS
Allianz talks up Saudi venture
European insurer Allianz has big plans for Allianz Saudi Fransi
(ASF) its operation in Saudi Arabia launched in a joint venture
with local bank Saudi Fransi Bank at the end of 2007. Though still
in its initial development phase Saudi Arabia is set to become the
most important insurance market in the Middle East, predicts
Allianz’s regional CEO for the Middle East and North Africa, Kamesh
Goyal.
He explained that until recently growth in the Saudi market was
limited because individual agency forces were not allowed to
operate in the country and life insurance was not actively
encouraged due to religious beliefs.
Things have, however, changed and ASF is now able to deploy its own
agents while religious restrictions have been overcome as a result
of ASF’s ability to offer Islamic law-compliant Takaful
products.
Supplementing its tied agents ASF is also distributing products via
Saudi Fransi Bank’s 80 branches, said Goval. In addition by the end
of 2008 ASF will have opened 10 of its own branches, a number of
these staffed only by women and catering exclusively for women
customers.
DEVELOPING MARKETS
Dai-ichi buys into Thai insurer
Dai-ichi Mutual, Japan’s third largest life insurer, has
consolidated its position in Thailand with the purchase of a 24
percent equity stake in Ocean Life Insurance Company (OLIC) from
its private owners, the Assakul family, for an undisclosed
sum.
The purchase cements relationships between the two insurers who
have – under a reinsurance agreement – been working together since
2006 primarily targeting Japanese affiliated companies in
Thailand.
Established in 1949 by the Assakul family OLIC is Thailand’s
seventh-largest life insurer and in 2007 OLIC reported total
premium income of THB9.25 billion ($300 million) and first year
premium income of THB1.84 billion.
According to reinsurer Swiss Re, Thailand’s life insurance industry
generated total premium income of THB156.1 billion in 2007. This
represented a 6 percent increase compared with 2006.
Under the share acquisition agreement, Dai-itchi will appoint one
director to OLIC’s board and transfer staff members to OLIC to
assist with development in areas such as retail business, group
business, asset management and information technology.
TECHNOLOGY
Standard Life launches online planning tool
Standard Life has launched Retirement Manager – an internet-based
analysis system the UK insurer’s senior pensions technical manager
Andrew Tully claims will “revolutionise retirement planning”.
Among Retirement Manager’s strengths, said the insurer, is its
ability to provide “true holistic planning” by enabling an advisor
to input all a client’s assets including employment income, state
pension benefits, company and private pensions, property and other
investments.
In addition, the system takes into account factors such as a
client’s varying income needs and appetite for risk.
“At the touch of a button, it [Retirement Manager] performs
hundreds of calculations, considers the different combination of
options available to the client and tests out numerous action
plans,” said Tully. “It is a three-dimensional tool that looks at
the bigger picture to help provide true holistic planning.”
Supporting Standard Life’s enthusiasm for Retirement Manager, Ian
McKenna, a director of consultancy the Financial Technology
Research Centre, said: “This service breaks new ground in terms of
the quality of pension planning software provided by life offices
to advisers.
“Supporting as it does not only the initial advice but also the
ongoing review process, it offers major benefits to advisers who
want to move to an ongoing service-based model.”
DEVELOPING MARKETS
Allianz gets go-ahead in Sri Lanka
Allianz Lanka, the wholly-owned Sri Lankan insurance unit of
European insurer Allianz, has been granted a licence by the
Insurance Board of Sri Lanka to sell life insurance products in the
country. The life insurance operation will commence business in
October and will join Allianz Lanka’s existing general insurance
operation that has been active in the country since January
2005.
“We have done market research, analysed competitor product
offerings and identified some important life assurance solutions
that we will offer at the start,” said Allianz Lanka CEO Surekha
Alles. She added that the life market in Sri Lanka is “largely
untapped”.
Indeed, Sri Lanka is one of Asia’s most undeveloped life insurance
markets.
According to reinsurer Swiss Re total life insurance premium income
of LKR21.7 billion ($165 million) in 2007 equalled only 0.6 percent
of the country’s GDP while the average annual premium per capita
was a mere $10.20.
However, life premium income has been growing strongly, increasing
year-on-year by 26.9 percent in 2007 and 20.4 percent in
2006.
In the first half of 2008 Allianz Lanka reported premium income of
LKR336 million and a profit before tax of LKR28
million.
