MITBA CEO s Conference 2015 ASEAN Economic Community (AEC): Riding the Tsunami of Change JUNE 2015 Michael Leong Chief Executive Officer Jardine Lloyd Thompson A Jardine Matheson Associate Company
Agenda 1 2 3 4 5 6 7 8 Understanding ASEAN AEC ASEAN Economic Community Timeline for Liberalization Landscape of ASEAN Insurance Market Regulations Insurance Brokers Network Partnership Challenges & Opportunities M&A
Understanding ASEAN Association of Southeast Asian Nations 10 countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) Economies at vastly different stages of development but all sharing immense growth potential A major global hub of manufacturing and trade One of the fastest growing consumer markets in the world Source: www.mckinsey.com
ASEAN An Economic Powerhouse Population 2013 millions GDP 2013 Current prices USD trillion Inflation rate 2013 % GDP deflator China 1,361 U.S.A 16.8 India 7.0 India 1,239 China 9.3 Russia 6.5 ASEAN 624 Japan 4.9 Brazil 6.5 U.S.A 317 Germany 3.6 ASEAN 2.8 Brazil 200 France 2.7 Germany 2.3 Russia 141 U.K. 2.5 U.K. 2.1 Japan 127 ASEAN 2.4 China 1.7 Germany 82 Brazil 2.2 U.S.A 1.5 U.K. 64 Russia 2.1 Canada 1.5 France 64 Italy 2.1 Italy 1.4 7 th largest economy in the world, with a combined GDP of $2.4 trillion in 2013 Projected to rank as the fourth largest economy by 2050 Home to more than 600 million people larger population than the European Union or North America Source: www.mckinsey.com Italy 61 India 1.9 France 1.1 Canada 35 Canada 1.8 Japan -0.6 ASEAN Countries - Economic Indicators Land Area (sq.km) 2015 Population (Millions) GDP at Current Prices Country (USD Billions) (%) (USD Millions) (USD Millions) 2013 2014 2015 2013 2014 2015 2011 2012 2013 2011 2012 2013 Brunei 5,765 0.419 16.109 15.102 11.236 0.382-0.24 0 12,362 13,182 11,445 2,460 3,674 3,612 Cambodia 181,035 15.543 15.362 16.551 17.814 2.955 3.852-0.307 6,710 7,435 9,148 6,133 11,229 9,176 Indonesia 1,904,569 255.077 912.502 888.648 895.677 6.413 6.395 6.781 203,496 190,032 182,552 177,435 191,689 186,629 Lao PDR 236,800 7.029 10.788 11.676 12.764 6.371 4.129 3.978 1,746 2,655 2,593 2,209 3,504 3,292 Malaysia 329,000 30.776 313.158 326.933 327.89 2.105 3.143 2.7 228,086 227,538 228,331 187,473 196,393 205,897 Myanmar 676,578 51.846 56.759 62.802 69.143 5.711 5.943 8.393 8,119 9,315 11,436 6,805 9,188 12,009 Philippines 299,764 101.423 272.067 284.927 308.033 2.933 4.174 2.061 48,042 51,995 53,978 63,709 65,386 65,131 Singapore 710 5.523 302.246 308.051 296.057 2.359 1.025 0.043 409,449 408,394 410,250 365,718 379,723 373,016 Thailand 513,120 68.838 387.253 373.804 386.291 2.185 1.895 0.252 228,820 229,524 228,730 230,083 247,778 249,517 Vietnam 331,210 91.578 170.565 186.049 204.493 6.595 4.1 2.5 95,365 114,511 132,664 104,216 113,283 132,110 Exports and imports data from ASEAN Statistical Database Source: International Monetary Fund, World Economic Outlook Database, April 2015 Inflation Rate Exports Imports
ASEAN Macroeconomic Stability The region is in a much stronger fiscal position Government debt is under 50% of GDP, far lower than the 90% share in the UK or 105% in the US Experienced much lower volatility in economic growth since 2000 than the EU Saving levels have remained fairly steady since 2005, at about a third of GDP Dramatically outpaced the rest of the world on growth in GDP per capita since the late 1970s Well-positioned in global trade flows The fourth largest exporting region in the world, trailing only the European Union, North America, China / Hong Kong Source: www.mckinsey.com
ASEAN Home to Globally Competitive Companies No. of companies Revenue $ billion Average revenue Per company $ billion 1 United States 2,123 15,221 7.2 2 Japan 1,028 7,347 7.1 3 China 674 6,208 9.2 4 Germany 463 3,729 8.1 5 United Kingdom 358 2,818 7.9 6 France 236 3,075 13.0 ASEAN 227 1,068 4.7 7 Australia 203 960 4.7 8 Canada 194 1,071 5.5 9 Italy 179 1,149 6.4 10 Russia 165 924 5.6 11 India 158 898 5.7 12 South Korea 151 1,398 9.3 13 Switzerland 140 1,308 9.3 23 Singapore 64 343 5.4 ASEAN is home to 227 of the world s largest companies Combined, it would be the 7 th largest host of such companies The ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore and Thailand) attracted more FDI than China in 2013 $128 billion vs. $117 billion Launching pad for new companies; the region now accounts for 38% of Asia s market for IPO 26 Thailand 51 259 5.1 31 Malaysia 40 193 4.8 36 Indonesia 33 136 4.1 43 Vietnam 20 90 4.5 44 Philippines 19 47 2.5 Data only for headquarters of companies with more than $1 billion in revenue in 2010. Source: McKinsey Global Institute Cityscope database; McKinsey Global Institute analysis Source: www.mckinsey.com
