Life (insurance) without the banks
Barely 12 months ago the Life Insurance and Wealth Management Practice Committee of the Actuaries Institute made a series of predictions about the life insurance industry to a Melbourne summit. Foremost amongst those predictions was that by 2020 there would be no locally owned insurers.
Now, almost a year down the track, the predictions of those making up that committee – Ilan Leas, Anton Kapel and Dave Millar – are proving to have been quite prescient, albeit that change appears to be happening a little faster than the trio predicted.
The reality in the first half of 2018 is that all but one of the major banks, Westpac, have exited their life/risk insurance businesses with AIA Australia currently in the throes of completing its acquisition of CommInsure, while Zurich has announced firm views about how it will bed down its acquisition of ANZ’s OnePath business.
At the same time, there is plenty of speculation about which of the already foreign-owned insurers will move to acquire the AMP Limited life insurance business and that of Suncorp with many eyes being trained on TAL’s Japanese parent company, Dai Ichi Life, to determine whether it still has an appetite for acquisitive growth in Australia.
But what is clear is that irrespective of the future ownership of the AMP and Suncorp life/risk businesses, around 85 per cent of the Australian industry is now foreign controlled via Dai Ichi’s ownership of TAL, Nippon Life’s majority ownership of MLC Life, AIA’s US parenthood, Zurich’s acquisition of ANZ’s OnePath, Sony Life’s majority hold on ClearView and the impending completion of the AIA acquisition of CommInsure.
Few experienced insurance executives are lamenting the exit of the major banks from the life/risk arena, with ClearView managing director, Simon Swanson reflecting common market sentiment when he suggested that banks had been relatively poor owners of life insurance who had failed to understand the life/risk sector and had therefore failed to adequately invest.
Looking at the successive rounds of merger and acquisition activity which had occurred in the industry over the past five years, Swanson described the outcome as broadly positive.
“Some of those [mergers and acquisitions] have actually been good decisions because you have shareholders who understand the industry and put their own capital in,” he said. “You can contrast that with banks who would not.”
Swanson also noted the number of smaller players who were looking to make a start in the industry.
AIA Australia’ s chief executive, Damien Mu would be more aware than most of the changing fabric of the Australian life/risk industry as his company works its way through its acquisition of CommInsure, but he chooses to see the positives in competition and change.
“We welcome competition and believe it is fundamental to ensuring a sustainable market that continues to innovate and improve,” he said.
Discussing the changing competitive landscape in the market earlier this year, TAL chief executive, Brett Clark made the point that one insurer entering or leaving the market was not going to make a material difference to overall market conditions.
More important, he said, was reinsurer capacity, particularly with respect to group life.
Notwithstanding some regulatory and commercial challenges, the latest industry and actuarial statistics point to the relative health of the Australian life/risk industry with most companies having corrected the factors which undermined profitability in the group space three years’ ago.
And it is this relative profitability which has accounted for the substantial investments undertaken by Nippon Life with respect to MLC Life, Dai Ichi with respect to TAL and, more recently, Zurich’s move to acquire the ANZ OnePath business.
For its part, Zurich has signalled its intention to continue leveraging off the value built into the ANZ OnePath brand, announcing to the market in mid-March that it would continue to operate under both OnePath and its own Zurich branding for the foreseeable future.
Confirming the strategy, Zurich Life & Investments chief executive, Tim Bailey told financial planners the firm realised that advisers wanted more choice, not less and that many advisers used both the Zurich and OneCare products suite on a complementary basis.
Boiled down to its essence, the Zurich branding strategy seeks to fully leverage the distribution rights that flow from its transaction to acquire OnePath – something which will allow it to distribute via both ANZ and IOOF, as a result of IOOF’s acquisition of ANZ’s pensions and investment business.
Swanson said the relative health of the Australian economy combined with the stability of the financial services regulatory system could not be overlooked.
“There seems to be a lot of people prepared to pay good money for companies and it’s all a relative game,” he said. “This economy is 26 years into growth, it has a stable government and we are either at the leading edge of bleeding edge of regulation.”
Read more of this feature here.
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