HONG KONG Prudential plc (PRU.L)(2378.HK) has agreed to buy the insurance unit of Thailand's Thanachart Bank for 368 million pounds ($590 million) in cash, turning up the heat on rival AIA Group Ltd (1299.HK) in the fast-growing Southeast Asian market.
The British insurer's acquisition, which will double its market share in Thailand, is its first major attempt to buy an Asian company since Chief Executive Tidjane Thiam aborted a $35 billion bid in 2010 for AIA, the former Asian unit of American International Group Inc (AIG.N).
Since then, Southeast Asia has emerged as a battleground for AIA and Prudential, the region's two dominant insurers. Prudential recently announced plans to open an office in Cambodia and AIA last month said it had agreed to buy ING's (ING.AS) Malaysian insurance unit for $1.73 billion.
Premiums in six Southeast Asian countries are expected to rise an average of 7.9 percent next year, according to a report by Swiss Re, more than double the global life insurance average.
Prudential's purchase of Thanachart will help bolster its regional presence and narrow the gap with AIA, which has a dominant position in Thailand.
"They've got a very good Southeast Asia footprint, or ASEAN footprint, and Thailand was the weak link," said Credit Suisse Asian insurance analyst Arjan van Veen. "This goes some way to reducing that weakness. Thailand is structurally, demographically a very attractive market."
Thiam played down the rivalry with AIA and instead emphasized the market's potential for growth.
"What's relevant is that 98 percent of people don't have a life insurance policy," Thiam told Reuters, en route to a meeting in Bangkok. "If you go into a market like this, you don't really worry about the competition," he said.
Thanachart Life Assurance Co Ltd is a top-10 life insurer in Thailand with around 1 million in-force policies, and the deal will immediately double Prudential Thailand's market share, Prudential said in a statement. The transaction is subject to regulatory approval and is expected to close in the first quarter of 2013.
Bangkok-based Thanachart Bank is jointly owned by Thanachart Capital (TCAP.BK) and Scotia Netherlands Holding BV, with Thanachart Capital owning slightly more than half of Thanachart Bank. Thanachart Bank bought Siam City Bank over the course of several transactions in 2010.
Thanachart Capital shares jumped 5.3 percent at the open in Bangkok on Monday.
Thiam said life insurance penetration in Thailand is only about 2 percent, compared with an Asia average of 4 percent, and 12 to 13 percent in Europe. He said Prudential is paying about 14.3 times historic earnings for Thanachart.
Shares of Asia-Pacific insurers trade at a median 18 times earnings, according to Thomson Reuters data.
Thailand's economy, Southeast Asia's second largest, is forecast to grow 5.7 percent this year.
Prudential will initially pay 358 million pounds in cash, and a further 10 million pounds 12 months after the deal is completed to reflect the net asset value at the completion date. A key aspect of the deal is a 15-year bank distribution agreement with Thanachart Bank.
Thanachart Life earned a profit after tax of 25 million pounds ($40 million) in the 12 months ended June 30, 2012.
Prudential in the past year has been emphasizing its presence in Asia amid speculation it could move its headquarters out of London or potentially break up its operations by region.
In its 2011 annual report Prudential called Southeast Asia its "sweet spot". It said its presence in Thailand was "relatively small", with a market share of 2 percent.
AIA had roughly 30 percent of ordinary life premiums in Thailand in 2011, Barclays insurance analyst Mark Kellock previously told Reuters.
Other Southeast Asia insurance deals are also in process. British insurer Aviva plc (AV.L) is selling its Malaysian operations in a deal worth about $500 million, while Indonesia's Panin Financial PNJF.JK is selling a 40 percent stake in its life insurance unit.
Prudential was advised by Morgan Stanley (MS.N), while Citigroup (C.N) and Thanachart Securities jointly advised Thanachart, sources told Reuters.
(Additional reporting by Donny Kwok in HONG KONG, Khettiya Jittapong and Manunphattr Dhanananphorn in BANGKOK; Reporting by Clare Baldwin and; Writing by Denny Thomas; Editing by Anne Marie Roantree and Chris Gallagher)