Banks in the Asia-Pacific region are expected to continue letting go of their capital-heavy insurance businesses to focus on core operations amid global economic uncertainty.
The region’s banks have been selling their insurance operations at a faster rate than acquiring them, according to a report by S&P Global Market Intelligence. In 2021, there were 10 insurance divestments in the region, including Australian lenders Westpac Banking Corp. and Commonwealth Bank of Australia, up from seven in 2020. Buyers are mostly businesses mainly involved in insurance, such as AIA Group.
"We expect this trend of vertical disintegration to continue into 2022 and beyond as insurance portfolios face rising claims frequencies and inflation, supply chain issues posing customer satisfaction challenges as well as customer affordability," said Ashish Sharma, partner, financial services and Australia lead, insurance and wealth management, at Oliver Wyman.
According to Sharma, banks have been simplifying their businesses and focusing on core banking operations. Tighter insurance regulations have made insurance businesses costlier for banks, and cross-selling of banking and insurance products have delivered lower-than-expected returns. Meanwhile, the buyers are usually established insurance players seeking to grow their scale or penetrate new market segments.
As a global economic recession looms, S&P said that all of the 20 largest banks in Asia-Pacific have reported declines in market capitalization in the second quarter of 2022. Shedding their capital-heavy businesses, such as insurance, could help lenders stay resilient in the current market, it said.
Following the sale of their insurance arms, banks usually sign long-term distribution agreements with the buyers, which will allow the banks to continue providing insurance to their clients without bearing the costs.
