Sun Life Financial president and CEO Dean ConnorMARK BLINCH/Reuters
For Canadian insurer Sun Life Financial Inc., part of the appeal of pushing into a seventh Asian market came from the prospect of developing its relationships in the region, according to the company's chief executive, Dean Connor.
Sun Life said Thursday it will acquire a Malaysian insurance business through a joint partnership, making it one of several global insurers that have recently made moves to capitalize on Asia's swift economic growth and its people's increasing rate of savings.
This move gets Sun Life into a country of nearly 30 million people, where the life insurance industry is expected to grow by about 10 per cent in the coming year, according to various reports. Malaysian government data say life insurance penetration should reach 4 per cent of GDP (or 75 per cent of the population) in 2020. That's up from roughly 2.8 per cent of GDP in 2011.
To break into this burgeoning market, Sun Life acquired a stake in Malaysian insurer CIMB Aviva Assurance Bhd. in a joint partnership with Khazanah Nasional Bhd., a state-owned group that manages Malaysia's sovereign wealth fund. Mr. Connor described Khazanah, an investment fund with a $40-billion portfolio, as a kind of CPPIB in Malaysia.
The business didn't come cheap. Together, the two companies will own 98 per cent of CIMB Aviva, and its growing Islamic finance unit CIMB Aviva Takaful Bhd., in a deal worth $586-million.
Both Peter Routledge, analyst at National Bank Financial, and Tom MacKinnon, analyst at BMO Nesbitt Burns, said the buy appears expensive. But while Mr. Routledge assessed that the transaction would not be a major valuation driver for Sun Life, Mr. MacKinnon said infiltrating "one of the most developed countries" in the Association of Southeast Asian Nations (ASEAN) "with a rapidly growing middle class" could be an opportunity.
Mr. Connor likes Malaysia because of its large economy within ASEAN, "and yet, insurance penetration still has quite a bit of runway," he said. He also sees significant opportunity for future private pensions.
To reach these potential customers, Sun Life lined up a 20-year exclusive bancassurance agreement with ASEAN lender CIMB Bank, the country's top retail bank. CIMB will retain the last 2 per cent of the business. This allows Sun Life to sell its insurance and savings products to customers through CIMB's 312 branches and to more than eight million customers.
CIMB is a lender Sun Life has already teamed up with in Indonesia. "Relationships are very important in Asia," Mr. Connor said. For Sun Life, that responsibility rests on Kevin Strain, president of Sun Life Financial Asia, but Mr. Connor has also been to Asia 12 times in the last 14 months.
In Malaysia, strong relationships are actually a necessity. A foreign company can't own more than 70 per cent of a Malaysian insurer.
That's why Mr. Connor is thinking of the deal as more than just buying an insurance company. "It's broadening and strengthening the relationship we have with CIMB in Indonesia, and opening a new chapter with Khazanah," he said. Sun Life hopes to build on these relationships.