Asian expansion traction for Australian insurers

Australian insurers have a mixed record offshore. Will the results be different this time?

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published July 10, 2012 2:46 pm AEST

Insurance Australia Group (ASX: IAG) informed analysts today that the company has now invested $720 million in five Asian countries, including $500m in established businesses in Thailand and Malaysia and $220m building its presence in India, China and Vietnam. Return on equity in all five countries is expected to be more than 15% by 2017. IAG is also investigating opportunities in Indonesia.

This is all part of IAG's plan to generate 10% or more of its gross written premium from Asia by 2016.

Middle class consumption in Asia (excluding Japan) is expected to increase by nearly 200%, to around US$12 trillion by 2020, according to CEO Mike Wilkins. He also said that plans were gaining traction as the company "shifts from a market entry focus to one of driving operational performance from our enlarged regional presence."

IAG has also said that it wants to accelerate growth in Australia and New Zealand and restore profitability to its UK operations.

QBE Insurance Group (ASX: QBE) yesterday advised that it completed in Hong Kong the acquisition of Hang Seng General insurance Co Limited and 10 year bancassurance agreements. Under the agreements, QBE will become the exclusive provider and underwriter of bancassurance general insurance products to Hang Seng Bank's customers in Hong Kong and mainland China.

As for other major Australian insurers, Suncorp Group Limited (ASX: SUN) announced in May that it was concentrating on simplifying its business and extracting cost savings from replacing legacy infrastructure with modern platforms and systems. The company is also focusing on an organic growth strategy focusing purely on Australia and New Zealand.

AMP Limited (ASX: AMP) on the other hand is focusing on its wealth management, following its takeover of the Australian and New Zealand businesses of AXA Asia Pacific Holdings. Wealth management generated 31% of earnings in 2011, with just 25% coming from insurance.

Foolish takeaway

Suncorp is the only major insurer predominantly concentrating on its banking and insurance business in Australia and New Zealand, with IAG and QBE expanding globally, while AMP looks to focus on its primary business of wealth management. IAG shareholders will be hoping the Asian strategy doesn't turn out like the company's UK expansion under the former CEO.

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Motley Fool writer/analyst Mike King owns shares in QBE. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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