AXA Targets Asia to Boost Growth

Global insurers have been pushing into Asia at a time when growth in Western markets is sluggish, and French insurer AXA Group (CS.FR, AXAHY) has helped lead the charge.

AXA's Asia Chief Executive, Mike Bishop helped seal two deals in Asia last year: the purchase of HSBC Holdings PLC's (HSBA.LN, 0005.HK, HBC) property and casualty operations in Hong Kong, Singapore and Mexico for $494 million, and AXA's joint-venture partnership with China's largest bank by assets, Industrial & Commercial Bank of China Co. (601398.SH, 1398.HK, IDCBY) Those deals expanded AXA's footprint in Asia and helped it vault over competitors to gain greater market share.

Insurers from Canada's Sun Life Financial Inc. (SLF.T, SLF) to Hong Kong's AIA Group Ltd. (1299.HK, AAGIY) racked up a combined $21 billion worth of purchases in fast-growing Asian economies last year, up from $16 billion in 2011. Still, there are greater risks for insurers in volatile emerging markets, where data on morbidity rates and life expectancy are often sparse.

Drawing on 15 years' experience in the region, Mr. Bishop met with The Wall Street Journal in Hong Kong to discuss the opportunities for insurers in Asia and also the potential pitfalls for newcomers. What follows are edited excerpts of those comments:

WSJ: Why are insurers bulking up in Asia?

Mr. Bishop: This is the world's growth engine--everything favors Asia at the moment in terms of demographics, given the young populations of India to Indonesia, to the expanding class of mass affluent. It is an amazing opportunity.

We are focusing on health and protection where there is an enormous gap in the market, and it's what customers genuinely need. AXA completed two large transactions in Asia this year which are critical to our future.

WSJ: What is your position in China? How has the recent slowdown affected your business?

Mr. Bishop: The potential is enormous for us, we are partnered with the world's largest bank, ICBC, which has 280 million customers. The scope is beyond imagination. Last year, we restructured our 50-50 joint venture with China Minmetals Corp. to include ICBC. ICBC now owns 60% of the venture, we have 27.5% and Minmetals owns 12.5%. Given our new partnership, there is bags of upside potential, so for us the recent economic slowdown is not such a major concern.

WSJ: Where lies the danger in this rush by insurers into the region?

Mr. Bishop: Growth in Asia is a very popular strategy in boardrooms across developed markets; people see Asia as a relatively easy option.

However, newcomers should not underestimate the competitiveness of Asia, particularly from large incumbent players who are very good at what they do.

One of the biggest challenges for all the industry is retaining top talent; turnover in Asia is a lot higher than in Europe. Actuaries, risk managers and compliance officers are becoming pretty rare commodities in some countries.

In Indonesia, for example, average salaries for these professions have done up by double digits in the past few years. Because we're growing quickly, when we need people we bring in expats from the rest of the world for a few years to fill holes and help train local talent.

WSJ: Why did you buy HSBC's property and casualty business in Hong Kong and Singapore?

Mr. Bishop: This is a transformational deal for us. Specifically, it gives us a dominant position in Hong Kong in terms of gross written premiums, a measure of revenue in insurance, and consolidates our existing No. 2 position in Singapore. It also gives us exclusive 10-year distribution in India, China and Indonesia over HSBC's bank branches.

On the price tag, clearly it is about what the deal brings to us over 10 years. It is not just a here-and-now transaction.

WSJ: Insurance tie-ups with banks seem to be getting longer in duration in Asia. What's driving that?

Mr. Bishop: Banassurance is growing extremely quickly and is now arguably the largest distribution channel in Asia for insurance. But sales agents remain vital as in Asia, relationships are culturally very important in making a sale.

In Thailand, our sales split is a 50-50 mix between agents and banking, and I think that's optimal. Longer contracts with banks also reflects the fact that deals are getting more expensive and banks are getting a lot of the value upfront.

However the right way to approach a partnership with a bank is on the basis that if you are getting married to someone then the real value comes over years, not all on the wedding day.

WSJ: Is AXA Asia on track to meet targets?

Mr. Bishop: We are on track to meet our ambitious targets for the next year. We plan to double 2011 revenue and new business profit [the present value of future profits] by 2015. We doubled sales between 2007 and 2011 and we can double again.

After completing the two deals last year, it's about delivering.

Write to Alison Tudor at [e-mail]

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