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Friday, Jul 17, 2020

Richard Li’s FWD to buy stake in Indonesian life insurer for about US$300 million

Richard Li’s FWD to buy stake in Indonesian life insurer for about US$300 million

Deal shows FWD’s financial strength to rating agencies wary of Covid-19 impact, CEO says. FWD is still waiting for licence to operate a majority-owned joint venture in mainland China

FWD Group has agreed to buy a minority stake in the life insurance arm of PT Bank Rakyat Indonesia (BRI), taking another step towards building a pan-regional insurance company.

The Hong Kong-based life insurance company said on Monday that it would buy a stake in Indonesia’s PT Asuransi BRI Life, finally securing a company it has been chasing for years by winning a fiercely contested auction.

FWD, which is backed by Hong Kong-based entrepreneur Richard Li Tzar-kai, Hong Kong tycoon Li Ka-shing’s younger son, bid about US$300 million for a 30 per cent stake in the business, according to a person familiar with the matter. The deal values the Indonesian life insurer at about US$1 billion, the person added. An FWD spokeswoman declined to comment on the valuation.

Since its foundation in 2013, FWD has been weaving together an insurance platform across Southeast Asia’s underserved and fast-growing markets. A significant presence in Indonesia, the region’s largest market by GDP and the world’s fourth most populous country, has long been a treasured prize.

“We are now in all the major markets that we aimed to build in,” Huynh Thanh Phong, FWD’s chief executive, told the South China Morning Post. FWD now spans Hong Kong, Thailand, Indonesia, the Philippines, Singapore, Vietnam, Japan and Malaysia. “The BRI Life acquisition fits exactly into the same approach and strategy that we’ve adopted over the years,” he said.

FWD will continue to look for deals and licences that enhance its distribution and scale in markets. For example, it is waiting for China to approve its application for a majority-owned insurance company on the mainland.

The deal also showcases FWD’s financial wherewithal at a time when credit rating agencies are warily examining insurance companies globally for any damage wrought by the coronavirus pandemic.

“We are in pretty robust health,” said Huynh, who believes the industry will come out of the coronavirus pandemic stronger than ever before, as behaviour shifts. “People will be much more mindful about protection and health going forward,” he said.

Regarding capital raising to bolster the balance sheet further, including a potential initial public offering, Huynh would only say that FWD’s shareholders were constantly assessing capital market conditions for potential fundraising.

While FWD plans to grow its stake in BRI Life gradually, state-controlled Bank Rakyat will remain the majority shareholder. The deal offers FWD access to BRI’s extensive network across the archipelago through a 15-year life insurance distribution agreement. BRI, the country’s largest commercial bank by assets, has more than 120 million customers, including an extensive rural distribution network.

“Overnight, from the combination of BRI Life and FWD Life, we will have access to nearly half of the population of Indonesia, and even if we convert a small percentage of these customers into a life insurance policy owner that would be significant in terms of new business sales,” Huynh said.

BRI has flirted with the sale of its insurance arm several times. “This deal didn’t happen overnight, we’ve been pursuing this opportunity for years,” Huynh said. He felt that FWD finally managed to seal the deal because it could demonstrate a track record of being a sound partner for banks around the region, its digital capability as well as paying an attractive price for the business.

FWD has signed 12 bancassurance partnerships across Indonesia, Thailand and Vietnam in recent years. Just last year, it signed partnerships with Siam Commercial Bank and Vietcombank.

The company first entered the Indonesian market through PT FWD Life Indonesia, a joint venture it set up in 2015. The joint venture had a market share of less than 1 per cent by life gross premiums as of the end of last year.

According to credit rating agency Fitch, the company expects to turn profitable within the next five years and plans to focus on sales of regular premium unit-linked policies and protection-based products to improve profitability.

FWD’s investment in BRI Life follows its acquisition of a majority stake in PT Commonwealth Life, the Indonesian life insurance arm of Commonwealth Bank of Australia (CBA). It also signed a 15-year distribution partnership with Bank Commonwealth, the Indonesian banking arm of CBA.


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