Asia Life Insurance Sector

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1 2 October 21 Asia Pacific/ EEMEA Equity Research Asia Life Insurance Sector Connections Series Slowing ASEAN growth offset by Figure 1: Asia Pacific regional company positioning / league table Asia life insurance premiums (US$ mn) and market share (%) , Tier 1 Tier 2 Tier 3 16, 2.9% 2.7% Asia market share (%) 14, The Credit Suisse Connections Series leverages our exceptional breadth of macro and micro research to deliver incisive crosssector and crossborder thematic insights for our clients. Research Analysts Arjan van Veen Andrew Adams Ashish Gupta Takehito Yamanaka Gil Kim Chung Hsu, CFA Europe Richard Burden Christopher Esson North America Thomas Gallagher, CFA Kevin R. Choquette, CFA, CPA, CMA 12, 1, 8, 6, 4, 2, 2.1% 2.2% 1.6% AIA Pru Fin Prudential Metlife AXA Manulife Allianz HSBC Great Eastern 1.3%.9%.8%.8%.3%.2%.2%.1%.1% Sun Life Aviva Ageas Zurich ACE Korea Australia New Zealand Malaysia India Philippines Vietnam Japan Source: Company data, Credit Suisse estimates Organic growth to slow nearer term. The NJA life insurance market continued to grow strongly in 214 with 1.% growth across all the 13 key markets (1year average 11.%). With a favourable demographic profile in many countries and low penetration rates, we expect this superior growth rate to continue at least over the next decade. However, given economic slowdown, we see some nearerterm pressures especially in ASEAN. Consolidation to continue (but at a slower pace). We expect further consolidation over the coming years through further exits by subscale insurers, increases in capital standards and further divestment from banks however, we note sizable deals available are less, with few key banks left without insurance partners. Key structural issue low interest rates. Interest rates continued to fall across most Asian markets during 214, causing issues in markets where these are at low levels relative to longerterm guaranteed rates (Japan, and Korea). As such, we see low interest rates as a structural issue in these markets for some time, even after they start to rise. Investment view. Our preference in the region is for higher growth markets with lack of structural issues (, HK/SEA and Australia) at reasonable prices; hence are OVERWEIGHT these markets with key picks AIA and Prudential for regional exposure (and HK/SEA given lack of liquid alternatives), Pacific and Ping An in, and CGF in Australia. DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NONUS ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION ClientDriven Solutions, Insights, and Access

2 Life insurance premiums (US$mn) Life insurance premiums (US$mn) 2 October 21 Focus charts Figure 2: Asian life insurance premiums by country and market share Asia life insurance premium (US$ mn) by country (inforce APE) and market share (%) 214, 4, 7.9% Tier 1 Tier 2 Asia market share (%) Tier 3 4, 3, 6.% 3,.1%.1% 4.8% 2, 4.2% 2, 3.7% 3.6% 3.% 1, 2.8% 2.8% 2.6% 2.% 2.4% 2.2% 2.2% 2.2% 2.% 1.9% 1,, 1.6% 1.6% 1.% 1.4% 1.4% 1.3% 1.1% 1.%.9%.8%.7% Life Ping An Nippon LIC Japan Post Daiichi MS&AD Meiji AIA Prudential Fin Samsung Cathay Life Prudential plc New Life Pacific Korea Australia New Zealand Malaysia India Philippines Vietnam Japan Figure 3: NJA life surpass the US Life insurance premium (US$ mn) and tenyear growth rate (% p.a.) 1,, 9, 8, 7, 6,, 4, 3, 2, 1, 1yr CAGR (%pa).% 6.%.% 2.8% 3.4%.8%.% 4.9% USA Canada UK France Germany Italy Japan ASIA NJA % Metlife T&D Aflac AXA Fubon Nan shan Taikang Hanwha Life Figure 4: with the largest NJA market NJA life insurance premium (US$ mn) and tenyear growth rate (% p.a.) 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, 11.3% 8.8% 7.7% 9.1% 8.% 8.8% Manulife % 1yr CAGR (%pa) South Korea Developed Developing Emerging Australia New Zealand Kyobo Life Taiping 16.% 9.3% Malaysia Allianz 11.6% India HSBC Great Eastern NN Group 17.9% 19.3% 1.3% Philippines Vietnam Figure : AIA the largest regional insurer in NJA NJA regional life insurance premium (US$ mn) and market share (%) 18, 16, 4.7% Tier 1 Tier 2 Tier 3 Figure 6: & Prudential largest in terms of new business NJA life new business premium (US$ mn) and market share (%) 3, 3, 3.9% Tier 1 3.8% Tier 2 Tier 3 14, 12, 3.% NJA market share (%) 2, 1, 2, 8, 1, 1.% 1.% 1.4% 6, 4, 2, 1.4% 1.3% 1.3% 1.2% 1.2%.8%.4%.4%.3%.3%.2%.2% 1,.9%.9%.7%.4%.3%.2%.2% AIA Prudential Allianz HSBC AXA Great Eastern Manulife Metlife Aviva Sun Life Ageas Zurich ACE FWD Prudential AIA AXA HSBC Allianz Great Eastern Manulife Metlife Ageas ACE Sun Life Zurich Korea Australia New Zealand Malaysia India Philippines Vietnam Korea Australia New Zealand Malaysia India Philippines Vietnam Source: for Figures 2,,6: OCI, MAS, KLIA, TII, Plan for Life, ISI, CIRC, TLAA, LIAM, IRDA, BAPEPAMLK, PIC, IRI, company data, Credit Suisse estimates; for Figures 3 and 4: Swiss Re. The author of this report wishes to acknowledge the contributions made by Mia Yang, an employee of Evaluserve Research Ltd, a thirdparty provider to Credit Suisse of research support services. Asia Life Insurance Sector 2

3 2 October 21 Nearerterm (ASEAN) growing pains Organic growth prospects remain strong, but nearterm slowing The average growth rate of the nonjapan Asia life insurance market has been 11.% p.a. over the last ten years (relative to global growth of 3.4% p.a. and Japan growth of.% p.a.) the highest growth rate by a region globally, except for Latin America (a market about oneseventh the size of NJA) and the Middle East (only 2% the size of NJA). We believe the Asian life insurance industry will continue to be a structurally attractive market, with strong demographic and household income growth, leading to greater insurance penetration/density, which is in a sweet spot of growth in many of its markets. The key for us is the translation of this growth to profitable growth for the insurers, which depends primarily on product structure (i.e., guarantees), level of competition and ability to add more insurance (protection) to the base savings product. Swiss Re estimates the protection gap to be 2.6x the current level of insurance cover in Asia, totalling US$8 tn. Nearer term, we do see some headwinds with growth slowing in many ASEAN countries due to economic growth slowing and in some cases exacerbated by political uncertainty. Consolidation to continue, but at a slower pace We expect further consolidation over the coming years through further exits by more marginal insurers, increases in capital standards and further divestment from banks (as well as further strategic alliances/distribution deals) with some potential inmarket mergers. In particular, we expect to continue to see banks seeking insurance partners, as they consider the implications of Basel III, through divestment of any existing insurance business and setting up mediumterm agreement with insurers (for upfront fees). We expect to see existing established scale franchises (especially AIA and Prudential) leading the regional consolidation in the more attractive markets. Key structural issue: Low interest rates The Asian insurance market does face cyclical headwinds from time to time, mainly due to economic activity and market volatility (with corresponding impact on sales), but the main structural issue for the sector is lower longerterm bond yields. The key issue here is that historically, insurers have given longterm guarantees in many markets above current spot rates particularly an issue in, Japan and Korea (with duration of investment significantly shorter than liabilities). We expect the issue will not be solved to some extent in the near future as interest rates were down again in 214 across the region. However, insurers have been taking measures to adapt to the low interest rate environment Investment view Our preference in the region is for higher growth markets with lack of structural issues (, Australia and HK/SEA) at reasonable prices, where such exposures are available. As such, we retain our OVERWEIGHT position on these markets with key picks being AIA (1299.HK) and Prudential (PRU.L / 2378.HK) regionally (and for HK and SEA exposure specifically, given the lack of availability of liquid stocks) and Pacific (261.HK) and Ping An (2318.HK) in ; and CGF (CGF.AX) in Australia. In the other markets, we are more selective with regard to stock exposure and our preference is often relative to other stocks in the region. The Asian insurance market is one of the most structurally attractive globally We think M&A activity will continue in the Asia insurance sector, but at a slower pace Low interest rates are the key structural issue for north Asian life insurers, and worsened in 214 Our preference is for the structurally more attractive markets of, Australia and HK and SEA Asia Life Insurance Sector 3

