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Posts tagged Insurance industry
Fortis becomes ‘ageas’, to signify shift from banking, but was it worth it?
Mar 14th
Corporate rebrandings are almost always pointless, pompous or both. So it’s a relief that bailed-out Benelux insurer Fortis has provided a crib-sheet to explain why as of April, it will be called “ageas” .
Apparently, the a and g at the beginning “celebrate our roots” – the firm began as AG Leven; the e and a in the middle refer to its two key markets, Europe and Asia; and the “as” at the end stands for “assurance”. The absence of capital letters “heightens the sense of unity within our group” and shows that “we don’t want to force our opinions on anyone”. How very modest. To give Fortis its due, the pared-down, pure insurance firm that emerged from the £10bn cross-border taxpayer carve-up is a very different business from the banking conglomerate it had become. BNP Paribas got the group’s Belgian banking interests, while a chunk of the ill-fated ABN Amro that Fred Goodwin didn’t get his hands on was taken over by the Dutch state. What’s left looks more like a boring old insurer, give or take some toxic legacy assets from the credit crunch era, which its boss Bart De Smet has been able to return to profit. But wouldn’t it have been refreshing if he’d applied the same back-to-basics approach to Fortis’s name, instead of succumbing to the brand consultants? It could have been Fortis’s most sensible decision in ageas.
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Prudential’s expansion into Asia ‘good for the UK’, says insurer’s CEO
Mar 7th
The Pru’s chief executive, Tidjane Thiam, dismisses critics of his takeover of AIG’s Asian arm as ‘eurocentric’
Tidjane Thiam, the chief executive of the Prudential, said this weekend he had embarked on a controversial $35bn (£23bn) takeover of the Asian assets of collapsed American group AIG in order to give something back to Britain.
Thiam, who was born in Ivory Coast and educated in France, also dismissed critics who claim the deal is too risky as “eurocentric”.
He said: “I am very grateful to the UK. It has given me opportunities that I wouldn’t get in France and I want to do something for the country.”
The Pru is expected this week to obtain a dual listing of its shares on the Hong Kong stock exchange as well as in London. That move will fuel speculation the 160-year-old insurer may move its HQ or its chief executive’s office to Asia. Thiam admitted he could not make a long-term pledge to keep his head office here. “At the moment we are committed to the UK and we are not saying positively that in 10 years we won’t have our HQ here, we are just saying we don’t know what might happen.”
He downplayed speculation that he may seek to offload the insurer’s UK business. He said: “I have always been very clear that the UK business is very important to us. We started here and used that to build an international vision that benefits the UK economy. Our name and identity is British; this is all good for the UK.”
He denied it would have been better for the Pru to expand in Asia by growing its business organically. “We believe this is going to increase our growth potential significantly beyond that, because we will start from the number one position in seven markets.”
He added: “I don’t agree that it is risky – that is a eurocentric view of the world. Asian economies have very healthy balance sheets. It is the leveraged economies that are more risky.”
His words contrast sharply with comments last week from Andrew Moss, chief executive of Thiam’s former employer Aviva, who argued Europe was a better place for insurers to expand than Asia.
The Pru’s share price dropped sharply after it announced the deal, which will involve a record £14bn issue of new shares. It closed at 520p, down from 602p, but Thiam was boosted by news that two sovereign wealth funds from Qatar and Singapore had agreed to back the capital raising.
There have been concerns that if the shares fall too far, investors will be reluctant to back the rights issue. Thiam said: “I’m sure there is a price at which it becomes uneconomic but I can’t answer questions on that – it is not a game I want to engage in.”
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Let’s hope the Pru’s new Asian focus won’t leave its UK side to the zombies
Mar 7th
The Prudential’s takeover of AIG’s Asian arm will inevitably shift its centre of gravity away from its British operations
The Prudential’s audacious bid to take over the Asian interests of failed US insurer AIG can be seen as a reversal of the tide of foreign sequestration of assets in the UK.
It is easy to see how Asia would seem much more exciting to its able young chief executive, Tidjane Thiam, than the UK, or Europe, where rival Aviva is pinning its hopes.
For the moment, the Prudential is committed to remaining a UK company but, long term, there must be a question mark as its centre of gravity shifts eastward.
Britain and, for that matter, its US operation, Jackson National Life Insurance, will become proportionately less important to the group.
It is sad to see how the once mighty insurance industry in this country has dwindled. Former big names have met sorry fates, including Pearl, which passed through several hands before being sold to Cayman Islands firm Liberty Acquisitions. Friends Provident was taken over by zombie fund operator Resolution.
Policyholders are powerless while their savings are passed around like parcels. At each turn financiers and advisers are taking a cut from a huge and undemocratic transfer of funds, nodded through by regulators without so much as giving policyholders a vote.
