DealTalk: Taiwan life insurers a tough nut for foreign buyers

By Faith Hung and Denny Thomas

TAIPEI/HONG KONG (BestGrowthStock) – Three Taiwanese life insurance assets worth $2.5 billion are up for grabs, but a rash of exits by foreign firms from a competitive and mature market, low returns and picky regulators would make any decision to invest one for those with strong hearts and wallets.

AIG’s (AIG.N: ) $2.2 billion sale of its Nan Shan unit and the $116 million sale of Metlife’s (MET.N: ) local operation have fallen through in the face of regulator objections, while MassMutual became last week the latest of several foreign firms to pull out of the $52 billion market, Asia’s fourth-largest.

The Taiwan market is hamstrung by negative spreads, after insurers sold products with guaranteed returns when interest rates were high. Standard & Poor’s, in a report on Oct 13, said that insurers’ profitability is likely to remain volatile for the foreseeable future.

Nevertheless, Swiss-based ACE Ltd (ACE.N: ) is in talks with New York Life to buy its Taiwan business.

And France’s AXA SA (AXAF.PA: ), a banking source said, is exploring starting a Taiwan life insurance business, attracted by high levels of individual wealth in Taiwan and the island’s suitability as a stepping stone into the China market. AXA declined to comment.

“Foreign buyers still have the appetite to get into the Taiwanese market. If people can get rid of legacy issues, they still like Taiwan,” the banking source, who declined to be identified because he was not authorized to talk to the media, said.

The source and others noted that many of the foreign insurers who are looking to leave or have left, including AIG, Prudential Plc (PRU.L: ), ING Groep (ING.AS: ) and Aegon (AEGN.AS: ), did so partly at least because of problems back home.

MassMutual’s decision to sell up was due to a disagreement with its partner over listing the venture.

LOWER PROFITABILITY

Among the factors any buyer of a Taiwan insurer would have to consider is profitability, with unpredictable global markets adding to the risk on investing in a small, mature market.

“We believe it will be several years before Taiwan’s life insurers can fully restore their credit quality and raise their profitability to a level comparable with other regional peers in Thailand and Japan due to prevailing low interest rates,” said Standard & Poor’s credit analyst Patty Wang.

Taiwan’s 30 life insurance firms had collective profits of T$4.76 billion in 2009, the lowest since 2005, government data showed. In 2008 the industry lost a collective T$127 billion. Foreign firms’ collective losses were T$1.7 billion in 2009.

Another issue is a tougher stance by regulators toward insurance deals after the rejection of the AIG and Metlife sales.

After nationalizing Kuo Hua Life in 2009 and failing since to find a buyer for it, the government is worried about further similar situations, and regulators are now favoring firms with a solid track record as potential buyers.

That was the problem AIG and Metlife faced. Regulators did not like the buyer of AIG’s unit, China Strategic (0235.HK: ), as it was not an insurer and was partnered with an investment firm regulators viewed as seeking short-term gains.

Waterland (2889.TW: ), a local financial firm and bidder for Metlife, was judged financially unsuitable.

Regulatory sources say they focus on buyers’ qualifications to run an insurance firm and ability to raise money in future, not on any buyer’s origins.

“It was obvious that they do not like buyers who make a windfall and then leave Taiwan. Private equity funds would not be convincing either,” said an analyst at a Europe-based broker.

“More importantly, they hate to see buyers coming in and dumping all the burden on the government should things not work out. Big firms with experience in the business, either foreign or local, would be more acceptable for regulators,” said the analyst, who declined to be identified because he was not authorized to talk to the media.

One route to success might be a joint venture. Paribas (BNPP.PA: ) and Aviva (AV.L: ) both have ventures in Taiwan.

“When you tie up with local banks, which have massive distribution networks, your chances of losing money are quite small,” said an analyst at a U.S.-based securities house.

“Your operating costs are low and you’ll make money as long as you can sell your products via banks’ channels,” said the analyst, who declined to be identified because he was not authorized to talk to the media.

($1=T$30.9)

(Additional reporting by Lionel Laurent in PARIS; Editing by Jonathan Standing and Muralikumar Anantharaman)

DealTalk: Taiwan life insurers a tough nut for foreign buyers