Insurance continues to be a thriving business in emerging economies , as life insurance premiums in Asia and Latin America are expected to increase at a CAGR of 13% during the next seven years. Similarly, property and casualty insurance premiums are expected to rise at a CAGR of 10% over the same period.
Despite the high growth rate expected in the emerging markets, the US, Europe and other industrialized economies will continue to be a significant contributor to the global insurance market with the US remaining the largest market for insurance companies.
Sun Life Financial Inc. (NYSE:SLF), which is one of the largest insurance and wealth management companies in Canada, has done well to strategically grow its presence in Europe and the US. During 2011, the company’s board approved a diverse “four stream strategy” proposed by the management in an effort to strategically grow its presence in these markets.
Snapshot of the first quarter 2013
Sun Life Financial Inc. (NYSE:SLF)’s Asset management arm, Massachusetts Financial Services (MFS), reported a remarkable first quarter of 2013. The assets under management reached a staggering $350 billion, which is a 22% increase over 2012 figures. Further, it posted an operating profit of $100 million, marking a 43% increase over the same quarter the previous year. Moreover, during the period, Sun Life was ranked the best specialist equity fund house by Morningstar UK.
At present, global expansion of MFS is Sun Life Financial Inc. (NYSE:SLF)’s primary strategic goal. Sun Life plans to expand its base in the US insurance market, particularly focusing on group insurance & asset management business. This will enable the company to develop on its strengths, as it recently entered into an agreement with Delaware Corporation to sell its annuity business for $1.35 billion. This deal may hurt its earnings in the near term, however, going forward it will have a positive impact through declining exposure to volatile equity markets and interest rates.
Additionally, markets responded well to this divestiture, as Sun Life’s shares reported large gains. The stock appreciated approximately 40% after the news and became the third best performing insurance stock in North America.
Asia is identified by the company as a key market and an important part of its overall strategy. With average year-on-year growth of 11% the Asian insurance market is well positioned to exceed $1 trillion in the next five years. Sun Life already has presence in four of the ten ASEAN countries, as it now plans to strengthen its existing business operations and make new strategic acquisitions in order to increase penetration.
India is a significant market for Sun Life Financial Inc. (NYSE:SLF) with an estimated CAGR of 15%. The pending proposal to increase the cap of FDI in insurance from 26% to 49% will make India a key revenue driver for Sun Life in the future. The company, along with its JV partner Aditya Birla, has become the fourth ranked asset management company. As several developed economies are presently suffering from a sluggish economic environment, India serves as an opportunity for massive growth.