The business model for UK insurance savings has come adrift: one can only wish the Pru well, hope its Asian savers prosper and its UK customers escape the zombie curse.
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Prudential’s bid for AIG’s Asian assets seems less than prudent
Mar 3rd
Finally, the Prudential’s share price bounces. Unfortunately, yesterday’s gain was a mere 2.5% to 500p. The Pru is still down 17% since it announced on Monday its grand plan to pay $35.5bn (£23bn) for AIA to advance its ambitions in Asia.
Does 17% amount to a vote of no confidence in the deal? It’s far too early to say that since Tidjane Thiam, the Pru’s chief executive, has a full two months to woo his shareholders before he has to publish a prospectus. It is also true that there is nothing like the prospect of a gigantic rights issue to kill short-term demand for your shares. Even so, the fall might be twice as severe as the Pru’s management would have hoped. This is starting to look serious.
So it should. The word in the investment banking world is that AIG had in mind a flotation value of $25bn to $27.5bn for AIA. If that is correct, it was adventurous for the Pru to pitch in at $35.5bn. So one way to think of the £3bn plunge in the Pru’s valuation is as the market’s calculation of the size of the overpayment for AIA but adding back the benefits of combining the two companies.
If the net figure at the end of April is still minus £3bn – as a 500p share price suggests – Thiam is not winning many plaudits. Many shareholders might prefer to call the whole thing off and, they would hope, see the Pru’s share price return to last week’s level of 600p.
It requires no genius to see that Asia is an attractive place to sell savings products. But Thiam has failed to explain why buying AIA is the best way to skin that cat. The Pru already has a very successful business in Asia. Concentrating on competing with a destabilised company such as AIA, and saving $1bn in bid costs in the process, looks a perfectly credible and lower-risk way to approach the Asian opportunity.
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Prudential share price plummets as investors bail after AIG deal
Mar 2nd
• Shares fall to 485p from pre-deal price of 602p
• Investors could withhold backing for rights issue
Plans by Prudential to spend £23bn buying the far eastern operations of US insurer AIG provoked a flight of investors today, pushing its share price down by more than 8%.
Shares in Prudential had fallen by 45p to 485p by 2pm, mirroring a similar fall yesterday. Before the deal was announced they were worth 602p.
Concern among investors centred on the massive finance deal needed to fund the purchase, including a record £14bn issue of new shares.
Investors were also worried that Prudential was overpaying for American International Assurance after a year in which the Hong Kong-based group suffered declining sales.
One investor said a share price below £5 would cause investors to think twice before supporting the rights issue. He said further falls would force the company to issue a larger number of shares to reach the needed £14bn, which would further dilute existing shareholdings.
Other investors pointed to the influence of hedge funds short selling the stock. The company has yet to announce the price of discounted shares in the Pru to fund the deal, but they could be anywhere between 40% and 75% cheaper than its pre-deal high.
Short sellers, who bet on a falling share price, have a “one-way bet” in the event of a massive rights issue.
Prudential chief executive Tidjane Thiam, who described the deal as “transformational”, is under pressure to show that the benefits of becoming one of the world’s largest insurers is worth the £23bn price tag, and allows the company to enter new markets it was otherwise struggling to conquer.
Investors have also questioned the $1bn fees that will be paid to investment banks for brokering the deal.
AIA has 20 million customers and 350,000 agents across China, the Philippines and other major countries in the far east. It was caught up in the collapse of AIG in 2008, and was subsequently bailed out with $180bn of US government funds.
AIG is keen to offload AIA to help repay the Treasury loan. It signalled that a flotation in Hong Kong was its first route to raise funds, but abandoned the move when it received a bid from Prudential.
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Kipper Williams: Man from the Pru comes knocking in record rights deal
Mar 2nd
Prudential is looking to finance its deal for AIG’s Asian assets with a $21bn cash call from investors
Applause for the Pru is five years too early
Mar 1st
The heart sinks when a chief executive describes a deal as “transformational”. Too often the word is used to deflect attention from the fact that a transaction is so big and so complex that it will be years before outsiders can judge whether the acquirer got value for money, by which time the architects may have moved on.
Prudential’s proposed $35bn (£23bn) acquisition of AIA fits this profile. That doesn’t mean the deal is necessarily the wrong one, just that widespread applause for Tidjane Thiam’s bold move feels premature by about half a decade.
The first point to note is that the price tag is roughly twice what was talked about 18 months ago when the Pru first contemplated a move on AIG’s Asian operation. Thiam, without confirming the previous number, offered three explanations – two good and one bad.
The good: the assets being acquired are different from those envisaged at the end of 2008 (they now include those in the Philippines, for example) and AIG has spent the intervening period cleaning up these businesses for flotation.
Fair enough, but it’s odd to mention in the same breath the Pru’s roaring share price, which has more than doubled since late 2008. The fact that the Pru is more able these days to pay a big price for AIA by issuing a shed-load of shares says nothing about the quality of the assets being bought. All it suggests is that the Pru’s management is terribly excited about its new firepower, which is often a reason to worry.
