Distribution Debrief Insurance Market Update Asia-Pacific January to March 2010

Distribution Debrief Insurance Market Update Asia-Pacific January to March 2010 Issue 19 (January to March 2010) Welcome to issue 19 of Distribution Debrief covering the first quarter of 2010. Whilst not specifically distribution related, the dominating news during the first quarter was the proposed acquisition of AIA by Prudential UK in what can only be described as a game changing move. If successful, this would give Prudential access to over 700,000 agents and numerous bancassurance relationships a true powerhouse in distribution. Not surprisingly, a number of companies are now reassessing their position in Asia and we expect to see further consolidation over the coming year. India has also hit the headlines recently with the two regulators, SEBI and IRDA in a dispute over the regulation of the hugely successful unit linked investment plans (ULIPS). This seems likely to result in some fairly major changes to the structure of ULIPS with increased insurance coverage requirements, longer lock-in periods and changes to the commission structure. Fortunately, it is the quiet season for Indian insurers but the impact of these changes and the ongoing debate are sure to impact sales considerably. Bancassurance remains a major focus throughout the region as the hard-fought UOB deal was finally closed with Prudential signing a 12-year distribution deal across Singapore, Indonesia and Thailand for a total of SGD428 million (USD305.89 million). In a fairly recent move, Max New York Life closed a deal with AXIS Bank in India through an innovative deal which sees the insurer secure a 10-year exclusive distribution partnership with the bank. AXIS will take a stake in Max which is reportedly worth INR4 billion (USD88.84 million), for a cost of just under INR800 million (USD17.77 million). And finally, strong market rumours in Indonesia suggest that one of the major banks is about to sign a distribution deal for an upfront fee of many millions of USD. Banks are certainly waking up to the potential value in their networks and customer bases and insurers are going to have to work hard to recoup these significant investments. Sadly, the Mystery Shopping exercises we conduct around the region continue to show that more attention seems to be placed on getting deals than on getting the basics right there is still huge potential in existing partnerships to improve the customer experience and resulting sales. Which leads nicely on to my mentioning a recent report we have produced in India the 2009/10 India Bancassurance Benchmarking survey which chronicles the growth of the channel, issues commonly faced, key challenges and the opportunities/potential. The report contains extensive commentary and insights on the distribution practices, processes and approaches adopted by bancassurers. It also analyses the product landscape, sales management and operational aspects of life insurance and general insurance companies. Essential reading for anyone operating in, or looking at entering, India, or with a general interest in bancassurance, the survey is available for a nominal fee - please click here for more details. We hope you continue to find the newsletter interesting and informative. We would particularly like to receive your feedback on how we can improve this document over time to increase its value to you. In this issue Markets China Hong Kong India Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam Topic covered Contact details John O Rorke Director Products, Distribution and Markets Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 1

China The latest approvals for the opening of new provincial/city branches for both domestic and foreign companies are as follows: Business written by insurance intermediaries (including individual agents, agency companies, brokers, and sidelines such as banks, and postal offices) reached RMB916.1 billion (USD134.01 billion) in 2009, up 1 compared with the corresponding period in 2008. This represented 82% of gross written premiums (RMB1,113.7 billion, equivalent to USD162.91 billion, in 2009). The number of insurance agents reached 2.9 million by the end of 2009, up or 112,000 compared with the end of the third quarter. This included 2.58 million life agents and 0.33 million non-life agents, up 4. and 0.7% respectively. Life and health insurance companies China Post Life Manulife Sinochem Life Generali China Life Sino-US MetLife Haier New York Life Branch Sichuan, Jiangxi, Shaanxi Shantou Leshan Foshan Shandong Gross premium income generated by agents reached RMB412.7 billion (USD60.37 billion) in 2009, an increase of 22% compared with the same period of 2008. This included RMB325.1 billion (USD47.56 billion) life premium income and RMB87.6 billion (USD12.81 billion) non-life premium income. Insurance agents generated total commissions of RMB57.1 billion (USD8.35 billion) in 2009, up 21% from the same period in 2008. Life agents generated RMB48.4 billion (USD7.08 billion) and non-life agents generated RMB8.6 billion (USD1.26 billion). The number of bank branches and postal offices selling bancassurance products reached 102,562 by the end of 2009, up 5.7% from the end of the third quarter. This included 85,019 bank