4 2 October 21 Asia Life Insurance Sector 4 Key financial metrics Figure 7: Asian life insurance key financial metrics EPS P / BV ROE P / NTA ROTE P / EV* EV ROEV VNB* VNB Payout Div Yld Reporting Market Monthly Daily Monthly Price 2 Week 12mth 12mth Inv'ment Year Consensus PE (x) Growth (x) (%pa) (x) (%pa) P / EV (x) (x) growth (%pa) VNB (x) (x) growth ratio (%) (%pa) Price movement (%) Company Currency Cap Volume Volume Liquidity 3Sep high/low Target Return Rating End PE (x)* 12mth forward diluted (Credit Suisse forecasts) 1wk 1mth 1qtr 1hy 1yr YTD US$m US$m US$m % local local % Dec Australia AMP.AX AMP AUD 11, % % NTRL 31Dec 14.2x 1.x % 2.x 12.3% 3.6x 23.2% 1.3x 1.3x 7% 8.4% 11.x 11.x 4% 8%.2%.% 1.2% 13.% 3.3% 2.9% CGF.AX Challenger AUD 3, % % OPFM 3Jun 11.7x 11.x 7% 1.4x 13.% 1.8x 1.3% na na na na na na na 3% 4.6%.% 3.4% 3.% 2.3% 2.6% 1.% CVW.AX Clearview AUD % na na NR 31Dec 17.x 17.x 29% 1.4x 8.3% na na na na na na na na na 6% 3.3% 2.2% 8.% 8.% 11.1% 14.4% TWR.AX Tower NZD % % NTRL 3Sep 12.x 12.x 17% 1.2x 1 1.4x 11.6%.4x.4x 3.6% 49x 47x 3% 28% 8.3% 1.6% 1.1%.1% 16.8%.% 8.7% NHF.AX NIB Holdings AUD 2, % % UPFM 31Dec 18.7x 18.7x 2% 3.8x 2.% 7.2x 38.4% na na na na na na na 69% 3.7% 1.% 6.1% 4.4% 13.2% 13.% 4.% MPL.AX Medibank Private AUD 9, % % UPFM 31Dec 2.7x 2.7x 7% 4.3x 21.%.4x 26.% na na na na na na na 73% 3.% 1.7% 3.8% 16.7% 2.9% 14.% 1.7% GMA.AX Genworth Australia AUD 1, % na na NR 31Dec 6.x 6.x na.6x 1.2%.6x 1.2% na na na na na na na 86% 14.4% 2.1% 8.7% 24.3% 24.7% 12.% 3.% IAG.AX IAG AUD 8, % % NTRL 3Jun 12.x 14.9x 7% 1.7x 11.9% 3.4x 22.9% na na na na na na na 9% 6.% 2.8% 13.7% 18.7% 2.7% 21.4% QBE.AX QBE USD 12, % % NTRL 31Dec 12.x 11.9x 27% 1.1x 9.2% 1.6x 13.2% na na na na na na na 49%.%.%.8% 1 3.1% 11.3% 16.1% SUN.AX Suncorp AUD 11, % % NTRL 3Jun 11.7x 11.x 16% 1.1x 1.2% 1.9x 16.3% na na na na na na na 98% 7.7%.6% 1.7% 1.4% 9.3% 12.3% 11.7% 63,377 4, % 16.1% 14.3x 14.7x 24% 1.9x 12.4% 7.x.3%.9x.9x 6.% 6.% 18.9x 18.2x 4% 82%.4%.4%.1%.8% 7.9%.1%.8% SS Life (A) CNY 83,649 9, % % OPFM 31Dec 14.4x 13.1x 14% 2.x 1.1% 2.x 1.% 1.2x 1.4x 1% 9.3% 4.x.7x 28% 23% 2.% 2.3% 2.% 9.% 32.% 64.2% 2.2% 6161.SS Pacific (A) CNY 21,9 8, % % OPFM 31Dec 11.8x 1.3x 13% 1.4x 13.8% 1.4x 13.9%.9x.7x 14% 8.8% 1.8x 3.3x 34% 4% 3.9% 3.3% 2.2% % 14.3% 31.3% SS New Life (A) CNY 11,728, % % OPFM 31Dec 11.3x 1.3x 2% 1.6x 16.% 1.7x 16.3% 1.x 1.1x 17% 9.4%.x 2.3x 21% 9% 6.6%.7% 32.9% 33.%.9% 27.7% SS Ping An (A) CNY 6,473 3,96 1, % % OPFM 31Dec 8.6x 9.4x 2% 1.x 1.% 1.6x 17.%.9x.8x 18% 9.1% 3.4x 1.9x 23% 29% 3.3% 4.1% 1.% 23.2% 23.% 44.% 2.1% 173,799 9,94 2, % 6.8% 11.x 1.8x 6% 1.6x 1.1% 1.7x 1.7% 1.x 1.x 16% 9.2%.3x.7x 26% 2% 2.3% 3.3% 2.% 16.9% 29.7%.6% 24.% 1299.HK AIA USD 62,246 3, % % OPFM 3Nov 1.x 14.9x 36% 1.8x 12.% 1.9x 12.8% 1.x 1.x 11% 9.8% 9.4x 8.x 18% 28% 1.7% 1.4%.% 22.6% 18.8%.2% 7.2% 94.HK Manulife CAD, % % OPFM 31Dec 1.1x 12.8x 1% 1.2x 9.6% 1.6x 12.6%.8x na na 6.1% 7.2x na na 38% 3.4%.% 3.7% 18.% % 2.9% 2378.HK Prudential plc GBP 4, % OPFM 31Dec 11.4x 1.x 16% 2.4x 23.3% 2.8x 26.6% 1.x 1.1x na 9.1% 1.6x 1.1x 8% 38% 3.% 1.6% 3.9% 17.% 19.% 11.2% 12.6% 2628.HK Life (H) CNY 2,628 3, % % OPFM 31Dec 12.x 11.x 1% 1.8x 1.3% 1.8x 1.3% 1.1x 1.2x 1% 9.% 1.7x 3.3x 23% 23% 2.3%.6% 4.9% 19.% 23.3% 24.4% 12.% 261.HK Pacific (H) CNY 1,414 1, % % OPFM 31Dec 13.x 11.1x 1% 1.6x 14.% 1.6x 14.1% 1.x.8x 14% 9.%.x 1.8x 29% 4% 3.%.2% 3.1% 21.9% 23.3% 4.9% 27.3% 966.HK Taiping HKD 1, % % OPFM 31Dec 12.x 12.8x 22% 1.4x 1.6% 1.4x 1.9%.8x.x 23% 6.4% 6.4x 14.3x 2% % 3.7% 16.7% 12.4% 11.3%.4% 8.3% 1336.HK New Life (H) CNY 4, % % OPFM 31Dec 8.x 8.x 2% 1.2x 16.% 1.3x 1.8%.8x.9x 17% 9.6% 4.2x 1.x 16% 9% 1.7% 3.6% 1.8% 26.2% 24.8% 16.8% 14.9% 2318.HK Ping An (H) CNY 3,977 6, % % OPFM 31Dec 9.8x 9.8x 4% 1.x 1.6% 1.7x 17.7%.9x.9x 18% 9.1% 2.3x 1.x 22% 29% 3.2% 1.3% 3.2% 24.7% 17.7% 31.6% 3.% 1339.HK PICC Group CNY 2, % % OPFM 31Dec 8.1x 7.1x 7% 1.x 14.4% 1.1x 14.9% 2.2x 1.7x 1% 3.3% 1.6x 32.8x 12% 7% 1.%.% 9.6% 21.8%.% 8.3% 3.9% 2328.HK PICC P&C CNY 23, % % OPFM 31Dec 9.9x 9.1x 6% 1.6x 17.% 1.6x 17.4% na na na na na na na 2% 2.7% 1.3%.6% 14.7% 3.2% 13.8%.1% 2,398 18, % 6.8% 1.x 9.9x 3% 1.4x 14.8% 1.x 1.1% 1.1x.4x 17% 12.3%.7x 8.x 21% 19% 2.1%.7% 2.% 2.8% 1.9% 12.6% 6.3% India RLCP.BO Reliance Capital INR 1, % na na NR 31Mar 9.2x 9.2x 4%.6x 6.9%.6x 6.9% na na na na na na na 24% 2.6% 6.% 19.3% 3.1% 13.1% 17.8% 24.% MAXI.BO Max India INR 2,83.2% % UPFM 31Mar 4.8x 41.7x 16% 3.8x 9.1% 3.8x 9.% 1.9x 4.1x 2% 4.% 21.4x 37.3x 1% 71%.2% 1.1% 2.1% 4.7% 13.8% 61.6% 29.4% 3, % 12.2% 2.x 2.4x 1% 2.2x 8.% 2.2x 8.% 1.9x 4.1x 2% 4.% 21.4x 37.3x 1% 48% 1.4% 3.1% 9.1% 4.1% 2.8% 29.% 7.% Japan 87.T DaiIchi Life JPY 18,717 2, % 1,894 1,4132,6 2,99 9.9% OPFM 3Mar 11.6x 1.9x 29%.6x.2%.6x.9%.3x.4x 18% 2.7% 18.3x 14.x 7% 23% 2.% 1.1% 11.