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May 1, 2008

News Digest

US private equity firm JC Flowers (JCF) has completed the acquisition of the life and commercial insurance and retirement services divisions of the former BISYS Group from US bank Citigroup

By Verdict Staff

MERGERS AND ACQUISITIONS

Largest wholesale US distributor formed

US private equity firm JC Flowers (JCF) has completed the acquisition of the life and commercial insurance and retirement services divisions of the former BISYS Group from US bank Citigroup. The acquired divisions will be merged with Crump Insurance Services, a wholesale property and casualty insurance broker owned by JCF, and the combined units will now operate under the name Crump Group.

The combination of the former BISYS divisions and Crump Insurance Services has, according to JCF, created the largest wholesale insurance distributor in the US. On a pro forma consolidated basis, Crump Group, which employs about 3,000 associates in 60 locations, generated more than $450 million in revenue during the past 12 months, said JCF.

Citigroup acquired BISYS Group in May 2007 for $1.47 billion and simultaneously on-sold the life, commercial and retirement services divisions to JCF for an undisclosed sum.

PENSIONS

Great-West Lifeco expands US operations

Great-West Life & Annuity Insurance Company, the US unit of Canadian insurer Great-West Lifeco, has announced that it has acquired the 401(k) retirement plan record-keeping business of US investment management company Franklin Templeton Investments. Great-West Life, which has supported Franklin Templeton’s record-keeping business since 2006, will assume additional servicing and custodial responsibilities for about 340 plans representing 64,000 participants.

“This agreement reinforces our position as one of the top retirement plan providers in the United States,” said Raymond L McFeetors, president and CEO of Great-West Lifeco.

The deal further consolidates Great-West Life’s position in the US retirement plan record-keeping market where, according to a ranking by research company Spectrem Group in January 2007, it holds fourth position based on total participants.

According to Great-West Life, it provides retirement plan services to 21,000 plans representing about 3.5 million participants and $104 billion in assets.

MARKET TRENDS

Positive signs from North American individual life market

Data compiled by research company MIB Group has revealed that application activity for individually underwritten life insurance in the North American market in the second quarter of 2007, though still in decline, displayed encouraging signs. According to MIB Group, application activity in the quarter displayed its lowest decline in three years, falling 1.3 percent year-on-year. This compared with a year-on-year decline of 5.5 percent in the first quarter of 2007.

In the US, application activity in the second quarter of 2007 declined by 1.6 percent compared with a decline of 5.3 percent in the first quarter, while in Canada second-quarter application activity increased by 0.5 percent compared with a first-quarter decline of 7.5 percent.

On a year-on-year basis, MIB Group reported that North American application activity in June 2007 was down 2.2 percent compared with a year-on-year decline of 3.5 percent as at 31 March 2007. To 30 June, year-on-year declines of 2.7 percent and 0.9 percent were recorded in the US and Canada, respectively.

COMPANIES

AVIVA USA to move home

Aviva USA, the US unit of UK insurer Aviva, has announced plans to build a new national head office in West Des Moines in the state of Iowa. The new 360,000 sq ft office will be located on a 71-acre site and is expected to cost between $135 million and $150 million, said Thomas Godlasky, CEO of Aviva North America.

The new office, due for completion in early 2010, will enable Aviva USA to consolidate existing operations in three downtown Des Moines locations and create capacity for expansion.

Godlasky said that in the past seven months, Aviva USA had added about 200 jobs and expected to add at least another 400 over the next three years.

LEGAL

Hartford Financial settles with three states

US insurer The Hartford Fin-ancial Services Group (The Hartford) has agreed without denying or admitting any violation of laws to pay $115 million to settle allegations by the states of Connecticut, Illinois and New York that it faked insurance bids and allowed illegal trading in some of its mutual funds in the 1990s.

Under the settlement, The Hartford will establish a $5 million fund for policyholders harmed by improper insurance practices and pay a $26 million penalty to the three settling states – $3 million each going to Connecticut and Illinois, and $20 million to New York.