branches and 17,543 postal offices. In 2009, total premium income from bancassurance stood at RMB366.7 billion (USD53.64 billion), up 3. compared with the same period in 2008. This included RMB303.9 billion (USD44.46 billion) from bank branches and RMB62.8 billion (USD9.19 billion) from postal offices. Agency companies generated total premium income of RMB32.9 billion (USD4.81 billion) in 2009, up 22% compared with the corresponding period of 2008. Life business accounted for 32% and non-life the remaining. Premium income from insurance brokers reached RMB24.5 billion (USD3.58 billion) in 2009, down 0. compared with the corresponding period of 2008. Life business contributed RMB3.8 billion (USD0.56 billion), non-life RMB19.4 billion (USD2.84 billion) and reinsurance the remaining RMB1 billion (USD0.15 billion). United MetLife General insurance companies Mitsui Sumitomo Insurance (China) Cathay Insurance ZKing Property & Casualty Insurance Source: CIRC Suzhou Branch Beijing Fujian Shanghai Allianz China Life is planning to set up telemarketing sales centers in all regions where it has a presence. The move reflects the substantial growth of telemarketing sales in recent years and the insurer s aggressive expansion strategy to capture market share in this emerging channel. China Post Life has been approved to start a pilot scheme for rural individual life micro-insurance, under which it is allowed to provide three trial lines including term life insurance, rural migrant workers accident injury insurance and micro-credit accident injury insurance. CNInsure has acquired larger stakes in two insurance agencies, purchasing an additional 41% of Shandong Mintai Insurance Agency and Ningbo Baolian Insurance Agency respectively. Given its original stakes in both agency companies, CNInsure now holds a 51% stake in each company and therefore has majority control in both. The acquisitions are expected to strengthen CNInsure s capacity for insurance product distribution in Shandong and Zhejiang Provinces and help to further penetrate into these two provinces. New York Life is reportedly exiting from Haier New York Life, its joint venture with the Haier Group. Haier is reportedly looking to manage the venture by itself. The main reason is said to be the dissatisfaction by both parties with the venture s performance over the past seven years. Haier Group has over 50 million home appliance consumers across China, but only a small proportion of them have become consumers of the insurance joint venture. Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 2

New China Life has reportedly signed a strategic memorandum with Zurich Financial Services Group. According to the memorandum, both sides will cooperate in various areas including product development, actuarial support, investment management, internal control, service system development, human resource training, management consulting services, consumer service and information communication. The CIRC recently announced its work plan for 2010 and its priorities include strengthening supervision of market behaviour in relation to life insurance, insurance agencies, asset operations, comprehensive examinations and case investigations. On the individual life side, the CIRC will focus on curbing misleading sales and increase investigations into bancassurance. Hong Kong Bancassurers appear to have had a better 2009 than the agency-focused insurers. HSBC Life overtook Hang Seng s previous year-end number one position. The market share of the dominant bancassurers (HSBC Life, BOC Life, Hang Seng Life) grew from 27% in 2008 to 3 in 2009. Prudential gained market share and came in second (3 rd in 2008) in terms of weighted new business premium in 2009. Traditional agency-focused AIA has been losing market share over the past five years and ranked third in 2009 (2 nd in 2008). BOC Group Life doubled its new business income and ranked fourth in 2009 (ranked 8 th in 2008), followed by Hang Seng Life (ranked 1 st in 2008). We estimate that bancassurance contributed around 45% of new business premium in 2009. Hong Kong Market share of top ten life insurers in terms of weighted new business premium (Jan Dec 2009) Others, 21% Friend's Provident Int'l, China Life, Zurich Life, Manulife, 5% AXA, 7% HSBC Life, 17% Prudential (UK), 12% AIA, 10% BOC Group Life, 9% Hang Seng Life, 8% Hong Kong Market share of top five insurers in terms of weighted new business premium (2005 2009) 20% 15% 10% 5% 0% Source: OCI 2005 2006 2007 2008 2009 HSBC Life Prudential (UK) AIA BOC Group Life Hang Seng Life AXA China Region Insurance ( AXA ) has introduced a franchise system in addition to hiring 2,000 agents. Integrity is a joint venture between AXA and a team of insurance experts which aims to provide high quality professional financial planning services to customers on a new distribution platform in Hong Kong. Integrity operates on a franchise model with professional advisors who own their business, and profit and loss. Integrity will offer Guaranteed Advice for customers through a comprehensive fact find process designed to understand customers needs and financial goals. China Life Insurance (Overseas) has formed a strategic partnership with Hong Kong-based Asia Television (ATV) to cooperate in advertising and