% 24.3%.2% 17.7% 2.9% 8729.T Sony Financial JPY 7, % 1,98 1,82,4 2,2 1.3% NTRL 31Mar 14.1x 14.x % 1.4x 9.8% 1.x 1.2%.x.8x 1% 3.7% 13.x.8x 11% 37% 2.9% 3.1% 12.% 1.1% 1.9% 12.% 9.9% 879.T T&D Holdings JPY 7, % 1,4 1,2161,99 1, % NTRL 3Mar 1.x 1.1x 1%.6x 6.4%.7x 6.%.4x.x 6% 3.7% 16.x 1.7x 14% 18% 2.1%.4% 9.% 2.6% 1.9%.9% 3.7% 872.T MS&AD Insurance JPY 16,174 1, % 3,193 2,924,397 4,7 49.% OPFM 31Mar 11.3x 1.x 17%.7x 6.4%.7x 6.8% na na na na na na na 26% 2.4% 1.6% 12.6% 17.4% 6.3% 34.8% 1.8% 863.T NKSJ Holdings JPY 11, % 3,46 2,3664,66 4,8 3.1% NTRL 31Mar 8.x 8.4x 7%.8x 9.3%.8x 9.7% na na na na na na na 29% 2.% 1.6% 9.6% 23.2% 8.% 3.% 13.3% 8766.T Tokio Marine JPY 27,971 1, % 4,442 3,12,44 RSTR RSTR 31Mar 12.3x 13.3x 1%.9x 6.8% 1.x 7.4% na na na na na na na 3% 2.% 2.9% 4.6% 14.3% 4.2% 32.% 12.9% 89,226 7, % 37.4% 11.4x 11.3x 18%.8x 7.3%.9x 7.8%.4x.6x 11.3% 3.4% 16.x 1.2x 11% 27% 2.4%.4% 9.1% 19.2% 4.% 2.1% 8.8% Korea 3283.KS Samsung Life KRW 16, % 98,9 92,2127, 13, 38.4% OPFM 31Mar 14.6x 14.6x 1%.8x.2%.7x 4.9%.6x.7x 1% 4.3% 8.x 6.x 6% 2% 1.9% 3.% 1.%.8% 2.1% 6.7% 1.1% 883.KS Hanwha Life KRW, % 8,16 6,878,69 8,.9% NTRL 31Mar 11.6x 11.6x 1%.7x 6.1%.7x 6.1%.7x.8x 11%.8% 7.6x 3.6x 4% 31% 2.8%.2% 1.6% 4.% 1.4% 16.7% 1.6% 8264.KS Tong Yang Life KRW 1, % 14,2 1,41,6 na na NR 31Mar 9.3x 9.3x 3%.7x 8.%.7x 8.% na na na na na na na 34% 3.7% 1.%.%.6% 17.4% 27.4% 32.1% 83.KS Dongbu KRW 3, % 61,3 46,761,3 4, 9.% NTRL 31Mar 8.8x 9.6x 8% 1.x 11.4% 1.x 1.2%.7x.9x 6% 7.2% 4.7x 1.2x % 23% 2.9% 3.9% 12.1% 8.3% 24.1%.% 11.% 14.KS Hyundai M&F KRW 2, % 3,2 23,931,7 28, 4.3% NTRL 31Mar 8.2x 9.1x 1%.9x 11.%.9x 1.x.3x 16%.1%.7x.6x 4% 23% 3.1% 1.2% 8.4% 4.3% 21.%.8% 16.3% 2.KS LIG Insurance KRW 1, % 23,6 21,729,2 na na NR 31Mar.6x.6x 2%.6x 1.8%.6x 1.8% na na na na na na na 23% 4.1%.6% 1.% 17.6% 4.7% 13.6% 13.9% 6.KS Meritz F&M KRW 1, % 1,9 11,317, na na NR 31Mar 9.6x 9.6x 26% 1.x 1.7% 1.x 1.7% na na na na na na na 29% 3.% 1.3% 1.9% 6.% 29.3% 22.3% 27.7% 81.KS Samsung F&M KRW 11, % 28, 244,317, 29,.6% NTRL 31Mar 12.3x 12.4x 14% 1.1x 9.2% 1.x 8.1%.7x.6x 8%.% 7.8x 7.8x 4% 23% 2.% 6.1% 4.1% 8.%.2%.9% 369.KS Korean Re KRW 1, % 14,2 1,14,8 na na NR 31Mar 8.x 8.x 7%.7x 9.% na na na na na na na na na 2.9% 3.3% 3.3% 14.9% 3.1% 27.2% 31.9% 43,738 1, % 6.3% 1.x 1.2x 12%.9x 9.%.8x 8.6%.6x.7x 1%.6% 6.9x 4.9x 12% 26% 2.9% 1.8% 3.8% 2.1% 1.3% 2.6% 1.9% South East Asia GELA.SI Great Eastern SGD 7, % % OPFM 31Dec 11.4x 1.1x 2% 1.4x 13.7% 1.4x 13.7%.9x.9x 7% 9.2% 1.9x 1.8x 9% 46%.3% 3.4%.% 13.8% 14.3% 1.9% 11.% AINM.KL Allianz Malaysia MYR 48..1% na na NR 31Dec 7.1x 7.1x na 1.2x 11.8% na na na na na na na na na 2%.2%.4% 2.3% 1.3% 1.3% 11.7% 7.2% LOND.KL Lonpac Insurance MYR 1, % na na NR 31Dec 18.8x 18.8x na 2.x 13.1% 2.x 13.1% na na na na na na na 74% 3.9%.7%.8% 1.9% 8.1% 17.4% 14.% TUNE.KL Tune Insurance MYR % % OPFM 31Dec 11.7x 11.7x na 1.9x 16.7% 2.1x 17.7% na na na na na na na 44% 3.8% 3.%.8% 21.7% 34.3% 3.7% 23.% PNLF.JK Panin Financial IDR % na na NR 31Dec 4.6x 4.6x na.7x 14.1%.7x 14.1% na na na na na na na % 6.8% 21.6% 29.4% 42.% 31.7% 3.8% PNIN.JK Panin Insurance IDR % na na NR 31Dec 3.1x 3.1x na.6x 14.7% na na na na na na na na na % 4.9% 4.1% 19.4% 27.% 14.1% 22.1% SMMA.JK Sinar Mas IDR 2,13, 2,7, na na NR 31Dec 19.3x 19.3x na 2.9x 14.9% na na na na na na na na na % 1.% 2.% 42.9% 36.8% BLA.BK Bangkok Life THB 2, % % UPFM 31Dec 1.7x 18.6x 18% 2.6x 14.1% 2.6x 14.1% 1.7x 1.7x 8% 9.% 27.8x 32.x 11% 1% 2.9% 1.% 6.1% 3.% 3.% 18.7% 13.% BKI.BK Bangkok Insurance THB 1,4 1..1% na na NR 31Dec 1.1x 1.1x na 1.2x 11.% na na na na na na na na na 67% 4.4%.8%.6% 1.9% 1.6% 1.6% BVH.HM Bao Viet VND 1,48 na na na 46, 3,466, na na NR 31Dec 9.3x 9.3x na 2.x 1.% na na na na na na na na na 4% 4.3% 3.1% 1.% 8.1% 31.7% 1.4% 4.3% 18, % 37.9% 9.x 9.6x 8% 1.7x 1.6% 1.3x 12.% 1.3x 1.3x 7% 9.1% 12.9x 1.1x 1% 34% 3.8% 1.1% 2.8% 6.1%.1% 1.6% 7.9% 2882.TW Cathay FHC TWD 17, % RSTR RSTR 31Dec 1.6x 11.7x 23% 1.3x 11.% 1.3x 11.2%.6x 1.1x 2%.4% 6.1x 2.x % 26% 1.4% 2.%.6% 13.9% 9.4% 8.% 4.3% 2823.TW Life TW TWD 2, % % NTRL 31Dec 11.x 3% 1.1x 9.% 1.1x 9.%.9x 1.1x 3% 7.%.7x.3x 4% 21% 1.9%.8% 1.4% 19.8% 4.8% 2.% 2.1% 2881.TW Fubon FHC TWD 1, % NTRL 31Dec 8.3x 1.3x 23% 1.4x 13.3% 1.4x 13.3%.9x 1.4x 6% 8.% 2.x 4.4x 6% 42% 3.9% 2.7% 2.8% 17.% 1.% 1.3% 1.2% 2888.TW Shin Kong FHC TWD 2, % % NTRL 31Dec 7.x 8.1x 9%.8x 1.8x 1.1%.3x.7x 11% 3.6% 1.1x 3.7x 3% 9% 1.% 2.4% 2.% 14.1% 8.% 1.4% 9.9% 38,24 1, % 13.8% 9.7x 1.8x 1% 1.1x 1.7% 1.1x 11.%.7x 4% 6.3% 4.7x.7x 2% 2% 1.6% 2.3% 1.2% 1.% 9.%.1% 2.2% Total NJA insurance 41,881 8,768 4,29 1.8% 4% 12.1x 12.x 7% 1.6x 13.6% 1.8x 1.2%.9x 11% 7.9% 1.2x.3x 16% 32% 2.8% 1.2%.7% 1.2% 16.1% 21.4% 1.3% Total Asia insurance 631,16 93,298 4, % 7% 12.4x 12.3x 9% 1.x 13.2% 1.7x 14.1%.8x 1% 7.%.1x.4x 14% 32% 2.8% 1.%.8% 16.2% 14.8% 22.2% 7.9% Source: Reuters, Credit Suisse (*IBES consensus) 12month forward rolling estimates (nonrated stocks use consensus forecasts)

