AIA Group Ltd. (1299), the third-largest Asia-based insurer, plans to enter the Sri Lanka market with a $109 million cash acquisition of a controlling stake in the country’s second-largest life insurer.
AIA agreed to buy 92.3 percent of Aviva NDB Insurance Plc (CTCE) to enter its 16th market, the Hong Kong-based company said in an e-mailed statement today. The amount to be paid includes an exclusive 20-year bancassurance agreement it will enter with Aviva NDB’s part owner National Development Bank Plc (NDB), and the sale of part of the acquired business back to the bank.
AIA Chief Executive Officer Mark Tucker has been trying to revive new business growth at the insurer hurt during the global financial crisis because of woes at its bailed-out former parent American International Group Inc. He said in February that he would pursue acquisitions only when they add value to investors and are financially viable.
“The Sri Lankan business, complete with an outstanding bancassurance partner, represents an excellent opportunity for AIA to apply its strategy for sustainable profitable growth from a position of leadership in a market we view as having great potential,” Tucker said in the statement.
The insurer, which has traditionally relied on agents for the bulk of its sales, is also expanding bancassurance distribution.
AIA is buying the stake from London-based Aviva Plc (AV/), the U.K.’s second-largest insurer, and National Development Bank, according to the statement. The remaining stake will be publicly traded on the Colombo Stock Exchange.
Shares of AIA rose 2.1 percent to HK$28.85 at the close of trading in Hong Kong. The stock had the biggest gain in almost two weeks. Aviva NDB, based and traded in Colombo, has a market value of more than 12 billion rupees ($92 million). It will remain traded on the exchange after the acquisition, according to the statement.
The Sri Lankan insurer will be renamed AIA after the purchase is completed. The deal is expected to be reviewed by the country’s Department of Exchange Control by the end of the year, according to the statement.
AIA will sell an 83.9 percent stake in NDB Aviva Wealth Management Ltd., part of the assets to be purchased, back to the Colombo-based bank, it added.
Aviva NDB Insurance had gross written premiums of $81 million last year, 75 percent of that from life insurance and the rest from non-life policies, according to the statement. It has 3,000 agents which accounted for 84 percent of life written premiums, it added.
AIA operates in 15 Asian markets with 24 million individual policies and more than 10 million members for group insurance. Its value of new business, a measure of the profitability of new policies, rose 28 percent in the first half over a year earlier.
Sri Lanka’s life insurance gross written premiums grew an annual average of 16 percent between 2006 and 2010 with 11 percent of the population owning insurance policies in 2010, according to the statement. The country’s economy expanded 8 percent last year and is forecast by the International Monetary Fund to increase 6.7 percent a year between 2011 and 2017, it added.
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