marketing of its life insurance products. HSBC further indicated its focus on developing segmented solutions for its customers by launching its new Advance proposition for affluent customers. Sitting between its Premier service and Smartvantage, Advance is being launched globally to target customers with total relationship balances over HKD200,000 (USD25,759). Prudential UK announced plans to pay USD35.5 billion to acquire American International Assurance (AIA).The deal, which will be funded by USD25 billion cash and USD10.5 billion in stock and other securities, will make Prudential UK the largest life insurer in various Asian markets, including Hong Kong, Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. The exclusive deal of Australian wealth manager AMP with French insurer AXA SA for a joint AUD11 billion (USD10.06 billion) acquisition of AXA Asia Pacific Holdings expired in February 2010. Following this, National Australia Bank (NAB) and France s AXA SA agreed on a joint bid of AUD14.0 billion (USD12.80 billion), in which NAB will pay AUD4.6 billion (USD4.23 billion) for the Australian and New Zealand business of AXA Asia Pacific and AXA SA will pay AUD9.4 billion (USD8.64 billion) for the Asian businesses. The deal has recently been rejected by the Australian Competition and Consumer Commission (ACCC) in view of the perceived reduced competition in retail investment platforms caused by the merger of AXA and NAB. The ACCC approved AMP s previous bid. Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 3

Zurich Financial will expand its life insurance unit by hiring 1,400 agents, totalling 2,400 agents in Hong Kong. Zurich Insurance launched a new business model, Zurich Insurance Franchise, to enhance its distribution capacity and market share in Hong Kong. It has signed up at least three franchisees to test if the new model works. India FY2009-10 was a year for consolidating business for most players with many of the leading private players rationalising their branch and agency expansion to focus on increasing distribution and operational efficiency. In contrast to previous years, there was a marginal reduction in the total number of agents and branch offices of life insurers. From about 2.93 million individual agents at the end of FY2009, there are now about 2.90 million agents, while the number of branch offices has seen a drop from 11,815 last year to 11,720 as at December 2009. Private life insurers have taken to developing their online channels to further spread their distribution in a cost effective manner. Typical products offered include protection, endowment, pension, health, and guaranteed plans. To attract customers to buy online companies are offering a range of incentives including lower premiums and reduced charges. AEGON Religare Life has about 7,000 agents and another 250 direct sales staff. The agency channel and the distribution tie-up with the domestic sponsor, Religare accounts for bulk of its business. The company has announced it will be conducting a pilot project in the state of Tamil Nadu to make an assessment of opportunities in the rural market. Bharti AXA is reportedly keen to secure a bank as a third partner in both its life and general insurance businesses. Future Generali Life plans to add an additional 10,000 agents by March 2010 to its existing agency force of 40,000. HDFC Standard Life which generates almost 50% of its business through bancassurance is looking to substantially increase the contribution from other channels, and targets bank distribution to account for about 30% of the enhanced volume of business. The company has launched an online channel. It is offering a discount of 40% on the first and second year premium allocation charges in respect of policies sold online, and expects the online channel to contribute around 2- of sales in the next 5 years. ICICI Prudential has entered into a strategic alliance with India Post in Tamil Nadu to offer its products through about 12,200 post offices in the state. IDBI Fortis Life plans to add 19 branches to its existing network of 36 by March 2010 and double the agency force from 7,500 to 15,000 in the next four to six months besides increasing the strength of its direct sales force. India First Life, the recently launched joint venture of Legal and General of UK with two state-owned banks, Bank of Baroda and Andhra Bank, plans to have a multi-channel approach rather than remaining a bancassurance channelonly insurer. The company aims to develop an alternate model of agency as a highly controlled model, thereby helping to achieve volumes through lower costs. It also aims to target prospective clients in Tier-II & Tier-III cities rather than metros as part of its business expansion. On the bancassurance front, it expects the branches of its partner banks to identify the life insurance requirements of its customers while the technicalities of sales closure would be handled by its own staff. The company is also planning to open 50 branches. The company s products are currently available at 1,750 branches of its partner banks, and there are plans to extend the reach through all the 4,500 branches of the two banks by March 2011. ING Life has launched an online tool called Pick Ur Advisor which allows prospective customers to