HSBC Holdings Plc, Europe’s largest bank by market value, agreed to sell some of its general insurance units in Asia and Latin America for about $914 million as it focuses on more profitable businesses.
Axa SA will pay about $494 million to acquire HSBC’s general insurance business in Hong Kong, Singapore and Mexico, the London-based bank said in a stock exchange filing. QBE Insurance Group Ltd. will pay about $420 million for HSBC’s general insurance business in Argentina and the general insurance unit of Hang Seng Bank Ltd., a 62 percent owned subsidiary of HSBC, it said.
Including today’s agreement, Chief Executive Officer Stuart Gulliver has announced almost $6 billion of asset sales since May as the bank sheds jobs and redeploys capital in faster-growing markets. HSBC, which earns most of its profit from Asia, agreed in January to sell operations in Costa Rica, El Salvador and Honduras to focus on bigger markets in Latin America.
“Motor vehicle insurance, which is a major element of HSBC’s general insurance business, has low margins and volatile profitability,” Dominic Chan, an analyst at BNP Paribas in Hong Kong, said by telephone today. “The business isn’t in line with HSBC’s strategy of seeking to tap high-net-worth clients.”
Shares of HSBC fell 1.6 percent to HK$67.70 in Hong Kong trading as of 2:46 p.m. The city’s benchmark Hang Seng Index declined 0.9 percent.
The sales are subject to regulatory approvals and are expected to close in the second half of this year, according to the statement. When the transaction is complete, HSBC will enter 10-year agreements with Paris-based AXA and Sydney-based QBE to offer general insurance products to HSBC and Hang Seng Bank customers. The assets being sold had a combined net asset value of $237 million as of Dec. 31, HSBC said.
The acquisition will expand Axa’s market share in Hong Kong to 13 percent from 6 percent, making it the largest general insurance provider in that location, Francois-Valery Lecomte, chief financial officer of AXA Asia, said at a press conference in the city. AXA is currently the second-largest general insurer in Hong Kong behind HSBC.
Axa aims to be the largest provider of general insurance in Asia and one of the region’s top three life insurers by 2015, he said.
“The deal gives AXA access to regional distribution through HSBC branches in markets where they are trying to build presence,” said Arjan van Veen, Credit Suisse Group AG’s Hong Kong-based insurance analyst. “They currently only have a handful of countries in Asia where they have scale” and the purchases are “strategically sensible” for both AXA and QBE, he said.
HSBC is among European banks selling assets as lenders brace for stricter global capital rules and an economic slowdown. That’s provided an opening for insurers like Axa to speed up expansion in Asia, where growth is outpacing Europe and the U.S.
Last year, HSBC posted $993 million of “net written insurance premiums” for its non-life business, down from $1.02 billion in 2010, according to its 2011 annual report. Net premiums in Asia accounted for about 35 percent of the total, while Latin America made up 52 percent, the report showed.