5 2 October 21 Table of contents Focus charts... 2 Nearerterm (ASEAN) growing pains... 3 Organic growth prospects remain strong, but nearterm slowing... 6 Consolidation to continue, but at a slower pace... 1 Key structural issue: Low interest rates Investment view Asia insurance market overview Korea Australia New Zealand Malaysia India... 1 The Philippines Vietnam Japan Regional company positioning by market Company overview... 1 Global valuation comparisons Asia Life Insurance Sector

6 Life insurance premiums (US$mn) 2 October 21 Organic growth prospects remain strong, but nearterm slowing We deem the nonjapan Asian (NJA) life insurance industry to continue to be a structurally attractive market, with strong demographic and household income growth, leading to greater insurance penetration / density, which is in the sweet growth spot in many of its markets. The average growth rate of the NJA life insurance market has been 11.% p.a. over the last ten years (relative to global growth of 3.4% p.a. and Japan growth of.% p.a.); the second highest growth rate by region after Latin America (a market about oneseventh the size of NJA) and the Middle East (a market only 2% the size of NJA). More recently, growth has been slightly weaker at 9.2% p.a. Within NJA, we highlight that growth rates differ substantially by country and region, as shown below, with growth rates lower in more developed Asia than in less developed Asia as one would intuitively expect. Figure 8: Life insurance premium growth rates (% p.a.) to 214 1year CAGR (%) year CAGR (%) Emerging Developing Developed Total nonjapan Asia Source: Swiss Re (in USD terms) NJA growth rate has been ~11.% p.a. over the past ten years We highlight that relative to the more developed large individual markets, nonjapan Asia has grown at a much faster rate and is now of a much more substantial size. In 214, NJA became larger than the US and Japan,, from a position of being only around 1% of the Japanese market in 198. Figure 9: NJA growth rate faster than other regions Life insurance premiums (US$ mn) and tenyear growth rate (% p.a.) 1,, 9, 8, 1yr CAGR (%pa) 4.9% With NJA now larger than the US and Japan 7, 6,.% 11.%, 4,.% 3, 2,.% 2.8% 3.4%.8% 1, 6.% USA Canada UK France Germany Italy Japan ASIA NJA Source: Swiss Re Given the higher growth rates, the NJA life insurance industry has grown from a 7.6% share of the world market in 2 to a 21.2% share in 214. Asia Life Insurance Sector 6