choose a financial advisor. The selection can be made using various parameters such as location, qualifications and the agent s tenure with the company. Kotak Life is planning to add 38 branches to its existing network of 214 branches and add 10,000 agents to the current agency force of about 32,000. Life Insurance Corporation (LIC) which has about 160,000 agents in the Eastern region, plans to add another 32,000 agents by March 2010. It has also decided to recruit direct sales executives on a three-year contract to target high net worth individuals. The east zone is planning to recruit 50 such direct sales executives in the current year. While alternative distribution channels generate only of its total business, LIC aims to increase this contribution to 10% by 2012. LIC is also reported to be taking a few decisive steps to increase the productivity level of its agency force. Retraining around 700,000 agents through a programme called PROT or Post Recruitment Orientation Training, over a five-month period has been launched. The insurer has also empowered its agents to collect premium remittances from customers and issue valid receipts so that there are an additional 10,000 points through which premium can be paid. LIC is also planning to open a branch in Singapore during the current year. Max New York Life (MNYL) has entered into a ten year exclusive corporate agency distribution agreement with Axis Bank, a leading private sector bank. Under the agreement, MNYL will issue fresh shares aggregating to of its expanded capital at par to the Bank. Axis Bank previously had a distribution tie-up with MetLife. Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 4

MNYL is also keen on strengthening its rural network and has opened 130 offices at rural centres. It already has about 10,000 agents supporting this channel, which contributes about 8 per cent of MNYL s total business. It is also focusing on tie-ups with rural banks and companies in and around important agricultural belts. MetLife India plans to increase its number of branches from 195 to 275 by March 2010. The company also plans to scale up its agency force to over 100,000 by December 2010. Reliance Life has increased its branches in Punjab to over 70 by December 2009, up from 64 branches a year ago. It plans to add more branches and increase the strength of its agency force in the state in the months ahead. The company is looking to increase its agency force by adding another 60,000 agents over the next few months. The company is planning to set up 300 branches in the next three years to reach out to the rural population. It is looking to further extend its distribution reach in the Tier-II and Tier- III cities. Around 30% of its business comes from rural areas and 45% of its clients are said to be from the interior parts of the country. The insurer has tied-up with 25 cooperative banks for bancassurance business and intends to use their network for insurance sales. Tata AIG Life has entered into a tie-up with Chennai Central Cooperative Bank Limited (CCCB), an arm of the Tamil Nadu State Apex Cooperative Bank, to sell insurance products across the state of Tamil Nadu through the 64 branches of the bank. Cholamandalam MS General (Chola MS) has launched Click Easy, an online facility to allow customers to buy and renew Chola MS motor policies online. The company aims to sell 5% of its retail policies online in FY2010-11 and take this up to 20% in three years. The company is targeting INR300 Crores (USD60 million) through the bancassurance channel in FY2010-11. ICICI Lombard General and Development Credit Bank (DCB) have entered into a bancassurance agreement to distribute general insurance products through 80 branches of DCB across 10 states and 2 union territories. Oriental Insurance is increasingly focusing on the rural insurance market. The company, which has started a rural insurance division, expects this market to contribute 40% of total premium collections. It is opening micro offices to penetrate deep into the rural markets and is working in collaboration with micro-finance institutions, nongovernmental organizations (NGOs) and Self-Help Groups (SHGs) to promote its products. The non-life insurer has 3,800 direct agents across the country and plans to hire around 10,000 new agents in 2010-11. Guidelines on licensing of Corporate Agents The IRDA has released a set of instructions designed to tighten the role of Corporate Agents and remove nonserious distributors in this category. A few salient features of the new regulations are: Persons from any group with a Broking License shall not be eligible for corporate agency. Banks and financial institutions regulated by RBI are subject to separate treatment as corporate agents. Any arms of banks and such bodies regulated by RBI may apply for a corporate agency license provided they have a substantial client base of their own, or have access to data which would facilitate identification of prospects. Outside of entities regulated by RBI, others shall not be eligible for a corporate agency license, unless they have a substantial client base of their own and have a turnover, assets or income of at least INR150 million (USD3.33 million). Bancassurance Information on business and payouts The IRDA issued a circular on 