UK’s Prudential Approaches Asia Markets With Multichannel Strategy

Asia is driving a good deal of growth for the life insurance business worldwide, making it imperative for a life insurer to be armed with a multichannel strategy and diversified product portfolios, according to Barry Stowe, chief executive of Prudential Corporation Asia. "Many of the highest growth and return opportunities are in Asia and we have a clear and consistent strategy of delivering growth in the region," said Stowe.

"Our Asian business does not need capital to fund its growth. It's actually able to grow at a rapid rate while remitting increasing cash to the group," said Stowe. The U.K.-based life insurer operates in 11 Asian countries with a network of 345,000 agents and 77 bancassurance partners.

In Asia, Stowe said "we are planning to deliver 300 million pounds (US$471.4 million) of net cash remittance to the group in 2013," up from 40 million pounds in 2009.

A focus on products meeting Asian customers' savings and protection needs is essential to drive business growth while delivering shareholders value with high returns and short payback periods. Stowe said "our businesses are highly capital-generative."

In the first half of 2011, "we produced 1.4 billion pounds of free capital" in Asia, Stowe said. The company "invested 297 million pounds of this capital in writing new business, which means net of this reinvestment, we generated 1.1 billion pounds of new capital."

The group's objectives are to double both its 2009 pretax operating profit value for life and asset management, and its value of new business profit by 2013. "We remain on track to achieve these objectives in 2013," said Stowe.

Prudential has a long-term focus on Asia with a strategic emphasis on partnership distribution, agency scale and productivity, health and retirement products and customer relationships. The company offers "a broad range of products across our markets" with flexibility to adapt to local conditions, noted Stowe.

Supportive macroeconomic trends including a growing middle class, high gross domestic product, high personal savings and low insurance penetration are attractive aspects of the region, according to Stowe.

In Asia, Prudential does not depend on any one market to drive results. Its three largest markets are Indonesia, Hong Kong and Singapore, contributing 21%, 20% and 14% of total business in Asia as of the third quarter of 2011, according to a Prudential financial presentation.

Indonesia is one of the fastest-growing markets for Prudential in Asia, with a 27% rise in annual premium equivalent in the third quarter of 2011. The result has been supported by the country's 6% growth in GDP, a national savings rate of 33% and insurance penetration of only 1%.

"Nine out of 12 countries recorded double-digit growth in the third quarter of 2011 and Indonesia, Singapore and Hong Kong were particularly strong," said Stowe.

Prudential's competitive advantage in Asia rides on a multichannel strategy, which maximizes market access and minimizes channel conflict. Agency remains a core driver for growth while the insurer takes a leading position in the region's fast-growing bancassurance market.

"We have a multidimensional model with regional partners for multiple markets as well as multiple partners in one market," said Stowe. Singapore is one successful case in maximizing market reach by expanding bancassurance alongside agency. The two channels deliver a balanced APE contribution to the market.

Agency generated 64% of the group's total APE in Asia including India, followed by bancassurance with 30%, according to Prudential's financial presentation. Competition in Asia is principally around distribution in terms of scale, productivity and quality.

Some of Prudential's biggest competitors in the region include AIA Group, which launched an initial public offering in Hong Kong two years ago (Best's News Service, Oct. 28, 2010). AIA, which Prudential had attempted to acquire, operates in 15 geographic locations in Asia, with more than 309,000 agents and about 24,500 employees. Prudential made its dual listings on both Hong Kong and Singapore stock exchanges on May 2010 (Best's News Service, May 25, 2010).

In Asia, Stowe said Prudential is in the top three positions in eight markets in terms of APE market share as of the first half of 2011. The life insurer has a leading position in Indonesia, Malaysia, Singapore, the Philippines, Vietnam and India.

"Other than Southeast Asia, markets such as China and South Korea have demonstrated good growth potential," noted Stowe.

With 85 years of history in Asia, Prudential has presence in 13 markets with compound annual growth rate of more than 20% in operating profit since 2005. "We operate a decentralized model facilitating decision making in local market in response to fast-changing customers' needs," said Stowe.

Asia's competitive landscape varies significantly by market but it has remained stable. Building distribution capabilities, establishing brand and capital requirements are some of the material barriers for entry into Asia, said Stowe in a presentation.

In Asia's evolving regulatory environment, regulators are supportive of continued development of the life insurance industry. Regulation continues to adapt and evolve in a largely positive ways, said Stowe in a presentation. The industry's focus is on consumer protection, increasing transparency and accountability for compliance and risk management.

The region has seen some recent regulatory trends with the focus on bancassurance, data privacy, disclosure, professionalism of distributors, more sophisticated capital management such as risk-based capital system and international standards.

In products development, Stowe said "health and protection products remain in demand as there is heightened awareness of the need for financial protection," driven by economic growth and a rising middle class. For emerging markets such as Indonesia, health and protection products accounted for 58% of annual premium equivalent in the third quarter of 2011.

Prudential maintains "a strong focus on regular premium, long-term savings products," in its portfolio mix. People's retirement needs "are a key part of any financial plan and features in many of our customers' portfolios" in terms of accumulating assets to fund retirement and protecting assets.

(By Iris Lai, Hong Kong bureau manager: [email protected])