Posted on 21 May 2012
MetLife Inc. of the U.S., Canada's Manulife Financial Corp., Hong Kong's AIA Group Ltd. and Korea Life Insurance Co. are all bidding in ING Groep NV's ING auction of its Asian life-insurance arm, people familiar with the matter said, pitting higher-valued Asian insurers against their North American peers.
MetLife, the U.S.'s biggest life insurer by assets, bid for only a portion of the franchise, which extends from Japan to Malaysia, and it was unclear whether the others bid for everything, the people said. The first round of bids in the auction process, which is expected to carry on for several months, was lodged with ING and its advisers on Friday.
South Korea's KB Financial Group Inc. bid on just the Korean life-insurance operations, the largest part of the franchise by sales, a person familiar with the matter said.
The price tag for the operations could potentially rise above US$7 billion, according to analysts, making it potentially one of the biggest insurance deals in the Asia Pacific region ever. ING Insurance Asia Pacific had an underlying profit of €249 million ($318.2 million) before tax in the first quarter, up from €177 million a year earlier.
Some of the people argued that ING has included some optimistic assumptions in its valuations on interest rates going forward and how much capital buyers would need to set against the Asian business.
North American life insurers are finding it hard to compete with their Asian peers, said some of the people. AIA is valued at 16.2 times forward earnings and Korea Life at 10.18 times. Meanwhile, Manulife is valued at nine times forward earnings and MetLife at 5.79 times earnings.
"AIA now has a significant excess capital position, with little gearing and a share price currency well above its regional and global peers, which gives it significant capacity to outbid its competitors for what it considers to be strategically important assets," said analysts at Credit Suisse CSGN.VX +0.37% in a recent report to investors.
However, AIA's lofty valuation is based in part on its exposure to fast-growing emerging Asia markets such as Thailand and Malaysia. If it does acquire all of ING's franchise of which the biggest chunks are in the mature insurance markets of South Korea and Japan, its valuations may slide lower, say some of the people.
The franchise is a rare commodity in the industry because it could instantly give the buyer a pan-Asia business, but the sales process allows for bidders to bid for only part of the business. With its Asian headquarters in Hong Kong, ING has insurance operations in South Korea, Japan, Malaysia, Hong Kong and Thailand. It also has joint ventures in mainland China and India that likely will be sold separately.
Part of ING's Japan business is proving difficult to sell with some buyers shunning it during the first round of bidding: a Japanese variable-annuity portfolio that guarantees policy holders payouts regardless of market conditions. That is a big risk for insurers.
For ING, the Netherlands' largest bank by assets, a high price tag would go a long way toward repaying the Dutch state for its bailout during the 2008 global financial crisis and help simplify its structure.