21 January 2010 asking all insurance companies to furnish information on business generated and payouts to the bancassurance channel in prescribed formats for each of the half yearly periods starting from FY2007 to the first half year of FY2010. Going forward, insurers will have to furnish this data on a half yearly basis within 45 days from the end of the half year. Indonesia With a 5 increase in their agency force, Prudential continues to have the greatest share of the market with 21%, followed by Bumiputera 1912 (16%) and Mega Life (12%). Allianz Life, ranked fourth with 8% market share, generated 57% of the new business through its agency channel in 2009. Aviva has agreed to buy 60% of PT Asuransi Winterthur Life in its first foray into the Indonesian market. The deal is still subject to approval by local regulators. Aviva has previously been reported to be looking to expand its Asia Pacific footprint and interested in market entry opportunities in Indonesia, Thailand and Vietnam in addition to growing its existing businesses in China, Hong Kong, India, Singapore, South Korea and Taiwan. Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 5

Allianz Life and Allianz Utama s micro-insurance premium income has grown six fold on average over the last three years, with an increase of joint premium income from IDR1.1 billion (USD0.12 million) in 2008 to IDR9.5 billion (USD1.05 million) in 2009. Allianz currently partners with 3 commercial banks and 20 micro-finance institutions, such as rural banks and credit cooperatives and plans to explore additional distribution channels, such as Non-Government Organizations and mobile technology. Allianz Utama launched its first non-life micro-insurance product which insures small entrepreneurs against business interruption and plans to launch a micro-education insurance product in the second half of 2010. Asuransi Cigna and Citibank Indonesia launched Education and Health Protection Plus plans to target Citibank credit cardholders. Manulife replaced its old Surabaya office with a better equipped office to better serve existing customers. The Surabaya office has been the highest producing sales office for Manulife Indonesia over the past three years. Prudential Indonesia formed an exclusive bancassurance relationship with Permata Bank to sell its newly launched unit-linked product, PrestigeLink Assurance Account, via the bank s 279 branches nationwide. Zurich Financial is considering various ways to expand its business in Indonesia, e.g. acquisition, distribution agreements and buying distribution. Malaysia Some bancassurers, albeit relatively smaller players in the market, showed more-than-average weighted premium growth in 2009. AMLife (AMBank Group) generated around 50% premium growth and ranked 7 th in 2009, while AXA- Affin (Affin Bank) showed 130% weighted premium growth. Uni.Asia Life, which partners with various banks (UOB Bank, EON Bank, Alliance Bank, OCBC Bank), achieved 5 weighted premium growth in 2009 to overtake MCIS Zurich and become one of the top ten players in the market. Malaysia Market share of top ten life insurers in terms of weighted new business premium (Jan Dec 2009) Others, 7% MAA, Mayban Life, Uni.Asia Life, AMLIFE***, 5% Hong Leong, 7% *** AMAssurance has been renamed as AMLife Source: LIAM Great Eastern, 2 Prudential, 20% ING Insurance, 12% AIA, 9% Allianz, 7% AXA Affin Life Insurance will adopt a multi-distribution strategy to increase its local life insurance market share fivefold in 3 years. The company currently has five bancassurance partnerships with internationally established banks and it plans to triple its agency distribution from 400 agents to 1,200 by year-end, and to 3,000 by 2012. Great Eastern is planning to conduct special products and selling skills training for its agents to target the underserved huge young population. It is also selling its products via its bancassurance partner, OCBC Bank. GE has also relaunched the electronic submission system to improve its efficiency and enable faster issuance of insurance policies. HSBC Amanah Takaful (Malaysia) plans to launch 7 products this year and will focus on traditional long-term plans, such as retirement and medical health. It also aims to maximise its bancatakaful partnership by leveraging on its parent HSBC Bank Malaysia s client base. Prudential UK plans to convert its 11,000 agents to become qualified wealth planners in its newly opened training academy. It also plans to grow its 3,000 Bumiputera agents to tap the growing demand for products, especially takaful, which contributed about 15% to 20% of the company s revenue. In addition, it has recently opened three more branches in Kajang, Skudai and Johor, totalling 41 branches nationwide. Syarikat Takaful Malaysia is co-operating with Digi Telecommunications to provide its staff in the 45 branches nationwide with unlimited free fixed and mobile calls among colleagues and to the office. This agreement could save up to 45% of the insurer s annual telecommunication costs. The insurer expects at least 2,000 of its agents to sign up under the special mobile voice and broadband package and aims to empower all its distributors to check their customers policy status by the end of 2010. TM Asia Life Malaysia signed an MoU with RHB Bank to form a 10-year mutually exclusive bancassurance alliance in Malaysia. TM Asia Life will pay an exclusivity fee of MYR100 million (USD30.66 million). Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 6