Still, few would seriously dispute the notion that Asia is a more exciting place than western Europe or the US to sell savings products. The Pru’s own development over the past decade – terrific growth in the east and hard graft at home – proves the point. The logic of buying AIA is better than, say, merging with Aviva and enduring a depressing round of cost-saving measures.
It is also good to see a UK company taking the less-travelled road of expansion in Asia, rather than continental Europe or the US. We beat up our manufacturers for failing to capitalise on eastern opportunities so it would hardly do to grumble about the Pru’s ambition.
The real question, however, is whether the Pru’s Asian adventure is best pursued via this risky acquisition or via the organic route that has been sure-footed and successful for so long.
The Pru will be removing its most important competitor from the pitch, which is obviously a major advantage. On the other hand, the execution risk, as analysts call it, is also huge. Has the AIA name, which the Pru will retain, been tarnished by association with the AIG crash? How much of the agency infrastructure – AIA alone has 320,000 agents – will evaporate as the two companies are combined?
All we know today is that the Pru expects annual cost savings of $340m eventually, which sounds an enormous sum until you see that the costs of this transaction in underwriting fees, bankers’ fees and hedging arrangements will be a cool $1bn. That is $1bn that could have been deployed by the Pru’s established Asian operation.
Not all “transformational” deals disappoint and one can see how this one could have a happy ending – the Pru is on cracking form, knows the AIA assets in depth and is not (it hopes) in a bidding competition with a rival. Those are all promising features. But it would just be guessing to say the Pru is within even $5bn of the right price for AIA.
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Prudential gambles on Asia with $35bn deal
Mar 1st
Acquisition of AIG’s Asian operation, American International Assurance, to be partly financed from record £13.5bn rights issue
Prudential, Britain’s largest insurer, shook off the gloom that has dogged the City for the last two years with a record-busting financing package to fund a £23bn agreed takeover of Hong-Kong-based American International Assurance.
The acquisition signals a major push by the insurer into China and the Far East, where AIA was its main rival, with 20 million customers.
In a show of financial strength, Prudential told investors more than two-thirds of the sale will be funded through a £13.5bn rights issue – the largest ever seen in London – with the balance paid in shares and a £3.3bn bond issue.
With the cost of the takeover set at about $1bn in broker fees and insurance against currency movements, some traders said the magnitude of the deal partly accounted for the sharp fall in sterling today.
Several City analysts welcomed the deal, which they said allowed the Pru a rapid expansion into the fastest growing markets of China, Korea and Indonesia, which have built up huge savings in recent years but have relatively undeveloped investment and insurance markets..
Others said they needed to know more about AIA before they could judge whether the takeover justified the rights issue, when the price of shares on offer would only be announced in May and proceeds will nearly equal Prudential’s current market value of about $15bn.
AIA was caught up in the collapse of AIG in September 2008 and has struggled to emerge from its shadow. An $180bn rescue package by the US Treasury has proved hugely controversial and the White House has been under pressure to retrieve taxpayer funds through sell-offs.
In contrast, most UK insurers came through the financial crisis largely unscathed after they were forced to put aside large capital buffers following a stock market crash in 2003. The UK insurance market, the second largest in the world, is considered to be well placed to expand while rivals such as AIG are forced to sell off parts of their business.
AIG had planned to float AIA in Hong Kong but said yesterday it would be quicker and give greater certainty to sell the business to Prudential. It said the proceeds of the sale would be used to repay some of the government bailout.
Prudential shares fell 12% to 530p yesterday against a slightly higher FTSE 100, while AIG shares were up 6% at $26.30.
“(The deal) is going to be enormously dilutive,” said ING analyst Kevin Ryan. “No one knows exactly what AIA contains or how profitable it is, or how it overlaps with Pru’s existing businesses.”
Pru chief executive Tidjane Thiam rejected concerns that profits could be jeopardised. He said: “Transformational is an overused word, but this deal is truly transformational.”
He conceded that AIA’s results last year were down and it was difficult for outsiders to measure the operation’s success, but he claimed the AIA bosses had presented a “clean” business for sale.
“It is is true that it was less profitable than the Pru’s Asian businesses and it is bouncing back from a very difficult year. But it is a business at an inflexion point, which is what I like about it. We are catching it at a very good time.”
Thiam said the wider picture in Asia, including the potential for growth in China, was a crucial reason for the deal.
“Asia has been very clearly a major driver of value for Prudential for several years and in 2009 it accounted for 44% of new business profit after tax. The combined group would have 60% of 2009 new-business profit coming from Asia and puts us in a strong leadership position in all the critical growth markets in the region,” he said.