Evolvement of ASEAN Economic Integration Source: www.inclusiveinsuranceasia.com
ASEAN Economic Community Blueprint ASEAN Financial Integration Framework ASEAN Insurance Integration Framework Source: www.inclusiveinsuranceasia.com
AEC ASEAN Economic Community AEC Blueprint: signed in 2007 Defined: The AEC will establish ASEAN as a single market and production base with the goal of making ASEAN more dynamic and competitive. Objective Smoothly functioning regional financial system More liberalized capital account regimes Interlinked capital markets facilitate greater trade & investment flows Four Pillars of AEC Single Market and Production Base Competitive Economic Region Equitable Economic Development Integration into the Global Economy Source: www.asean.org
Four Pillars of AEC Single Market & Production Base Free Flow of Goods Free Flow of Services Free Flow of Investment Free Flow of Capital Free Flow of Skilled Labour Competitive Economic Region Competition Policy Consumer Protection Intellectual Property Rights Infrastructure Development Taxation E-Commerce Equitable Economic Region SME Development Initiative for ASEAN Integration Integration into the Global Economy Coherent Approach towards External Economic Relations Enhanced Participation in Global Supply Networks Source: www.asean.org
ASEAN Financial Integration Strong regional banks, competitive insurance markets, deep & liquid capital markets; supported by efficient payment & settlement systems, will facilitate greater economic growth in ASEAN Source: bnm.gov.my
ASEAN Insurance Integration Progressive liberalization to ensure more competitive insurance markets & greater choice for consumers The main basis for insurance market integration is the Roadmap for Monetary and Financial Integration of ASEAN (2003) and ASEAN Financial Integration Framework (2011) To support the AEC s goals of trade, investment and economic integration Carried out through progressive liberalization of ASEAN financial services (including insurance services) by 2015 using the ASEAN Framework Agreement on Services (AFAS) approach Anchored on financial stability requirements and capacity building Competitive Insurance Markets Lower Cost of Insuring Business Risks Stimulate Economic Growth Spur Intra- ASEAN Trade Source: www.inclusiveinsuranceasia.com
ASEAN Insurance Integration Source: www.inclusiveinsuranceasia.com
ASEAN Insurance Integration Prioritized Areas Marine, Aviation & Goods in International Transit (MAT) Insurance Natural Catastrophe Insurance Savings from lower business costs can be passed to customers Increase insurance penetration Reinsurance & Retrocession Strengthen ASEAN economies resilience Enable economic activity to rebound more quickly Source: www.inclusiveinsuranceasia.com
ASEAN Insurance Integration ASEAN Insurance Cooperation Current efforts by the ASEAN Insurance Regulators Meeting (AIRM) Sharing of insurance statistics among countries Exchanging views on regulatory issues Observing of core principles related to insurance markets Conducting research and capacity building programme for insurance regulators through the ASEAN Insurance Training and Research Institute (AITRI) Working group for Protocol 5 ASEAN Scheme of Compulsory Motor Vehicle Third-Party Liability Insurance 10 articles Conscious of the need to compensate victims of road traffic accidents caused by Transit Transport Operators and Road Transit Transport Vehicles for damage sustained Source: www.asean.org
AEC - Insurance Prospects Public policies in ASEAN countries - support development of innovative products and micro-insurance Source: www3.ambest.com
Timeframe for Liberalization Legend: B Brunei MY Malaysia T - Thailand C Cambodia MR Myanmar V - Vietnam I Indonesia P - Philippines L Laos S - Singapore Source: www.inclusiveinsuranceasia.com
Progress of Liberalization Mode 1 Cross-Border Trade Mode 2 Consumption Abroad Mode 3 Commercial Presence Mode 4 Presence of Natural Person Source: www.inclusiveinsuranceasia.com Source: www.asean.org
Timeframe for Liberalization Liberalization through: ASEAN minus x formula Member countries that are ready can liberalize first; and Be joined by others later 2 plus x formula Championed by Singapore & Thailand 2 member states to pioneer integration on a bilateral basis Other member states join at a later date when ready Source: www.inclusiveinsuranceasia.com
