Thursday, January 7, 2010

UOB sells life insurance arm to Prudential for $428m

Deal will allow UOB to focus on banking, expand insurance product distribution


(SINGAPORE) United Overseas Bank (UOB) will sell its life insurance unit to Britain's Prudential Group for $428 million in cash and distribute Prudential's products through its branches in Singapore, Indonesia and Thailand as part of a 12-year partnership agreement.

The deal will allow UOB to focus on commercial banking, while expanding its distribution of insurance products through its branch network, UOB chief executive Wee Ee Cheong said yesterday.

DMG & Partners Securities analyst Leng Seng Choon said: 'We view this development positively as it enables UOB to expand its bancassurance business not only in Singapore, but also in Indonesia and Thailand.'

The tie-up means that UOB will sell mainly Prudential's insurance products through its 414 branches in the three countries for an initial term of 12 years. UOB will distribute other insurers' products in these markets only if it wishes to sell a product that Prudential does not offer.

The deal will give Prudential an additional sales channel through UOB's branch network, said Prudential group chief executive Tidjane Thiam, who was in town to sign the agreement. 'It's a very important commitment to the region. We want to be a multi-channel operator - we don't dictate the way our customers buy our products.'

With the purchase of UOB Life Assurance, Prudential will also gain some 50,000 policyholders who own over 70,000 policies; those policies will not be affected. That will boost Prudential's share of the Singapore life insurance market from over 16 per cent at the end of 2008, said Philip Seah, Singapore CEO of Prudential.

Prudential, which employs some 415,000 people, including insurance agents, across Asia, already has life insurance operations in 12 Asian markets, which accounted for £846 million (S$1.89 billion) or 42 per cent of the group's £2.02 billion in retail insurance sales worldwide for the first nine months of 2009.

It also has asset management operations in 10 markets, including the United Arab Emirates, across the region.

As part of the bancassurance deal, UOB will also work with Prudential to manufacture products that are customised for the bank's clients, Mr Wee said.

'We may consider Malaysia later,' he added. UOB has a joint venture there with Malaysian conglomerate DRB-Hicom - Uni.Asia Capital, which offers both life and general insurance.

The proceeds from the sale of UOB Life and the regulatory capital freed up will be deployed elsewhere in UOB to strengthen its banking network, Mr Wee said. 'Our core business and strengths are in commercial banking and the distribution of financial products. The life insurance business - the manufacturing aspect - is currently a small contributor to the UOB group.'

UOB's financial statements do not show how much it earns from life insurance, but Mr Wee said that UOB Life is 'a relatively small player in a highly concentrated and competitive industry'.

After considering 'the scale, underwriting risk, volatility of investment returns and capital requirements of maintaining UOB Life, we decided that it would make more sense for us to divest it and channel the resources to building the core banking business and our regional infrastructure', he added.

UOB shares ended 1.4 per cent higher at $19.90 yesterday.

The transaction is expected to be completed by the end of this month.

The final sale price is subject to adjustment, but at $428 million, Prudential would be paying 1.2 times the $343 million book value of UOB's stake in UOB Life, and 1.8 times the insurer's net tangible assets of $244 million - both as at the end of September last year.

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