AIA Australia targets retail life insurance; has sufficient capital

The Australian unit of Asia's No 3 insurer AIA has entered the higher margin retail life insurance sector, seeing growth opportunities following a period of margin pressure in group insurance, its chief executive said on Thursday. Group insurance, which is offered to a group of people is cheaper than comparable individual cover and typically forms a part of employee benefits.
This type of insurance is the mainstay for AIA and the retail move will put it in competition with distribution-led local players such as AMP and the units of big banks such as National Australia Bank and Commonwealth Bank of Australia. AIA Australia, which as late as last year was touted as an acquisition candidate in the wake of turmoil at its former parent AIG , has tied up with Priceline Pharmacy to offer life risk products to the pharmacy chain's 3.2 million loyalty card members.
Life Insurance is growing at 14-15 percent in Australia compared to 3 percent lending growth and 10 percent expansion in wealth management. "Life insurance in Australia is akin to a developing market opportunity. It is growing as fast as Vietnam," AIA Chief Executive Damien Green said in an interview. "Retail will clearly drive growth for us."
A move into retail will also ease some pressure on the need to hold more capital in a changing regulatory regime. Group life risk business, given its high volumes, requires higher capital ratios. Group insurance, which carries a margin of between 10 and 20 percent, makes up about 60 percent of AIA Australia's $800 million in inforce premium now with advisory business for wealthy clients making up a third. Green said there were no new group insurance mandates in the pipeline. Retail that boasts margins of up to 40 percent is a miniscule portion now and comes largely from selling products through the likes of Citigroup and HSBC.
AIA's foray comes at a time when margins in some group insurance mandates are shrinking, forcing the likes of AIA to stay away from bidding for them. While it did bag the $150 million SunSuper group mandate late last year it stayed out of bidding for a few big ones. Analyst said out of the $400 million in group insurance tender last year over a third of it was low margin business.
Green declined to put a target for the fledgling retail business given fluctuations in premiums in the event of fresh mandates for high volume group business. "Given the character of our business, I would dare not speculate. But retail will be a key focus of our business going forward." Green said AIA planned to leverage on partnerships such as Priceline to overcome the distribution weakness and tap new customers using its Asian brand name, simple products and easy processing. Green said AIA Australia, which is profitable, was a self sufficient business with regard to capital.