It will also establish an $84 million fund to compensate market timing investor victims.

NEW PRODUCTS

Allianz success for grandparent product

Launched in April, the EnkelPolice is the first of a series of multi-line products Allianz Deutschland plans to bring to the German market to fill what it believes is a need for more products aimed at people aged 55 and over.

The EnkelPolice policy is aimed at people wanting to provide protection and capital benefits for their grandchildren or other young relatives, and has been dubbed ‘the grandchildren’s policy’ by Allianz.

Among the product’s features is private health coverage for illness, extended care or disabling injury for children from birth until the age of 18. In addition, the policy has a capital accumulation component which becomes payable to the beneficiary at age 18 or can be used to establish a long-term retirement plan. The policy also incorporates insurance on the life of the person paying the premiums. Should he or she die, full coverage continues until the child reaches 18.

Between April and the end of July, 7,000 of the policies had been sold – proving, said Gerhard Rupprecht, chairman of the Allianz Deutschland board of management, that products custom-tailored for seniors have “great potential”. The age group 55 and above is the only one increasing in size in Germany, he added.

MERGERS AND ACQUISITIONS

Royals end merger talks

Merger negotiations between UK mutual life insurers Royal London and Royal Liver initiated in late April this year have been abandoned. In a statement, Royal Liver noted that although the proposed merger had considerable merits for its members, its board has decided that the company’s interests “will be better served by pursuing an independent strategy”.

Royal Liver has faced headwinds in recent years as it strived to modernise its marketing channels and wrestled with cost over-runs (excess of operating costs over income). Royal Liver’s CEO, Steven Burnett, noted in the insurer’s 2006 annual report that cost over-runs had until recently “threatened our continued operation”. While this threat has abated, he added that “challenges remain”. Royal Liver had a cost over-run of £7.9 million ($15.9 million) in 2006.

Royal Liver reported total assets under management of £3.5 billion in 2006, much less than Royal London’s £31.5 billion.

INVESTMENTS

AIG buys into Bulgarian communications

AIG Capital Partners (AIGCP), a unit of US insurer American International Group, has acquired a 90 percent stake in Bulgarian Telecommunications Company (BTC) and is to launch a tender offer to outstanding minority shareholders.

Though AIGCP did not disclose the full purchase price, it did reveal that it had paid the primary vendor of BTC, private equity firm Viva Ventures, €1.08 billion ($1.47 billion) for its 65 percent interest. When AIGCP concluded the deal with Viva Ventures in May this year, a total value of €1.661 billion was placed on BTC.

Services provided by BTC include voice, data, internet, leased line, TV and radio broadcasting and transmission and payphone services.

BTC owns one of Bulgaria’s three mobile operators, Vivatel, and is one of the country’s largest internet service providers and the principal provider of satellite communications.

BANCASSURANCE

Sun Life strengthens its Chinese distribution

Strengthening its distribution capacity, Chinese life insurer Sun Life Everbright (SLE) has entered into a bancassurance agreement with China Everbright Bank. SLE was established in 2003 as a joint venture between Canadian financial services group Sun Financial and Chinese state-owned conglomerate China Everbright Group, which holds a 45.6 stake in China Everbright Bank.

Under the agreement, SLE’s pensions and protection products will initially be marketed in conjunction with China Everbright Bank’s enterprise annuity offerings, a form of group pensions. The agreement will later be extended to include the distribution of individual and group pension, health and accident insurance products. China Everbright Bank has 370 branches and sub-branches in 36 cities in 23 provinces.

“We are confident this initiative will contribute to our significant business growth in China,” said Sun Life CEO Donald Stewart.

MARKETING

Indian insurers harness mobile technology

ING Vysya Life (IVL) has become the first Indian life insurer to harness the mobile phone as a means of permitting policyholders to pay premiums. To facilitate this, IVL has opted for mobile payments service provider PayMate India’s wireless platform that utilises a mobile phone short message service (SMS) to execute transactions.