7 Life insurance premiums / capita (US$) Life insurance premiums / capita (US$) 2 October 21 Key drivers of longerterm growth We deem the following factors as key drivers of longerterm higher growth rates for the NJA life insurance market: Working population growth: Countries with reasonably young population profiles (India,, Malaysia and the Philippines), will have reasonably strong working population growth profiles in the coming decades. Improved insurance penetration: Many NJA countries have low levels of insurance penetration (outside developed Asia), which we expect to increase as populations become wealthier and better educated (with increased urbanisation). Lack of alternatives: For many (but not all) NJA countries, there often exist few other longterm retirement savings regimes, with capital markets often being too immature to allow mass savings to be channelled through them (and often too volatile). Figure 1: Insurance density remains low in NJA Life insurance premiums / capita (US$) Figure 11: with penetration higher in developed NJA Life insurance premiums / GDP (%) 4, 3, 3, 2,.3% 1yr CAGR (%pa) 2.%.%.4% 12.% 1 8.% 2, 1,.3% 4.9% 3.4% 6.% 4.% 1, 3.8% 1.3% 2.% USA Canada UK France Germany Italy Japan ASIA NJA USA Canada UK France Germany Italy Japan ASIA NJA Source for both figures: Swiss Re High level of bank deposits: Despite the strong increase in other types of savings vehicles (including insurance), the rate of bank deposits remains very high in Asia. As such, we deem a potential transfer from bank deposits to higher return other forms of savings will also drive mediumterm growth. Figure 12: % of assets in bank deposits remains higher in Asia Asset class as a % of total assets Source: Allianz Global Wealth Report 211 (National central banks and financial supervisory authorities, SSE, IRDA, BIS, DataStream) Asia Life Insurance Sector 7

8 Working population growth (% p.a.) 2 October 21 Working population growth The attractive demographics have been a key driver of Asian insurance premium growth over the last decade, with working population growth averaging 1.7% p.a. across non Japan Asia. Figure 13: Working population growth in Asia is slowing NJA working population growth last 1 yrs / next 1 yrs 3.% 2.% 2.% Developed Developing Emerging last 1yrs 1yrs NJA working population growth was 1.7% p.a. in the last decade; but likely to be only.7% over the next decade 1.% 1.%.%.% NJA Vietnam Philippines India Malaysia New Zealand Australia Korea Source: United Nations However, this growth is projected to slow down to.7% over the next decade; driven mainly by the slowdown in (+1.6% last decade and % next decade) due to the impact of the onechild policy. Ultimately, this is still superior to most developed markets; with Japan's working population projected to shrink by.8% p.a. over the next decade, for example. Figure 14: Asian population, working population, growth and dependency ratios (%) NJA Population Working population Working pop growth Old age dependency ratio (%) Child dependency ratio (%) % last 1yrs 1yrs 2yrs mn mn CAGR %pa CAGR %pa Retired pop / working pop Children / working pop Developed Asia.2% %.2% 1.3% 2.4% 32.8% 2.% 2.2% 26.2% 3.9%.2% % 1.1%.9% 1.3% 24.7% 37.3% 34.6% 3.1% 31.9% Korea 1.% %.1% 1.% 18.4% 27.7% 4.4% 33.% 28.% 31.9%.7% %.1% 1.2% 17.3% 27.3% 42.2% 31.4% 2.% 26.% Australia.7% %.7% 1.4% 23.8% 3.1% 3.7% 42.4% 44.8% 44.9% New Zealand.1% %.6%.9% 23.7% 3.4% 38.4% 46.% 4.7% 44.7% Developing Asia 42.1% 1, %.% 13.3% % 37.% 36.7% 3.1% 2.% %.8% 14.8% 23.% 3.7% 38.1% 32.% 3.1% Malaysia.9% % 1.8% 2.7% 9.1% 12.% 17.4% 6.2%.3% 47.% Emerging Asia India 38.1% 1, % 1.% 2.6% 9.4% 11.7% 14.% 68.% 8.3% 1.3% 7.6% % 1.% 2.4% 9.1% 11.9% 16.9% 6.8% 6.% 47.9% Philippines 3.% % 2.1% 3.9% 7.% 9.8% 12.1% 8.9% 74.2% 66.6% Vietnam 2.8% %.9% 1.2% 1.6% 1.% 23.% 49.9% 43.2% 37.1% NJA 3,287 2,11 1.8%.7% 1.% 11.6% 16.4% 23.4% 1.8% 46.6% 42.% Developed 3.4% %.2%.% 18.% 27.3% 41.3% 32.8% 29.9% 32.% Developing 4.1% 1, %.4% 13.3% % 36.8% 3.1% Emerging 1.% 1, % 1.% 2.% 9.3% 11.8% 1.3% 67.9% 7.9%.7% Japan %.8% 1.6% 43.9% 4.3% 6.3% 31.1% 31.% 31.8% ASIA 3,414. 2, %.7%.9% 12.7% 17.7% 24.7% 1.% 46.% 42.% Source: United Nations Asia Life Insurance Sector 8

