Prudential pulls ahead in Southeast Asia "sweet spot"

Prudential Plc, after jostling with AIA Group for nearly a century for prominence in Asia, is closing the gap with the region's t o p foreign insurer, propelled by its advantage in fast-growing Southeast Asia.

Prudential zeroed in on what have become the most promising growth markets such as Indonesia and Malaysia, while its rival had bet heavily on more developed markets and a Chinese market less hospitable to foreign firms. Prudential also expanded aggressively via distribution deals with banks.

"The demography is positive, the GDP growth is strong, the savings rates are high," said Prudential Chief Executive Tidjane Thiam, who has called Southeast Asia the company's "sweet spot".

"Those are business-friendly environments where we can generate a profit and remit it," Thiam told a conference call with reporters last week.

Prudential, Britain's largest insurer, still has less than half as much business in Asia as Hong Kong-based AIA but is earning fatter margins and capturing more new business there on an annualised basis -- half of it from Southeast Asia.

And while Southeast Asia's market is relatively small, life insurance premiums in six key countries -- Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam -- are forecast to average nearly 8 percent growth next year, more than twice the global average, Swiss Re estimates, as their booming middle classes seek to protect and nurture their personal savings.

GROWTH MOMENTUM

Prudential's success in Asia helped to lift its shares this week to their highest in more than a decade at 826 pence, up nearly 30 percent this year compared with AIA's 12 percent rise.

AIA has a relatively small presence in Indonesia, Southeast Asia's largest economy. It ran two insurance businesses in the country with former parent American International Group until 2009, but sold its 60 percent stake in a joint venture there after AIG was bailed out in the financial crisis. AIA was later spun off from AIG through a Hong Kong IPO in 2010.

In China, where AIA opened its first Asia office in 1919 and is the only foreign insurer to own 100 percent of its local operation, global insurers face giant domestic rivals and strict curbs on foreign ownership and expansion.

In India, foreign insurers are limited to a 26 percent stake in joint ventures.

Prudential focused on Southeast Asian markets where it can own 100 percent of its operations, and is rapidly expanding its geographic footprint via alliances with banks to sell its products at their branches. Bank sales accounted for nearly a third of Prudential's annualised new business volumes in 2011, compared with 8 percent for AIA, according to Credit Suisse.

Prudential is also eyeing new markets in the region to keep its growth momentum going, announcing last month that it had won in-principle approval from the Cambodian government to open a wholly owned life insurance operation, while CEO Thiam said last week that the company was considering a move into Myanmar.

The insurer could also get a lift if it splits off its Asian unit, which analysts say would trade at higher multiples, thus facilitating acquisitions. Prudential has been mulling such a move but said its cash and profit generation in Asia will not be enough to sustain a standalone business for at least a year.

Its rivals are not standing still in the region, however. AIA and ManuLife Financial Corp are bidding for ING Groep's Asia assets, which include operations in Malaysia and Thailand.

Reuters