Two financial giants exemplify the confluence of emerging opportunities driving Asia towards dominance.
As industry leaders in Asia, AIA and Prudential PLC could serve as indicators of the vast region’s growing importance in global finance. Over the past decade the two firms have grown their profits rapidly, becoming giants with a combined market value of $160 billion. Having prevailed through tough times, they now span 20 Asian countries, and have more than 60 million customers.
AIA was founded in Shanghai in 1919, and later swallowed up by U.S. conglomerate AIG. It was spun out in 2010, following AIG’s 2008 bailout. Prudential was founded in 1848 in the U.K. It had only marginal operations in Asia, but these were given new life at the hands of then-Senior Vice President Mark Tucker in the 1990s. Tucker was appointed CEO of Prudential Asia, and became CEO of Prudential in 2005, leaving the company in 2009 to head up AIA. Tidjane Thiam, CEO from 2009 to 2015, was similarly instrumental to Prudential’s success.
AIA and Prudential specialise in persuading Asians to save through insurance, typically life or health policies. Social trends seem to have perfectly aligned to create this market. Not only is Asia’s middle class growing; the people who comprise it tend to stash their savings in cash. Further, there is a lack of sufficient social safety nets in the event of illness or death. Insurance is a clear solution.
While AIA and Prudential have proven their mettle in Asia, expanding a life insurance business is difficult. Up-front costs are hefty, and realizing profits is a decades-long endeavour. Plus, Asian national markets bring their own challenges. Each grows and contracts in its own time, unevenly and unpredictably. Currencies are volatile, and the insurance industry is fragmented, with price wars frequently erupting amongst some 100 firms. To adapt, both firms have diversified geographically.
Since 2007, AIA and Prudential’s Asian arm have grown their operating profits at a compound rate of 13% and 18%, respectively (in dollar terms). According to The Economist, “Two decades ago Asia represented 5% of Prudential’s market value; now it is about 50%. AIA is worth twice as much as its former parent, AIG.” Asian firms now represent 49% of the global life insurance industry’s total market value, up from 4% two decades ago.
Of course, China is a key proving ground, with serious contenders – such as Ping An, the world’s most valuable life insurance firm. AIA owns 100% of a Chinese mainland operation, and Prudential has 50% of a joint venture with state-run CITIC. These have delivered 18% of this year’s new business to date for AIA and 11% for Prudential Asia. The pair are on the verge of joining an elite few multinational financial firms that get a large portion of their global profits from mainland China.
To do so, they will need to fend off online-only competitors, which could make agents obsolete. A survey of 800 agents in Asia found that half see digital distribution as a “big threat”. There is also a threat of economic crisis in Asia, due to trade wars or sell-offs in emerging markets. Finally China’s easing of rules on foreign ownership could prompt industry consolidation in Asia, requiring AIA and Prudential to adapt to a dramatically changing landscape.