Tune Money is expanding its online insurance business with its latest launch, the Tune Travel Insurance plan, which is underwritten by Tokio Marine Insurans (Malaysia). The travel insurance plan is available in 2 options, Single Trip plan for non-regular travellers and Annual Plan for frequent travellers. The insurance covers normal travelrelated inconveniences, death and damage to home contents during the travel period, etc. Measures announced in the 2010 Budget on microinsurance and annuity products are expected to further boost the life insurance industry. Philippines The Philippines Health Insurance Corp. (PhilHealth) partnered with Smart Communications to launch a new service which allows PhilHealth members to pay premiums using their mobile phones. The Central Bank of the Philippines, Bangko Sentral ng Pilipinas, has approved distribution of micro-insurance products through nearly 3,500 rural banks. This aims to help the 32% of the population that are living in poverty. Philippines President Gloria Arroyo has signed into law a measure that will reduce taxes on life insurance premiums from 5% to 2% for the next 5 years and eventually abolish the taxes and documentary stamp taxes after that. Under the new law, there is a graduated documentary stamp tax imposed on life insurance policies that would help cut cost for policyholders. Before the amendment, the documentary stamp tax rate was 0.25% of 1% of premiums. The Philippine government has released rules implementing the pre-need Code, transferring the power to regulate the pre-need industry to the Insurance Commission (IC) from the Securities and Exchange Commission, reports Business World. The new rules state that pre-need companies incorporated after the law takes effect are required to have a minimum paid-up capital of PHP100 million (USD2.2 million). Furthermore, no firm can engage in the pre-need business without obtaining a licence from the IC to issue education plans, pension plans and life or memorial plans. Singapore In keeping with past performance, Tied agency remained the leading channel, producing 5 of weighted new business in 2009. Bancassurance contributed about 20% of the new business premium, dropping from 26% in 2008. This is mainly due to a significant drop in market share of one of the main bancassurers, OAC, the bancassurance arm of Great Eastern Holdings. Financial Advisers generated about 12% of weighted new business, whereas the remaining 1 came from other channels, including direct sales. Swiss Life, which sells its private placement products to high-end customers, showed significant growth in market share from its initial start up of 1% in 2008 to 8% in 2009, contributing to the growth of the other channels. Singapore Weighted new business premiums by Channel (Jan Dec 2009) Others, 1 Financial Advisers, 12% Banks, 20% Source: LIA UOB Life* Aviva HSBC Insurance OAC Manulife Swiss Life 8% Others 11% N Income 17% GE Life 17% Prudential 17% AIA 12% Tied Agents, 5 Singapore Market share of top ten life insurers in terms of weighted new business premium (Jan Dec 2009) * UOB Life was acquired by Prudential (UK) in January 2010. Source: LIA Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 7

Prudential Assurance, part of the UK insurance group, confirmed its purchase from United Overseas Bank (UOB) of UOB's life insurance business, as reported in the previous quarter's edition of this newsletter. Paying SGD428 million (USD307 million) for the business, Prudential has further positioned itself as a leading provider of bancassurance in Singapore by adding UOB to its existing portfolio of relationships with Standard Chartered and Maybank. The deal gives Prudential access to the customer base of Singapore's third largest bank through the formation of a 12-year bancassurance relationship across Asia via the bank's 414 branches in Indonesia and Thailand. Aviva aims to build its market share by promoting its products online. Aviva s online platform, AvivaDirect, targets financially savvy consumers and facilitates the purchase of insurance. The company also sells its products through independent financial advisers and has a bancassurance partnership with DBS Bank, which has now been extended to 2015. The top insurers, such as Samsung, Kyobo, Tongyang and Korea saw a substantial increase in premium income generated by their bancassurance channels. Some insurers such as Tongyang and KUMHO, have significantly reduced the number of solicitors within the past year. South Korea Unweighted first-year premium income business premiums by Channel (Apr 2009 Jan 2010) Direct, 2% Solicitor, 31% Agencies, 9% Source: Korea Life Assurance Association Bancassurance, 57% The Monetary Authority of Singapore (MAS) is looking to improve the disclosure of cost breakdown on insurance products to enhance transparency, so that consumers know how much of their premiums go towards protection coverage. South Korea Bancassurance continued to be the leading distribution channel, generating KRW2.5 trillion (USD2.21 billion) of new business premium from April 2009 to