IVL explained that a customer sends an SMS with their policy number and instantly receives a reply confirming the premium amount due and asking for payment authorisation, which is done by replying with the PayMate PIN given at the time of registration for the service. Once the customer has input and sent the PIN, he or she gets a payment confirmation within a few seconds, again via SMS. PayMate’s mobile payments service was launched in mid-2006.

IVL is not the only Indian insurer to harness the benefits of technology in its marketing efforts. In 2006 Birla Sun Life launched India’s first internet-based pension and life insurance marketing platform, permitting customers to initiate a policy purchase online and pay premiums online via the use of a credit card. Other life insurers have followed, including ICICI Prudential, Tata AIG and Bajaj Allianz.

COMPANIES

Ping An’s profits roar ahead

Ping An, China’s second-largest life insurer, set a blistering pace in the first half of 2007, lifting its net profit 139.5 percent compared with the comparable period in 2006 to RMB9.97 billion ($1.32 billion).

Ping An’s results were, in particular, boosted by strong gains in share investment values and its acquisition of Shenzhen Commercial Bank in 2006. Net profit derived from banking operations soared from a mere RMB1 million in the first half of 2006 to RMB1.09 billion.

Net profits from life insurance operations also put in a strong showing, rising 70 percent to RMB6.01 billion. General insurance unit Ping An Property & Casualty Insurance recorded a 140 percent increase in net profit to RMB760 million, while securities trading units increased net profits almost fourfold, from RMB174 million to RMB676 million.

As at 30 June 2007, Ping An’s total assets stood at RMB617.8 billion, up 24.9 percent compared with a year earlier.

BANCASSURANCE

Citibank and PT Prudential Life team up

The Indonesian units of UK insurer Prudential and US banking group Citibank have formed an alliance to market a new product, Ultimatelink, that combines a unit-linked investment and life and accident and insurance. The product is available in Indonesian rupia and US dollars.

In the partnership, Citibank will serve as marketing agent for Prudential, which will allocate financial service consultants to Citibank branches. Citibank has 17 branches operating in major Indonesian cities.

Commenting on the alliance, Kevin L Holmgren, president director of Prudential Indonesia, said: “Industry trends suggest that there is a significant growth in the demand for unit-linked product that provides double benefits.” He added that unit-linked product sales represent 38 percent of the Indonesian insurance market.

In addition to the new alliance with Citibank, Prudential Indonesia has an existing distribution alliance with UK bank Standard Chartered’s Indonesian unit. Prudential Indonesia reported premium income of £36 million in the first quarter of 2007, up 57 percent compared with the first quarter of 2006.

DEVELOPING MARKETS

Romanian private pensions on the move

American Life Insurance Company (ALICO) has become the latest foreign insurer to enter Romania’s fledgling mandatory private pensions market following the granting of a licence by the Romanian Commission for the Supervision of the Private Pension System. Spearheading ALICO’s drive into the market is a new pension management unit, AIG Fond de Pensii, which is majority-owned by AIG Life Asigurari Romania, ALICO’s Romanian insurance business that it established in 1998.

The new unit will commence business on 17 September, the launch date of the new mandatory pensions system. The move is anticipated to compel up to 3.5 million Romanians to enter the market as product buyers.

HEALTH INSURANCE

PruHealth joins forces with Sainsbury’s

‘Improve your lifestyle and save on health insurance costs’ is a key feature of UK health insurer PruHealth marketing pitch. Now in a unique move, PruHealth has teamed up with grocery retailer Sainsbury’s to reward policyholders for buying fruit and vegetables at any of its 779 stores.

PruHealth explained that policyholders earn Vitality points according to monetary spends. For example, for every £2 spent on fresh fruit and vegetables, policyholders will earn one Vitality point. Vitality points are accumulated over the course of a year and offset against health insurance premiums upon renewal the following year, assuming no claims have been made.

Launched in 2004, PruHealth, a joint venture between UK insurer Prudential and South African insurer Discovery, covers 117,000 lives.

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