9 2 October 21 Mind the gap: Insurance penetration lower than headlines suggest The main issue with looking at penetration rates based on premiums is that a large proportion of the premium in Asia is not insurance related but for savings. This amount will vary by market depending on the overall savings rate as well as competing products classified elsewhere. For example, Australian savings generally go to the mandated retirement scheme or directly into mutual funds. As such, the insurance premium captured is in fact mainly pure protection. For the rest of Asia (except NZ) the percentage of the premium that is insurance (or protection) related is likely to be well below 1%. Swiss Re has tried to measure the actual level of insurance penetration and insurance shortfall referred to as the protection gap. This gap is measured by calculating the amount of insurance needed to maintain a reasonable living standard less assets already accumulated and insurance already in place. Their study made the following key observations: The actual level of 'insurance' penetration is much lower than premiums would suggest The protection gap totalled US$8 tn at the end of 214. It has been expanding at an annual rate of 1% per annum, more than doubling from 24. This equates to around 2.6x the existing cover in place, and we estimate this would equal to around US$173 bn in new premiums. Figure 1: Measuring the mortality protection gap 21 Working with GDP per Premium per Sum Life Penetrati Protection Multiple p/working % total Population dependants capita capita insured GDP premiums on % Gap current % needed population Premium* premiums mn mn US$ US$ US$bn US$bn US$bn % US$bn US$ US$bn % ,726, % x 24% 286,12 2 4% 6 2 6, 2, % x 38% 24,96 1 8% South Korea 13 28,9 2,1 67 1, %, x 11% 42, % ,32 3, % 177.3x 76% 3, % Australia ,23 2,379 1,877 1, % 1,87.6x 63% 17,68 3 6% New Zealand 1 42, % 1, , , % 32,74 1.6x 2% 8, % 67 2, % x 13% 38, % Malaysia 3 7 1, % x 17% 79,14 2 1% India 1, , ,89 2.6% 8, 16.7x 6% 3, % , % x 8% 12, % Philippines , % Vietnam , % x 2% 23, % Developed Asia ,46 2,34 3,13 4, % 7, 2.1x 32% 22, % Developing 1, , , % 33, x 2% 78,899 1 % Emerging 1, , , % 1, x % 29, % NJA 3,323 89, ,4 18, % 1, x 26% 63, % Japan ,961 2,926 3,42 4, % 6,79 1.9x 34% 21,66 2 % Asia 3, ,14 3,9 21,87 22, % 7, x 27% 68, % USA 319 4,691 1,67 17, % Canada 36,394 1,469 1, % UK 6 4,33 3,637 2, % 2,17 France 66 43,86 2,614 2, % 846 Germany 82 46,962 1,44 3, % 3,8 Italy 6 3,817 2,432 2, % 69 Source: Swiss Re, UN, Credit Suisse estimates (* based on.3% rate on line) Asia Life Insurance Sector 9

10 % protection vs need (%) 2 October 21 We compare the working population growth over the next decade to insurance penetration as measured by the Swiss Re protection gap (death cover in place as a percentage of cover needed) versus the projected annual working population growth over the next decade. Figure 16: Philippines, India, and Malaysia structurally most attractive? Life insurance penetration vs. working population growth % 1% 2% Korea Vietnam India Malaysia Philippines Following look most attractive on insurance penetration vs working population growth: India,, Malaysia and The Philippines 3% 4% Growth potential NJA New Zealand % 6% Australia 7% 8%.%.% 1.% 1.% 2.% 2.% Source: Swiss Re, Credit Suisse Working population growth (% p.a.) next decade The countries that stand out on these metrics are: India,, Malaysia and the Philippines. The key driver in addition to the above would be: (1) Growth in the wealth of the working population / emerging middle class; (2) Whether insurers can translate this into insurance demand; (3) Profitability of products sold; and (4) Any adverse regulation to prevent reaching of target customers and/or product margins. Asia Life Insurance Sector 1

11 Premium growth (1yr CaGR and growth %) Premium growth (1yr CaGR and growth %) 2 October 21 Credit Suisse growth forecasts We have attempted to forecast the growth rate in both inforce and new business life insurance in Asia across each market. Overall, we expect the following growth rates in life insurance premiums: Figure 17: Credit Suisse NJA premium growth forecasts CAGR (% p.a.) Forecast 1 year year In force premiums 11.% 9.2% 1.6% 1.3% New business premiums* 14.4% 1.% 12.% 11.9% * Excluding countries that do not have full data history for new business premium 1year and year CAGR Source: Credit Suisse estimates Key reason as to why growth rates are higher in terms of new business than what they have been historically is Chinese growth picking up materially, with 2% new business growth expected in 21/16, whilst this was single digits in the last few years (impacted by negative bancassurance sales). We expect ASEAN growth to be slower over the coming years as the impact of slower economic growth starts to impact insurance sales in many of the larger countries and high based effect from more recent years. Full details are included in Figure 2. Figure 18: Inforce premium expected to grow at 1% pa NJA inforce premiums 1yr CAGR (%pa) and 2yr forecasts Figure 19: and a bit lower in terms of new business NJA new business premiums yr CAGR (%pa) and 2yr forecasts 2.% Developed Developing Emerging 2.% Developed Developing Emerging 2 1yr yr % 1.% 1 1.%.% Korea Australia New Zealand Malaysia India Philippines Vietnam NJA Korea Australia New Zealand Malaysia India Philippines Vietnam NJA Source: Swiss Re, United Nations, Local regulators, Credit Suisse forecasts So overall, whilst the growth outlook may not have been as strong as it was a decade ago, we continue to see plenty of growth options especially for insurers that focus more on the higher margin protection side of the market rather than more generic savings type products. Asia Life Insurance Sector 11

12 Premium growth (1yr CaGR and growth %) Premium growth (1yr CaGR and growth %) 2 October 21 Asia Life Insurance Sector 12 Figure 2: Asia life insurance premium growth and forecasts (% p.a.), GDP growth (%), working population, insurance density and penetration NJA Prem Inforce premium growth NB premium growth GDP growth Prem g / GDP g (x) Working population Density (prem / capita) % 214 2yr 1yr yr yr yr yr yr 1yr yr last 1yr US$mn US$ %p.a. F'cast F'cast US$ %p.a. F'cast F'cast US$ %p.a. % p.a. % p.a. US$mn % Developed Asia 6.% 36, % 11.3% 12.9% 1.% 13.% 14.3% 19.1% 1.% 13.%.7% 6.7% 2.x 2.8x.8%.2%, % 2.8% 1,43 1.9% 8.8% 13.1%.% 7.% 13.9% 1.6% 7.% 1.6% 1.9% 1.3x 1.4x 2.6% 1.1% 2,826.% Korea 18.% 11,72.4% 7.7% 9.8% 7.% 7.% 13.9% 19.9% 1.% 1 7.% 11.2% 2.x 1.8x.8%.1% 2,1 7.2% 14.1% 79, % 9.1% 8.6%.%.% na 3.% 3.% 4.1% 6.% na na.9%.1% 3, % Australia 1 6,11 8.4% 8.% 12.8% 7.% 7.% 12.9% 8.9%.% 1 8.3% 8.2% 1.6x 1.1x 1.6%.7% 2, % New Zealand.3% 1, % 8.8% 11.1% 7.% 7.% 8.% 8.6% 6.% 6.% 6.9% 1.6% 1.2x.8x 1.2%.6% 397.9% Developing Asia 31.4% 176,9 2.% 17.8% 1.1% 17.% 1.% na.9% % 1.2% na.4x 1.6% % 2.4% 13, % 16.% 1.7%.% 7.% 16.1% 14.2% 7.% 8.8% 7.2% 1.8x 2.x 1.% % Malaysia 1.8% 1, % 9.3% 9.3%.% 7.% na 8.9% 2.% 7.% 1.1% 11.2% an.8x 2.7% 1.8% % Emerging Asia India 9.8%, % 11.6%.2% 7.% 9.% 14.6%.%.% 7.% 11.7% 1.% na.x 2.1% 1.% % 1.8% 1, % 17.9% 13.1% 1 na na na na 13.2% 1.6% na na 1.7% 1.% 4 1.1% Philippines.8% 4, % 19.3% 31.6% 1.% 17.% na 7.% % 12.1% na.6x 2.% 2.1% % Vietnam.2% 1,29 1.3% 13.2% 1.% 1.% na 21.4% 12.% 12.% 1.2% 1.% na 1.4x 2.4%.9% 14.7% NJA 62,7 1.9% 11.% 9.2% 1.6% 1.3% 14.4% 1.% 12.% 11.9% 13.1% 12.% 1.1x.8x 1.8%.7% % Developed 1.7% 291,14 8.1% 8.7% 1.6% 7.6% 7.6% 16.4% 24.2% 11.7% 9.1% 7.1% 9.1% 2.3x 2.7x 1.%.2% 2,34 7.% Developing 3.6% 2, % 17.% 1.4% 16.% 14.2% 46.2% 6.7% 17.2% 18.4% 17.2% 14.7% 2.7x.x 1.6% % Emerging 12.6% 71, % 12.6% 2.3% 7.% 9.8% na 1.%.8% 8.2% 12.3% 1.9% na.1x 2.1% 1.% % Japan 371,88 1.2%.% 2.1% 2.% 2.% na 2.9% 3.% 1.%.4% 2.% na 1.2x.7%.8% 2, % ASIA 934, % 4.9% 3.8% 7.2% 7.2% na 1.1% 9.7% 9.8% 8.6% 8.% na 1.2x 1.7%.7% % Source: Swiss Re, IMF, Credit Suisse estimates NJA life INFORCE insurance premiums 1yr CAGR (%pa) and 2yr forecasts 2.% 2 1.% 1.% Developed Developing Emerging 1yr Korea Australia New Zealand Source: Swiss Re, Local regulators, Credit Suisse forecasts Source: Swiss Re, United Nations, IMF, Local regulators, Credit Suisse forecasts Malaysia India Philippines Vietnam NJA NJA life insurance NEW BUSINESS premiums yr CAGR (%pa) and 2yr forecasts 2.% 2 1.% 1.% yr Korea Australia New Zealand Source: Swiss Re, Local regulators, Credit Suisse forecasts Developed Developing Emerging Malaysia India Philippines Vietnam NJA

