“We are confident in the fundamentals of Taiwan’s life insurance market and the sector’s potential in the long run,” a spokesman for Chung Wei Yi said April 27. “We will increase the capitalization of the acquired entity by roughly NT$10 billion in the coming years to demonstrate our commitment to our insurance unit.”
“We hope the deal can be closed within three months,” the spokesman continued. “Our goal is for our insurance unit to be listed in the Taiwan stock market within five years.”
The agreement, signed April 22 by representatives from both sides, is still subject to final approval by the Cabinet-level Financial Supervisory Commission, the agency responsible for monitoring and regulating all types of financial institutions in Taiwan.
In a statement released to the press, Aegon NV Chief Executive Officer Alex Wynaendts said that the decision to sell Aegon Life Insurance (Taiwan) Inc. was part of the company’s overall strategy of optimizing capital allocation and investment returns.
The Taiwan market has proved challenging more recently because of its structurally low interest rate environment and increased capital requirements. The Netherlands-based firm’s decision followed similar moves by other European insurers, including ING Group and Prudential plc.
In February, Antai Life Insurance Co. Ltd., ING Group’s subsidiary in Taiwan, was sold to Fubon Financial Holding Co. Ltd. for US$600 million. By acquiring Antai Life Insurance, Fubon becomes the second-largest life insurance company on the island, in terms of total and first-year premiums.
“Antai and another Fubon subsidiary, namely Fubon Life Assurance Co. Ltd., are slated to merge into one in June,” a Fubon Financial official, who declined to be named, noted April 27.
Also in February, China Life Insurance Co. Ltd. and Prudential plc entered into an agreement for the latter to transfer the assets and liabilities of its agency distribution business and agency force in Taiwan to the former for a nominal sum of NT$1. “We expect the deal to be completed by June,” said an official with the Taiwan-based China Life Insurance.
“As an EU-domiciled company, Prudential adheres to the European Union Insurance Group Directive, under which it is required to carry significant economic capital reserves,” Prudential plc noted in a statement released to the press Feb. 20.
Jennifer Wang, chairwoman of the Risk Management and Insurance Department at National Chengchi University, attributed the recent string of consolidations in the industry to the aftermath of the global financial crisis and higher capital requirements. “Parent firms in Europe need to take into account the best use of their capital. They are reluctant to contribute more to maintain their operations here.” Local firms, on the other hand, are seeking bargains for their mergers and acquisitions targets. “More premiums can improve their business structure,” Wang added.
Consolidation within the industry could lead to structural improvement and cost efficiency. “On presumption of synergy from such acquisitions, the local industry will experience fewer competitors while enjoying positive incentives in the long run,” Wang pointed out. But to succeed, the newly formed entities need to find ways to reconcile the different cultures of the merged companies, with their different managerial styles.
Chung Wei Yi was formed for the express purpose of purchasing Aegon NV in Taiwan. Its two main shareholders are Tom Peng, chairman of the Meifu Group, and P. F. Lin, president of Taiwan Glass Industry Corp., a company listed in the local market. Meifu is best known as a construction and property development consortium.
Write to Adela Lin at adela2009@mail.gio.gov.tw