Added Aug 3, 2024
Singapore grows in appeal for major foreign insurers

Abstract
Singapore’s insurance sector is drawing foreign players seeking to grow their footprint in the Republic and in South-east Asia.
Two major billion-dollar deals have hit the headlines in the space of seven months – the completed acquisition of Singapore Life (Singlife) by Japanese insurer Sumitomo Life Insurance and an offer on the table by German insurer Allianz for Income Insurance.
Mr Darren Pigg, Asia-Pacific insurance lead at financial services advisory firm Capco, said that Singapore remains the largest market in the region for new business sales.
Its insurance penetration rate of around 7.5 per cent is lower than that for Western economies like the US and the UK, where the insurance penetration rate is about 11 per cent.
“For insurers with strong ambitions in Asia, Singapore remains an important market to establish a presence in,” Mr Pigg said.
The round of deal activity started in December 2023 with Sumitomo Life’s bid to fully acquire all of Singlife, a home-grown financial services company.
Regulators approved the $4.6 billion deal in March 2024 and Singlife is now a wholly owned subsidiary of the Japanese insurer.
Allianz entered the fray on July 17 with its offer to take a majority 51 per cent stake in Income, another home-grown player.
The deal between Allianz and Income is pending regulatory approval and is expected to close in late 2024 or early 2025.
Income and Singlife, together with AIA, Prudential, Great Eastern and Manulife, are the six big players here, with over 85 per cent market share of the life insurance market.
Mr Pigg said Singlife and Income hold substantial market shares and “have established a strong tradition of serving the people of Singapore with trusted brands.”
He added that it is therefore not a surprise that major foreign insurers, which do not have a significant presence in the region, embark on acquisitions as a quick way to scale up and gain market share in Singapore.
Mergers and acquisitions (M&As) can go both ways.
They will have a positive impact if they result in economies of scale, knowledge transfer as well as better pricing for consumers, noted Professor Sumit Agarwal, who specializes in finance, economics, and real estate at the NUS Business School.
He added that sometimes, an M&A happens because of “empire building.” The chief executive feels he needs to have a bigger company to beat his competition.
That, Prof Agarwal said, will likely lead to inefficiencies and ultimately higher prices for consumers.
He cited the merger between Grab and Trans-Cab, which was called off after Singapore’s competition watchdog ruled that it was not in the best interests of consumers who would end up paying more for ride-hailing services.
For now, it is too early to put a verdict on whether an Income-Allianz deal will have positive or negative implications, he said.
Prof Agarwal noted that any merger deal will have to go through a rigorous process by the regulators to determine if it will deliver what it claims it will.
“As long as we do not lose employees, there is no impact on consumers, there is no monopoly power, and the prices for consumers are going down, I think these mergers are good,” he added.
Furthermore, insurance works very well when an insurer has more customers because the risks are pooled across a bigger group, he said.
With a larger customer base, there is likely to be relatively more people who can support those who will need more insurance, the “bad type” in industry parlance, he added.
Insurance does not work when companies are small and have relatively fewer customers, he noted.
“The consolidation is trying to bring in and pool all these different types of consumers.”
Mr Pigg said: “These acquisitions are likely to solidify the dominance of the top six insurers.”
Singlife, the sixth-largest player here, is now backed by Sumitomo Life, a larger organization with greater scale and balance sheets.
Similarly, if Allianz’s offer for Income goes through, Income will benefit from the scale and balance sheets of Allianz, Mr Pigg noted. This will put both insurers in a better position to establish their foothold in the market, he added.
Professor Lawrence Loh, also from the NUS Business School, said Singapore is foreign insurers’ first stop as they see it as a launch pad to South-east Asia.
“There is proximity to these untapped markets,” he noted, adding that “there are a lot of uninsured people in the region, almost like the unbanked.”
Indeed, this was also why Sumitomo Life decided to acquire Singlife.
The Japanese insurer, which first invested in the insurer in 2019, sees Singapore as a key plank in its expansion strategy in South-east Asia.
Its president and chief executive Yukinori Takada said in December when the acquisition was announced that “this is a strategic, long-term investment that will help Sumitomo Life grow in South-east Asia.”
He added that “Singlife has been steadily expanding on the strength of its digital-enabled business with a wide range of products and sales channels” and that Sumitomo Life wanted to support their growth.
Allianz is likely to pursue a similar strategy.
Ms Sabrina Chia, lead partner and head of distribution at specialty insurer Fusion, Asia, said the German insurer probably offered to buy a majority stake in Income with the intention to expand globally.
She added that it is also part of Income’s plan to go global.
So, both insurers can actually ride on each other’s strengths to expand in Asia, she noted.
In the July 17 statement announcing its planned acquisition of a majority stake in Income, Allianz said “the proposed transaction marks a key milestone in its strategic ambition to expand and strengthen its presence in Singapore.”
The German insurer views Singapore as an important market because of its status as the financial services hub of South-east Asia, the statement added.
Ms Anusha Thavarajah, regional CEO of Allianz Asia Pacific, said: “Asia holds great strategic importance for Allianz and we are committed to investing in Singapore by partnering with a well-respected local institution.
“By integrating Income Insurance’s capabilities in distribution, partnerships, products, people and Allianz Group’s global and regional resources and expertise, we look forward to taking the insurance landscape of Singapore and South-east Asia to the next level,” she added.
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