After Income-Allianz deal, more consolidation could come for Singapore’s insurance industry: Analysts

SINGAPORE: Recent deals in Singapore’s insurance industry could increase competition and lead to more consolidation, market observers said following Allianz’s plans to buy a majority stake in Income Insurance.
This would be the third significant acquisition this year.
In March, Singapore Life Holdings became a fully owned subsidiary of Sumitomo Life, when it bought Aviva’s stake in Singlife.
Meanwhile, OCBC increased its stake in Great Eastern to more than 93 per cent last month.

Senior director of insurance at Fitch Ratings Kanishka de Silva said intense competition in the Singapore insurance market raises the possibility of further consolidation.
The scale of operations is an important driver of efficiency, and innovation can also increase the competitiveness of a company.
“Consequently, existing players may consider partnering with foreign insurance giants to leverage their expertise and achieve potential synergies,” he said.
Mr Trung Tran, an insurance analyst at CreditSights, said there has been an “unusual frequency of notable events” in the market, and more consolidation could be on the horizon.
“Singapore has many insurers, and there is strong interest from global investors in both the Singaporean market and the wider Southeast Asian region,” he said.
He pointed to a large population in the region that is “significantly underinsured”.
Singapore can serve as the regional headquarters for many insurers. “The region is expected to experience strong long-term growth with reasonable profitability,” said Mr Tran.
When the next acquisition takes place will depend on due diligence, negotiations, market timing and regulatory requirements, he added.
But Mr Frank Yuen, a vice president and senior credit officer at Moody’s Ratings, was unsure if the recent deals were part of a larger trend of consolidation.
In Aviva’s case, the company decided that Singapore was a non-core asset to them and decided to offload its stake in Singlife, he said. And Sumitomo picked it up because Japanese insurers are keen to look for quality overseas assets.
Allianz’s interest in Income Insurance, meanwhile, is part of the company’s desire to come back to Asia.
“Both transactions were driven by different motives, and also the specific considerations of the original shareholders,” said Mr Yuen.
He also argued that such acquisitions require a lot of money, which could increase the barriers to consolidation in the industry.
Allianz is offering S$2.2 billion (US$1.64 billion) for 51 per cent of Income Insurance’s shares.
“It’s hard to find a buyer, to be honest, although there are sellers,” said Mr Yuen.
The analysts were split on whether recent deal activity would lead to changes in market leadership.
Mr de Silva said the competitive landscape would remain unchanged because the deals did not introduce new entrants.
CreditSights similarly said it sees competition intensifying, but not to the extent of a reshuffling among the top insurers.
The acquisitions involving Singlife and Income – if the latter deal receives regulatory approval – involve changes in ownership, and that can enhance the branding, capital and technology, said Mr Tran.
But the OCBC offer, on the other hand, likely would not materially alter Great Eastern’s business given that the bank already held a major stake.
Mr Yuen said Income Insurance could tap Allianz’s strength in asset management capabilities to offer more products and take a higher market share.
Overall, however, the landscape is likely to be largely unchanged in the short-term.
“The insurance business is still really localised (and) depends on the relationship you have built in the past; your agents with their customers,” said Mr Yuen.
“These are the things that probably will be quite hard to change, even if you have the support of more capital injections like from Allianz.”
Professor Lawrence Loh of the National University of Singapore’s Business School said, however, that the Allianz-Income deal in particular could give the rest of the players a “run for their money”, with Income benefiting from economies of scale and scope.
“I think there’ll be some shakeup among the leaders because … Income will stand on the shoulders of a global giant.”