Southeast Asia Insurance Continues to Attract Growth Capital: Citigroup Inc. (C), Sun Life Financial Inc. (SLF)

Growth is sluggish or even negative in many industrialized countries as the demographics are all wrong and the markets are saturated. Analysts at reinsurer Swiss Re expect Indonesian life-insurance premiums to grow by 8.3% this year versus 5.6% across Asia and 1.6% in the U.S. Indonesia is also home to the world’s fourth-largest population, and only a tiny fraction of the people own life insurance.  Like Vietnam, this is a market with nearly explosive growth potential in this industry. Premiums were equal to just 1.1% of gross domestic product in 2011, versus 3.6% in the U.S. and 8.8% in Japan, according to Swiss Re estimates.

Banks Health Is the Key

One of the most practical ways for an insurer to grow in Asia is to enter into a distribution agreement with a bank, which enables insurers to sell their products via the bank’s branches. However, the popularity of these agreements, known as bancassurance deals, means it is getting more expensive for insurers to forge an alliance with lenders in Asia. “There is increasing emphasis on bank-based distribution of insurance products across Asia,” said Donald Lacey, who heads Citigroup Inc. (NYSE:C)’s insurance investment-banking practice in Asia. That has led to a “significantly elevated level of competition among insurance companies for deals with banks.”

Indonesia’s major banks have significant exposure in the Market Vectors Indonesia Index (NYSEARCA:IDX). The ETF has moved back up to a strong resistance zone on a long term chart. Given the current lift that global money printing is giving to equities around the world, I expect to see Indonesia’s equities to continue performing well, especially as Indonesian banks recently passed Fitch’s latest round of stress tests and were sitting on more than 14% Tier I capital asset ratios in the latter half of 2012.  The same cannot be said for Vietnam’s banks, and with the VN Index staring at long-term resistance, we are likely looking at a replay of last year’s pullback from the $490 area.  There are still too many problems in Vietnam to recommend a broad ETF like the Market Vectors Vietnam (NYSEARCA:VNM).  To invest there will require due diligence on individual companies.

The article Southeast Asia Insurance Continues to Attract Growth Capital originally appeared on and is written by Peter Pham.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.