Landscape of ASEAN Insurance Market ASEAN Countries - 2011-2013 Country Market Size (USD Millions) Life Non-Life PA & Health Total No. of Insurers No. of Reinsurers No. of Brokers Brunei 98 145 NA 244 13 0 1 Cambodia NA 27 8 36 11 1 2 Indonesia 9,807 3,288 1,031 14,125 130 4 174 Lao PDR 1 51 1 53 6 0 0 Malaysia 1 9,838 4,992 743 15,572 45 7 32 Myanmar 1 19 NA 20 12 1 1 Philippines 1,909 1,092 200 3,201 98 1 74 Singapore 14,170 2,502 2,371 19,043 100 31 80 Thailand 15,180 5,520 1,214 21,914 86 3 500 2 Vietnam 1,112 925 247 2,283 44 2 12 1 Not inclusive of Labuan offshore 2 Non-life brokers Source: Axco Insurance Market Report 2015 Source: www.axco.co.uk
Regulations Insurance Brokers To be a licensed broker in the following countries: Country Minimum Capital Requirement Minimum PI Cover Others Brunei USD160,000 USD800,000 (max deductible USD8,000) Cambodia USD50,000 with the National Treasury USD500,000 Indonesia USD98,500 (domestic) USD295,500 (JV) USD98,500 - A board of management with at least 5 years broking experience - Personnel with at least 3 years practical experience Laos Nil Proof of PI insurance from an authorized insurer in Laos - Pass a qualifying examination defined by MoF Malaysia USD311,526 USD311,526 - Minimum qualification requirement for broking staff - CPD programme Myanmar USD308 Yes, amount unsure - Application for license: USD15 - Annual renewal fee: USD5 Philippines USD450,045 (insurance / reinsurance) USD1.13 million (insurance & reinsurance) Bond of USD11,251 2 PI policies with different insurance companies (minimum USD11,155 each) - Aggregated total limits of indemnity of the 2 policies should be equivalent to 100% of the broking income for the preceding year Singapore USD237,906 USD713,719 (depending on business types) USD793,021/ business type - Maintain net asset value of at least 50% minimum paid up capital - Direct non-life insurance broker: Annual fee USD5,551 - Non-life reinsurance broker: Annual fee USD3,965 - Brokers registered to place business with Lloyd s: Annual fee USD3,965 Thailand USD61,576 Not required - Capital fund of not less than 0.5% of prior year s commission income for non-life businesses; or - Minimum USD30,788 for a direct/ reinsurance broker; - Minimum USD46,182 for a direct & reinsurance broker Vietnam USD185,779 Required - Similar to setting up an insurance company Source: www.axco.co.uk
Network Partnership Brokerlink Worldwide Broker Network (WBN) Regional Network Alliance (RNA) Globex International Group Assurex Global Funk Alliance Wells Fargo Global Broker Network The Worldwide Insurance Network Group (Wing) Euribron Insurance Broker Network GBN Worldwide United Global Brokers (UGB) United Asia Brokers (UASB) EOS RISQ
Challenges & Opportunities Opportunities Rising population, increasing GDP & higher income Increasing urbanization Greater consumer awareness Expanding trade network Generally low insurance penetration rate & underinsured markets within the region Regulators in the region supportive of the initiative Common, harmonized insurance regulations, products and services Regional competition policy, institutions and enforcement bodies Source: www.dlapiper.com
Challenges & Opportunities Challenges Stringent licensing procedures Different timelines & milestones member countries readiness to reform Capital Economies of scale Higher cost of expansion Qualified human resources Tighter restrictions on foreign equity Limited underwriting capacity Underdeveloped capital markets Rising incidences of natural calamities Source: www.dlapiper.com
M&A Substantial interest from Japanese groups targeting big, high potential markets such as Indonesia deal values of nearly USD 2 billion Myanmar Political reform, lifting of sanctions, granting of new insurance licenses to private carriers have sparked fresh interest in the country Malaysia, Thailand & Indonesia have accounted for USD2,354 million of the 25 most recent insurance M&As in ASEAN Principle drivers for M&A Economies of scale Growth by expanding into new territories & business segments Source: www.asean.org
M&A Source: ING Corporate Finance, Asia
M&A Early Stage Checklist Evaluate the target on the following: Scale of business operation Position in value chain Competitive position Market prospect Technology dependency Key industry relationships Cultural alignment Management calibre Reputation in the marketplace Current ownership structure Synergy Acquisition of whole business vs. team(s) / key individual(s)
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A final word JUNE 2015 Michael Leong Chief Executive Officer Jardine Lloyd Thompson A Jardine Matheson Associate Company