13 2 October 21 Key risks to growth We note the following various risk factors that may reduce the potential for future growth in the NJA life insurance sector: Regulation. We are wary of regulation restricting commissions, product terms and conditions and fee caps. India is a good example of where regulation has effectively removed a large part of the life insurance market and reduced margins significantly. Whereas the changes may have had the best interest of the customer in mind, practically it made most distribution forces redundant overnight. The recent review was much more proactive and involved interviewing consumers as to what they wanted as well as recognising the important role that insurance contributes to any society. is mandating commission disclosure form 216 on all products. Mandated retirement schemes. We highlight that governmentmandated retirement saving schemes (i.e., as seen in Australia, and ) may reduce other forms of longerterm savings and also reduce margins. However, insurers are often well represented within these schemes. Competing products. As currently is the case in, growth rates for insurance products tend to suffer when return on competing products appears more attractive, which is more apparent when the yield curve is flat. This manifests itself more strongly in the more competitive channels (such as bancassurance or independent advisor channels). Market volatility. In periods of market weakness and uncertainty, sales volumes often fall (especially sales of unitlinked products) as consumers prefer more liquid assets (i.e., bank deposits). Lower economic growth. Lower economic growth rates could slow saving rates. We are starting to see some impact of this in the ASEAN region in particular. Low interest rate environment. The higher cost of distribution of insurance products necessitates higher returns to make the products economically viable. As such, we view a prolonged lower interest rate environment as a key risk to the attractiveness of such products and to the margins available. In many countries, longterm historical guarantees have been given when investment yields could not be lockedin due to lack of availability of longerterm assets. As such, falling yields have led to 'negative spread' portfolios, where the guaranteed return is now below the available yield. This is in particular an issue for markets such as Japan, and Korea. Asia Life Insurance Sector 13

14 2 October 21 Asia Life Insurance Sector 14 Figure 21: Asia life insurance valuation multiples, market structure and growth rates Asia insurance valuation multiples, growth and structure Mkt cap* P/E Price to EV VNB multiple Last 1yr Next yrs Market structure / Mkt cap* Mthly Vol Liquidity US$bn (x) (x) (x) growth forecast issues US$bn US$bn % Australia/NZ 61, x to 1x 1.3x to 1.3x 9.6x to 9.6x 6.% 68% No g'tees Australia 61,821 4,2 6.% 371, x to 12.3x.8x to 1.1x 7.7x to 1.x 17% >1% Max g'tee 2.% removed 21,183 72, % HK & SEA 79,1 9.x to 18.7x.9x to 1.7x 3.x to 28.x 12% >1% Low g'tees HK & SEA 79,1 3, % India 3, x 1.9x 21.3x 14% <1% Growth recovering, but margins India 3, % remain low post 21 regulations Japan 86,7 8.2x to 13.8x.3x to.x 18.6x to 13.4x 1% flat High historical g'tees Japan 86,7 18, % Korea 42,239.6x to 14.1x.x to.7x 9x to.1x 8% ~6% High historical g'tees Korea 42,239 1,262 3.% 38,48 8.2x to 11.7x.3x to.9x 1x to.8x 11% ~% High historical g'tees 38,48 1,73 4.6% Note: Market capitalisation includes P&C. Source: Reuters, Regulators, Swiss Re, Credit Suisse estimates. 21,222 12,7 19.6% Asia life insurance market structure and growth rates Mkt cap Life prems Premiums / Top Last 1yr Next yrs Products Listed companies US$mn US$mn GDP (%) % total growth forecast Australia 1,132 6,11 3.9% 6% 6.% 68% Pure 'risk' policies 3 of top owned by listed banks, all top 1 listed Savings unitlinked 271, ,9 1.6% 7% 17% >1% Mainly savings style 6 of top 7 listed, remaining planning to list HK & SEA 77,343 91, % 68%* 12% >1% Mainly savings style Most major insurers listed (many part of regionals) India 3,478, % 6% 14% <1% More unitlinked with 2 of top 7 listed, LIC + jvs with foreign insurers risk riders May see further listings in 216 Japan 32, % % 1% flat Mainly savings style 2 of top listed, Japan Post Insurance listing Korea 39,69 11,72 7.% 6% 8% ~6% Mainly savings style 3 of top 7 listed, further listings likely 38,223 79,16 14.% 6% 11% ~% Mainly savings style 4 of top listed, Nan Shan acquired by Ruen Chen Source: Reuters, Swiss Re, company data, regulators, Credit Suisse estimates