January 2010, and accounting for 57% of gross new business premium income. Solicitor, Agency and Direct channels contributed 31%, 9% and 2% to the distribution mix respectively. South Korea Life market share (unweighted new business) (Apr 2009 Jan 2010) Others 17% LINA 1% AIA KUMHO Heungkuk Tongyang Source: Korea Life Assurance Association Samsung 27% Korea 1 Kyobo 1 ING 6% MiraeAsset 5% Shinhan South Korea Unweighted new business premiums by Channel for the past corresponding periods (2007 2009) 70% 60% 50% 40% 30% 20% 10% 0% 48% 39% 4 10% 11% 9% 2% 2% Apr 2007 - Jan 2008 Apr 2008 - Jan 2009 Apr 2009 - Jan 2010 42% Direct Solicitor Agencies Bancassurance Source: Korea Life Assurance Association ERGO Daum Direct Auto Insurance plans to offer personal accident insurance and motor-related products through its direct distribution channel telemarketing and internet by the end of June and other homeowner insurance products later in 2010. LINA Korea, a Korean subsidiary of CIGNA, worked with IBM to develop a new technology platform for its insurance telemarketing business in Korea. The agreement covers an enterprise-wide system upgrade, which will be adopted as the standard telemarketing system for other LINA offices in the Asia-Pacific region. Samsung Fire and Marine Insurance is cooperating with KT, Korea s biggest fixed-line telephone operator and No. 2 mobile phone operator, to launch Anycar TV program, a video-on-demand channel which allows its agents to access training materials via mobile phones. 31% 57% Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 8

Taiwan Equipped with strong agency networks and bancassurance partnerships, the top 3 players (including ING) have increased their market share from 5 in 2008 to 58% in 2009. While Cathay Life and Fubon have both gained share, Shin Kong has lost some market share. Some insurers are gaining market share via bancassurance relationships. Allianz TW Life almost doubled its sales, purely through bancassurance sales. A number of foreign smaller pure bancassurance players like Cardif also showed an increase in market share. Taiwan Market share (unweighted new business) of top ten life insurers (FYP Jan Dec 2009) Others, 1 Nan Shan Life, Cardif Life, MassMutual Mercuries Life, Bank Taiwan Life, Source: Taiwan Insurance Institute Cathay Life, 28% Fubon Life, 21% Shin Kong Life, 7% China Life, 7% Allianz Taiwan Life, 7% Far Glory Life, Thailand Based on the latest OIC statistics available for distribution channels, bancassurance outperformed the agency channel and became the leading channel by producing about 47% of the new business premium as of mid-year 2009 (15% in 2008). The Agency channel dropped from the previous year s 80% contribution to 4 in June 2009. About 5% of the new business came from Direct Marketing, which is relatively higher than other Asian markets, with the remaining 5% being generated by other channels, including brokers. The traditional agency-focused top players, such as AIA and Thai Life, are branching out to their bancassurance partners for sales. AIA grew its bancassurance sales from 1% in 2008 to nearly 2 in June 2009. Other top insurers, such as Thanachart Life and Muang Thai Life, also saw a substantial increase in premium income through their bancassurance channels. Thailand Market share of top ten life insurers in terms of unweighted new business premium (Jan Dec 2009) Others, 8% ING, Ocean Life, Ayudhya Allianz, 5% Krungthai- AXA Life, 7% Bangkok Life, 8% AIA, 20% Thanachart, 1 Thai Life, 1 Muang Thai, 11% Siam Commercial NY Life, 9% AIG might refuse to sell its Taiwanese subsidiary, Nan Shan Life Insurance, to the Hong-Kong based companies, China Strategic and Primus Financial, if the Taiwanese government fails to grant its approval of the proposed sale of the Taiwanese insurer by the end of June this year. Taiwan s insurers and banks will benefit from the financial services cooperation agreements between Taiwan and mainland China that took effect from 16 January. However, Beijing s 5-3-2 rule (i.e. USD5 billion in capital, 30 years in operation, and a representative office in China for 2 years) would rule out most Taiwanese players. In addition, life insurers have to enter the Chinese market as a joint venture, cannot hold a stake of more than 50% and foreign insurance companies cannot offer auto insurance. The Taiwanese regulator, Financial Supervisory Commission, plans to negotiate more leeway on the 5-3-2 rule to allow Taiwanese insurers to hold 50% stake, but could sign up more than one Chinese partner to have management control. Source: Office of the Insurance Commission The OIC plans to introduce micro-insurance policies for the rural population this March. AXA plans to recruit more than 200 agents in Bangkok and upcountry and open more branches in tourist destinations to tap the emerging market of foreigners. Ayudhya Insurance will acquire BT Insurance from CIMB Thai Bank for THB392 million (USD12.12 million) while entering into a 10-year bancassurance agreement to sell BT and Ayudhya Insurance non-life insurance at all CIMB Thai branches. ING Life plans to improve its sales growth by 15% through agents, following the departure of a key agency leader. The insurer currently has about 6,500 tied agents, a drop from 7,500 early last year and it plans to increase the number of tied agents to 8,500 by the end of 2010. It has also restructured its compensation structure and has set new criteria for agents, requiring them to produce more regular Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 9

