European insurers AXA SA, Assicurazioni Generali SpA, Japan’s Tokio Marine and MS&AD Insurance Group are among suitors to submit first round bids for HSBC’s non-life insurance business, sources with knowledge of the matter told Reuters, in a deal worth about $1 billion.
Allianz SE and Zurich Financial Services AG were also interested in the process, sources previously told Reuters, but it could not be independently ascertained whether they had submitted preliminary bids, which were due on Wednesday.
HSBC, under new Chief Executive Stuart Gulliver, is exiting non-core businesses and targeting about $3.5 billion in cost savings. The sale of the non-life insurance business is part of that plan. The company has already sold its non-life business in Britain.
HSBC’s planned sale is the first major bancassurance deal attempted in Asia and the valuation of this transaction will set a benchmark for other similar deals.
A big question in such deals is determining how much value to pay upfront and how should be built into the bancassurance agreement, which allows the buyer and seller to share future commissions earned from the sale of insurance products.
In some cases, buyers agree to pay a lower upfront value and agree to a rich distribution agreement, which offers incentives for the vendor to perform.
HSBC, Europe’s biggest bank, may consider selling the businesses by splitting it by region, sources familiar with the matter said.
HSBC has non-life insurance operations in Hong Kong, Singapore in some Latin American countries and France. Non-life insurance premiums totaled $1.3 billion in 2010, according to HSBC’s balance sheet.
AXA, Generali, Zurich, Tokio Marine, MS&AD, Allianz all declined to comment. HSBC also declined comment.
The sources declined to be identified as the sale process was not public.
Potential suitors are attracted to HSBC’s captive customer base and the distribution network available through its bank branches.
But there were questions about the ability of potential buyers to bid aggressively because of sharp falls in asset prices globally and the capital issues faced by European financial institutions, sources said.
The geographical spread of the assets also makes the auction potentially tricky as some potential suitors only want certain parts of the business and not the whole.
For instance, the two Japanese insurers were interested in the Asian operations of HSBC’s non-life insurance business, especially its Hong Kong business, and not the entire package, the sources said.
HSBC made and distributed general insurance products in Panama, Honduras, El Salvador, Argentina, France and Mexico. But it earns a portion of its premiums from Hong Kong and Singapore, with the two centers alone producing about $300 million, one source said previously.
HSBC’s planned sale follows other recent deals to exit non-core businesses, including the disposal of its credit card unit in the United States, the closure of underperforming U.S. branches, and the sale of 195 branches to First Niagara Financial Group Inc.
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