15 2 October 21 Consolidation to continue, but at a slower pace We expect further consolidation over the coming years through further exits of marginal / subscale insurers or nonstrategic positions, increases in capital standards and further divestment from banks (and strategic alliances) with some potential inmarket mergers. In particular, we expect to continue to see banks either seek insurance partners as they consider the implications of Basel III, through divestment of any existing insurance business and setting up mediumterm agreement with insurers (for upfront fees). We expect to see existing established franchises (especially AIA and Prudential) at the forefront of leading the regional consolidation in the more attractive markets. We believe the remainder of 21 and 216 are likely to be reasonably 'active in the NJA insurance sector with some new potential new listings (, India and Japan) and some prospective M&As, subject to market conditions settling to some extent. We continue to expect North Asian insurers to also seek opportunities outside Asia, with likely further activity form the Japanese, (mainly nonlisted) Chinese and Koreans. Exits of marginal insurers / nonstrategic positions We saw quite a lot of activity from this segment with the following notable divestments within the region: We think M&A activity will continue in the Asian insurance sector in 21 (and into 216), but at a slower pace ING: ING decided to go down the trade sale route (rather than IPO) of its Asian businesses, having undertaken such an initiative at the insistence of the Netherlands as part of its bailout package during the financial crisis. It has sold its Malaysia business to AIA (US$1.7 bn, 1.8x EV), HK and to FWD (US$2.1 bn, 1.8x EV) as well as its Indian, Chinese and Korean JVs (to the respective JV partners) and parts of its asset management business. Only the Japanese business has not been sold so far. Aviva: It had previously stated that it was going to focus on its core markets, namely, and India. Prior to the arrival of new CEO Mark Wilson (ex CEO of AIA), it had sold its Malaysian bancassurance joint venture with CIMB to Sun Life (US$.6 bn for both Aviva and CIMB stakes) and its Sri Lankan business to AIA (US$19 mn). Given the background of the new CEO, we may see a reassessment of the Group s strategy in the region. This is highlighted through its recent JV with Astra in (Jan 214) and appointment of Chris Wei to Chairman of Asia (formerly CEO of Great Eastern), but did lose the DBS bancassurance deal to Manulife. New York Life: Recently completed its exit from Asia with the sale of its ese operation left. It had previously sold its (US$39 mn,.8x EV) and Korea (US$7 mn,.3x EV) businesses to Ace, its bancassurance JV to its partner Siam Commercial Bank (US$28 mn, 2x EV) and its 26% stake in Max India (US$ mn) to MS&AD. We highlight that a very large number of global insurers lack scale (as well as strategic rationale) in Asia and should either try to scale up through M&A or exit the region. However, given the strong growth profile of the region, making such a decision is often a slow process. Along with consolidation at the smaller end of certain markets, we expect this to continue over time, with likely external factors (markets, regulation, etc.) being the catalyst for action. Asia Life Insurance Sector 1

16 2 October 21 Evolving capital standards / regulation Many Asian jurisdictions have adopted or are considering adopting riskbased capital (RBC) for solvency purposes. Many of those that have already adopted such a regime are looking to strengthen it over time to bring it more in line with the likes of Solvency II in Europe. We expect such further strengthening of the regulatory regime in Asia to drive further consolidation, especially at the smaller end of the market and among weak insurers. We would expect a lot of this type of consolidation to be inmarket, but should throw up interesting targets for the larger regional insurers. Bancassurance We expect bancassurance to continue to be a major driver of consolidation / M&A in Asia. From a bank s perspective, teaming up with an insurance company can have the following advantages: Improves returns: Banks can reduce the amount of capital that is needed for their business by no longer manufacturing insurance, or sharing the load with the insurers. By simply receiving distribution fees for sales, a bank can significantly improve its return on equity. Frees up capital: New regimes such as Basel III will become much more punitive on banks owning other operations such as insurance companies, which provides a catalyst for the bank to consider if it really wants to continue with insurance operations or better apply the capital elsewhere. Brings in greater expertise: Insurance partners that understand how to operate bancassurance well are likely able to generate far greater value out of a bank s customer base than a bank could do itself given lack of expertise. Under such a scenario, the bancassurance relationship with an insurer creates further value. For insurance companies, bancassurance partnerships are highly attractive, particularly if the company does not have an existing strong footprint in a region as it can leverage off the bank s distribution channel without the need to recruit and train agents, which is an expensive and often slow process. Bancassurance deals can come in various formats, requiring various amounts of capital outlay from insurers, (1) sale of a fully owned insurance subsidiary, (2) sale of a stake in a joint venture, or (3) a fixedterm deal allowing insurers to distribute through the bank s network. Such deals may or may not be fully exclusive. Execution is key in bancassurance, in our view; with prices paid often allowing little room for error on execution. The keys to a successful longterm relationship, in our view, are: Exclusive relationship: We see little likelihood of nonexclusive deals delivering value for insurers long term, given continued competition amongst insurers which reduces margins and is not conducive to development of a strong relationship. High level commitment/understanding: It is important for the relationship to be undertaken at a very high level and for both parties to understand each other and customers needs. Relationships with banks that shop around seeking the highest possible upfront payment have a higher probability of failing, in our view. Management of the relationship longer term also takes effort, with the insurers also having to manage any potential channel conflicts. Asia Life Insurance Sector 16

17 2 October 21 Asia Life Insurance Sector 17 Figure 22: Bancassurance relationships in Asia Bancassurance partner by country and banking market share (%) Regional AIA Prudential Allianz Manulifereat Eastern AXA Ageas Sun Life Aviva Bank deposits market share (%) AIA PRU ALL MAN GE AXA AGE SUN AVI Citibank SCB HSBC ANZ UOB Developed Developed CCB CITIC Fubon HSBC BOC HK Hang Seng Std Chtd BEA DBS ICBC DBS 23% 14% 1% 8% % 3% 2% Maybank SBI OCBC DBS UOB OCBC SingPost DBS 26% 2% 16% Korea Kookmin Kookmin Woori Korea Kookmin Shinhan Woori Hana KEB IBK Pusan Daegu Shinhan, Woori 21% 17% 11% 18% 9% 7% 2% 2% SinoPac E.Sun trust trust First First HuaNan Mega trust ChangHwa Fubon SinoPac Esun Taishin Taishin, First DBS 6% 6% 6% % % 4% 3% 3% 3% Australia Westpac Australia CBA Westpac ANZ NAB ING Bendigo BOQ SUN 27% 23% 14% 14% 4% 4% 3% 3% New Zealand New Zealand Developing Developing ^ ICBC CITIC ICBC Bohai ICBC ICBC CCB ABC BOC BoComm CMB CiticBank Minsheng ICBC CCB Bank 16% 13% 12% 1% 4% 3% 2% 2% Kiatnakin Thanachart Ayudhya Krungthai Kasikorn Bangkok Krugthai Kasikorn Siam ThanaChart Ayudhya TMB TISCO Tisco Krungsri 22% 2% 16% 16% 9% 9% 7% 2% Malaysia Public Bank Alliance Alliance OCBC AFFIN Maybank CIMB Malaysia Maybank Public CIMB HLB RHB Alliance EON, BSN 23% 2% 13% 8% 6% 3% Emerging Emerging India UBI ICICI Syndicate IDBI DBS India SBI PNB BOB BOI ICICI HDFC Bank Union Axis Kotak Bank Federal 18% 6% 6% % % 4% 4% 3% 1% BCA Permata Danamon Danamon Mandiri CIMB Mandiri BCA Rakyat Negara Panin Danamon BII BII DBS 1% 12% 12% 9% 3% 3% Philippines BPI HSBC bank Metrobank Philippines Banco do OroMetrobank BPI Landbank PNB Bank Union Bank RCBC Citibank 17% 14% 12% 1% 6% % 4% 4% 3% Vietnam ACB Agribank ANZ Vietnam Tien Phong Techcombank Source: Company data, Credit Suisse estimates, ^ bancassurance generally nonexclusive Source: Company data, regulators, Credit Suisse estimates Source: Company data, Credit Suisse estimates Regional