sales and meet their customers more frequently. The insurer plans to offer a universal life insurance in the third quarter and unit-linked products late in the year. Vietnam Overall market share of life insurers in terms of unweighted new business premiums (Jan Dec 2009) Muang Thai Life expects its bancassurance partnership with Kasikornbank (KBank) to grow 67% to THB17.73 billion (USD548.15 million) this year based on total premiums, outstripping the contribution of the agency channel, which is expected to produce a 15% increase in sales to a total of THB10.45 billion (USD323.08 million). The affinity channel, in which the company has teamed up with partners such as Carrefour and financial institutions, is expected to grow by 36% to THB1.35 billion (USD41.74 million). The insurer plans to increase the number of agents to 1,200 this year and open up five more regional offices (a total of 12) for more extensive training. It also plans to launch 10 new products this year, including riot insurance, in view of the increasing demand due to the growing political tension. Great Eastern Life 0% Korea Life 1% Prevoir 2% Cathay Life 2% Dai-ichi Life 8% Prudential 32% B?o Vi?t Life 25% Manulife 11% AIA Life 9% ACE Life 10% Ocean Life plans to maintain its strength in the low-end market and also start moving upmarket with work-site insurance, supported by its Japanese partners. Siam Commercial Samaggi Insurance Plc announced that 6 of its premium revenue came from its bancassurance channel Siam Commercial Bank (SCB) - a 50% rise compared to 2008 Tokio Marine Life continues to partner with CIMB Thai Bank Plc even though the bank has recently divested its entire 15.26% stake in the company. The bancassurance partnership contributed the majority of the insurer s premium revenue. In addition, the insurer plans to revive its agency channel, which was terminated 3 years ago, in an aim to have agents producing 50% of its new business over the next three years. As part of the plan, the insurer will recruit more than 1,500 new tied agents, improve its telemarketing channels and establish new partnerships and business alliances. Tokio Marine Sri Muang plans to invest about THB90 million (USD2.78 million) over the next five years to double its network of 20 branches as well as hiring 500 agents each year over the next five years. It is targeting to have 2,000 agents by the end of this year. Vietnam Prudential and Bao Viet Life continue to dominate the market by taking about 57% market share of new business. The tied agent channel is the leading channel producing over 90% new business premium in 2009. Although some insurers have bancassurance relationships, exclusive bancassurance relationships are relatively new in Vietnam. Vietnam Quarter by quarter life insurer market share (unweighted new business premiums) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2009Q1 2009Q2 2009Q3 2009Q4 Prudential B?o Vi?t Life Manulife ACE Life AIA Life Source: Association of Vietnamese Insurers BaoViet announced its bancassurance partnership with state-owned commercial bank, Housing Development Bank of the Mekong Delta for life and nonlife insurance businesses. The insurer also plans to capture at least 0.5% of the travel insurance market share through a partnership with HSBC Vietnam by offering travel insurance products on HSBC s website. Manulife is co-operating with Vietnam Women s Union in launching an experimental micro-insurance program in Hai Phong and Tien Giang. The rural project has acquired nearly 16,000 new policies. Prudential Vietnam and Maritime Bank signed a longterm cooperation agreement on bancassurance. Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 10

Contact details Towers Watson s Products, Distribution & Markets team is based in Hong Kong and Singapore. Please contact any of the consultants listed below if you need more information about our services. John O Rorke john.ororke@towerswatson.com Steve Kean steve.kean@towerswatson.com Stephen Cotham stephen.cotham@towerswatson.com Hong Kong 29/F Floor, Sun Hung Kai Centre 30 Harbour Road Wanchai Hong Kong Tel: (852) 2827 8833 Fax: (852) 2827 7700 Singapore 135 Cecil Street #09-01 Singapore 069536 Tel: (65) 6880 5629 Fax: (65) 6880 5699 Distribution Debrief has been prepared by Towers Watson for general information purposes only and does not constitute professional advice. The information, opinions and projections contained in this Newsletter are derived from various sources and have not been independently verified by Towers Watson. If you require professional advice or require any further information please contact any of the above named individuals. Errors and omissions excepted. Currency rates as at 31 March 2010. About Towers Watson Towers Watson is a leading global professional services company that helps organisations improve performance through effective people, risk and financial management. With 14,000 associates around the world, we offer solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 11