Thiam also confirmed that Prudential’s global headquarters will remain in London, and said that the UK remained “key” to the company’s prospects. Once the deal is finalised, Prudential will integrate AIA with its other Asian operations. The combined company will be the leading life insurer in Hong Kong, Singapore, Malaysia, Indonesia, Vietnam, Thailand and the Philippines.
It was unclear how the company would operate after Thiam said the AIA brand would remain. AIA has 320,000 tied agents who have long seen the Pru’s 400,000 employees as their main rivals. Competition rules in some countries could also force the sale of some divisions.
The insurer’s results for 2009 emphasised the shift away from the UK to more lucrative foreign markets. Sales in the UK market fell 12% as the company refused to write unprofitable business or sell products backed by large amounts of capital.
Pru’s main UK rival, Aviva, has also looked abroad for profits, chiefly in the US and Europe, though it has a small but fast growing business in India and other countries in Asia.
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Prudential’s billions will not pay off AIG’s bailout debt
Mar 1st
A $35bn deal with Prudential will not be enough to pay off the insurer’s debt to the US taxpayer
A few billion pounds from the man from the Pru will help. But even after offloading its Asian business, AIA, to Britain’s Prudential for $35.5bn (£23bn), the US insurer AIG faces an epic struggle to pay back the vast amount of money it received in a contentious bailout from American taxpayers.
In three separate emergency injections of funding at the height of the credit crunch, AIG was handed $180bn by US authorities to avert a collapse considered likely to create a knock-on panic at the heart of the financial system. As a result, the US public owns 80% of the once-mighty insurer.
“I don’t think it’s responsible to say yet with certainty that the US taxpayer will or won’t take a bath on AIG,” said Bill Bergman, an insurance analyst at Chicago-based research firm Morningstar.
AIG is beginning to show signs of improvement in revenue as customers, once scared by the possibility of bankruptcy, return to the insurer. But liabilities keep mounting in the company’s core casualty business, which indemnifies individuals and companies against damage to themselves and their properties.
“They appear to have stopped the bleeding on incoming premiums,” said Bergman. “But they’re pretty highly leveraged to the housing market and the credit market. Any further deterioration there is going to be a problem.”
At the core of AIG’s original implosion was its financial products arm, largely run out of a Mayfair office in London, which wrote billions of dollars of credit default swaps protecting financial institutions against default by trading partners. Once considered low-risk, these blew up spectacularly when the US mortgage market collapsed. In Britain, the Serious Fraud Office is probing the division, once characterised by the Federal Reserve boss Ben Bernanke as a “hedge fund … attached to a large and stable insurance company”.
AIG’s financial products arm is being wound down and other businesses are on the auction block to pay back bailout funds, although the continuing recession has made it difficult to get decent prices. AIG has sold its US car insurance business, its Tokyo headquarters building, and a reinsurance division for a total of nearly $6bn. It has struck a deal to sell a Taiwanese operation and is negotiating to sell a foreign life insurance arm for a possible $15bn to MetLife.
The company lost $10.9bn in 2009 – a hefty sum, but a significant improvement on its $99bn deficit in 2008. New boss Robert Benmosche, who became chief executive in August and condemned criticism of the company from “lynch mobs with pitchforks”, is widely credited with steering AIG towards calmer waters.
To avoid the stigma of government support, the name AIG has been dropped from many businesses. The company’s property and casualty business in the US is now known as Chartis. AIG’s life and retirement insurances businesses in the US still have $240bn of assets, 16m customers and 300,000 staff – but the company is unlikely ever to reclaim the global dominance it once enjoyed.
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Fortis becomes ‘ageas’, to signify shift from banking, but was it worth it?
Mar 14th
Posted by Heather Stewart in Business
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Corporate rebrandings are almost always pointless, pompous or both. So it’s a relief that bailed-out Benelux insurer Fortis has provided a crib-sheet to explain why as of April, it will be called “ageas” .
Apparently, the a and g at the beginning “celebrate our roots” – the firm began as AG Leven; the e and a in the middle refer to its two key markets, Europe and Asia; and the “as” at the end stands for “assurance”. The absence of capital letters “heightens the sense of unity within our group” and shows that “we don’t want to force our opinions on anyone”. How very modest. To give Fortis its due, the pared-down, pure insurance firm that emerged from the £10bn cross-border taxpayer carve-up is a very different business from the banking conglomerate it had become. BNP Paribas got the group’s Belgian banking interests, while a chunk of the ill-fated ABN Amro that Fred Goodwin didn’t get his hands on was taken over by the Dutch state. What’s left looks more like a boring old insurer, give or take some toxic legacy assets from the credit crunch era, which its boss Bart De Smet has been able to return to profit. But wouldn’t it have been refreshing if he’d applied the same back-to-basics approach to Fortis’s name, instead of succumbing to the brand consultants? It could have been Fortis’s most sensible decision in ageas.