Axa announced sale of its 49.99% stake in Axa Affin Generali Insurance (“AAGI”) and 49.0% stake in Axa Affin Life Insurance (“AALI”) for a total cash proceeds of c. Euro 140 mn on 22 June 2021. It is one of the latest exits by a global insurer where we have seen similar exits by a number of other players like Aviva (exited Singapore, Vietnam, Indonesia, Taiwan, Hong Kong and trying to exit China and India), Cardif (exited Vietnam, exiting India), Mapfre (exiting Indonesia, Philippines), Axa (exiting Singapore, India), Old Mutual (exited India) and many others.
Many exits were carried out by Australian banks too which retreated both their banking operations in Asia as well as divested insurance business in an attempt to restructure their balance sheet and focus on core Australian banking businesses for example CBA (exited Indonesia), IAG (exited Indonesia, Vietnam and Thailand), QBE (exited Thailand, Indonesia, Philippines) and many more.
So why are these players exiting these markets?
Is it because the market doesn’t have the potential which they initially envisaged, or is it that they didn’t know how to succeed in these highly competitive markets?
To understand, maybe we go back a few decades ago when some of these players entered Asia. A lot of these entries happened because of the booming Asian economy and everyone wanted to plant a flag in Asia as investors and analysts were asking Global CEOs for their Asia strategy after Jim O’ Neil’s famous ‘Build Better Global Economic BRICs’ report in 2001. Some of these entries were not well thought through and were poorly executed which resulted in a lot of these operations failing to capture the intended growth despite burning huge amounts of cash. On the other hand, domestic players or well-structured JVs boomed well and became market dominant players.
In fact, we can categorize reasons for their exits in the following four buckets:
- Flawed entry strategy in the first place: The original entry was more of a flag on the map with no real effort and intention to make this work. For example, why would a Spanish behemoth like Mapfre enter markets as diverse as Indonesia and Philippines in the first place. The JV structure that was put in place reflected arrogance of some of these players where they either didn’t opt for a domestic partner or even if they did, due to regulatory requirements, they made them passive. The focus was more on product capabilities and insurance know-how versus distribution and local knowledge. This misguided approach resulted in a significant number of these operations not being amongst the top 10 players for these markets.
- Entering with an exit-mindset: The Asian operations were treated as fixed deposits to be withdrawn when Global operations were hit by losses/ large claims. For example, the cash received from the potential sale of Singapore, India, and Malaysia operations would help Axa fill the €1.5 billion hole created by Covid-related claims which even forced it to cancel its special dividend.
- Flawed or under powered execution effort: They underestimated the efforts required to make Asia work. For example, some of the insurers sent employees trained in mature markets like the US to handle their Asian operations, completely overlooking the different culture and channel sensitivities of the region. Also, these postings were treated as either ‘punishment’ or ‘holiday’ postings by these employees since there was no real benefit of experience gained here in their core markets.
- Flip-flop in strategy: In few cases, the change of strategy or the change of CEO also resulted in big bang entries that were followed by quiet withdrawals. For example, Thomas Buberl (CEO of Axa) acquired XL Group for USD 15.3 bn in 2018 and changed the focus of Axa to Property & Casualty instead of life. Since then Axa has been disposing of smaller operations to fund the XL deal. Another classic example is HSBC Insurance which exited its GI business to Axa in 2013 but is not rumoured to be the lead contender to re-acquire Axa’s Singapore business.
Above reasons mixed with a myriad of other minor factors can explain a large majority of these exits. However, the good news is that we are now seeing a strong buying interest from North Asian buyers including Koreans, Chinese, Taiwanese, and Japanese players who are capturing the grounds ceded by American, European, and Australian insurers. A few of these quitters may also come back to acquire in Asia if their strategy or their CEO changes.
It would be interesting to see if we are heading for a bifurcated world where Asia is led by Asian players and Europe & US would be led by Europe & US players in the medium term. As of now, players like Allianz, Manulife, SunLife, Generali, and Zurich, with their continued investments in Asian markets, are proving it to be otherwise.
Tanay is a seasoned M&A professional with more than 14 years of experience in advising Financial Institutions Groups around their M&A needs at reputed firms like Deloitte, Standard Chartered Bank and Ambit Corporate Finance. He has advised over 50 deals with value of USD 10 bn in South East Asia and South Asia with special focus on insurance, bank, non-bank funding companies, asset management, and brokerage clients.