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LONDON (MarketWatch) -- A major shake-up is underway in the insurance industry, with key assets coming on the market across the globe as the fallout from the financial crisis continues.
Insurers in emerging markets such as Eastern Europe and Asia will likely be the easiest to sell, while the U.S. could prove the toughest market to attract buyers due to a lack of local players in a position to bid, analysts said.
American International Group /quotes/comstock/13*!aig/quotes/nls/aig (AIG 39.23, +3.03, +8.37%) has already begun selling its operations as it struggles to repay a $120 billion government bailout, and in Europe others are following suit.
ING Group /quotes/comstock/24s!e:inga (NL:INGA 9.65, +0.47, +5.12%) /quotes/comstock/13*!ing/quotes/nls/ing (ING 14.38, +1.03, +7.72%) , citing pressure from the European Commission's antitrust enforcers, said earlier this month that it will break itself up and sell, or spin off its insurance businesses in order to repay state aid. See archived story.
Belgium's KBC Group /quotes/comstock/24s!e:kbc (BE:KBC 29.55, +0.12, +0.39%) may be forced down a similar path, according to some analysts, and Royal Bank of Scotland /quotes/comstock/23s!a:rbs (UK:RBS 35.21, -1.26, -3.45%) /quotes/comstock/13*!rbs/quotes/nls/rbs (RBS 11.82, -0.06, -0.50%) said Tuesday that it will sell its insurance business following a decision by European regulators. See RBS story.
Buffett potential buyer
"ING's separation of banking and insurance adds another insurance asset to the market," said Clark Troy, a Raleigh, N.C.-based analyst at Aite Group, a consulting group.
"Combined with AIG's need to divest itself of businesses to generate capital, and other insurance players that have been weakened by offering the wrong product mixes, means that sharp-eyed participants in the insurance market should be able to find value," he added.
Troy said he wouldn't be surprise to see Warren Buffett's Berkshire Hathaway /quotes/comstock/13*!brk.a/quotes/nls/brk.a (BRK.A 101,710, +180.00, +0.18%) /quotes/comstock/13*!brk.b/quotes/nls/brk.b (BRK.B 3,391, +10.00, +0.30%) make a major insurance acquisition in the next year or two.
Berkshire Hathaway owns several major insurance and reinsurance companies, including Geico and General Re. It also bought the NRG reinsurance business of ING in 2007.
Insurance stocks have had a rough ride in the crisis, with the Dow Jones Stoxx 600 insurance sector down over 42% over the last two years, compared to a 37% drop for the Stoxx 600.
However, the reasons behind the asset sales generally aren't related to the underlying performance of traditional insurance operations. In the case of ING and RBS it is losses in the banking side of the business which meant the firms needed state aid and now need to sell assets to generate cash.
In the case of AIG it was the massive risks taken on by its U.K.-based derivatives unit that led to its downfall.
Troy said there are few U.S. insurers that would be strong enough to make significant acquisitions, though one exception could be MetLife Inc. /quotes/comstock/13*!met/quotes/nls/met (MET 33.69, +0.25, +0.75%) , which has reportedly already offered over $11 billion for AIG unit American Life Insurance earlier this year.
If U.S. firms aren't interested, there could be one or two Canadian groups in better shape, such as Sun Life Financial Inc. /quotes/comstock/11t!slf (CA:SLF 28.16, -1.96, -6.51%) /quotes/comstock/13*!slf/quotes/nls/slf (SLF 26.26, -1.92, -6.81%) or Great-West Lifeco Inc. /quotes/comstock/11t!gwo (CA:GWO 23.78, -0.33, -1.37%) , Troy said.
In general the Canadian insurers have been less impacted by the weak financial markets and are keen to expand because Canadian markets are largely saturated, he added.
Eastern Europe attractive
In the case of ING, around 60% of the assets should be easy to sell -- mostly those in Latin America, Eastern Europe and Asia, said Royal Bank of Scotland analyst Thomas Nagtegaal in a note to clients.
The Dutch business could by the hardest to offload and Nagtegaal suggested it could eventually be spun off in an initial public offering.
Oppenheim Research analyst Stephan Kalb said, however that the likes of France's Axa /quotes/comstock/24s!e:cs (FR:CS 16.80, +0.07, +0.42%) and Germany's Allianz /quotes/comstock/11e!falv (DE:ALV 79.15, -0.40, -0.50%) could be interested in the Dutch business in the longer term as they might be able to generate cost savings given their strong presence in neighboring countries.
Deutsche Bank analyst Spencer Horgan said Axa and Allianz, along with Italy's Generali /quotes/comstock/23g!g (IT:G 17.42, +0.13, +0.75%) and Vienna Insurance Group /quotes/comstock/11i!vnrgf (VNRGF 63.25, +14.60, +30.02%) of Austria could all also be interested in operations in Central and Eastern Europe where there are promising long-term growth prospects.
There could be even broader interest in the Asian assets, which Horgan said "would very likely be appealing to a wide range of buyers, we think, from across the globe."
Among the highlights in Asia is ING's business in South Korea, where it is a top-five life insurer and the largest foreign player.
Firms that have expressed an interest in ING assets include Aviva /quotes/comstock/23s!a:av. (UK:AV. 395.70, -4.60, -1.15%) and Delta Lloyd /quotes/comstock/23r!dl (NL:DL 15.90, +0.12, +0.76%) , which began trading on the Amsterdam market on Tuesday following its initial public offering.
Delta Lloyd's CEO Niek Hoek told an analyst meeting Thursday that it would consider buying the assets of both ING and ASR Verzekeringen, the now state-owned Dutch insurance arm of Fortis, Dow Jones Newswires reported.
AIG has already made several sales in Asia, including an asset management business to Pacific Century Group and a Taiwan life insurance business to a group including Hong Kong's Primus Financial Holdings.
Aite Group's Troy said he also wouldn't be surprise to see Australia's Macquarie Group /quotes/comstock/22x!e:mqg (AU:MQG 47.65, -0.44, -0.91%) involved in some insurance deals. Macquarie in August agreed to buy an asset management business from Lincoln Financial Group /quotes/comstock/13*!lnc/quotes/nls/lnc (LNC 22.92, -0.38, -1.63%) for $428 million.
Other assets that will eventually come on the market include Royal Bank of Scotland's insurance operations, which include the dominant Churchill and Direct Line car insurance brands, after the European Commission demanded their sale.
RBS, however, has four years to complete the disposals and CEO Stephen Hester said the most attractive option currently is to spin the business off in an IPO towards the end of that period.
The likelihood of sales at Belgium's KBC is also unclear. Aite Group's Troy said the forced split of ING could be mirrored at KBC.
But analysts at Keefe, Bruyette & Woods said markets had overreacted to the ING breakup. Analyst Jean Pierre Lambert said KBC won't face a capital shortfall by 2012 and therefore shouldn't have to sell its insurance operations or raise more equity.
LONDON (MarketWatch) -- A major shake-up is underway in the insurance industry, with key assets coming on the market across the globe as the fallout from the financial crisis continues.
Insurers in emerging markets such as Eastern Europe and Asia will likely be the easiest to sell, while the U.S. could prove the toughest market to attract buyers due to a lack of local players in a position to bid, analysts said.
American International Group /quotes/comstock/13*!aig/quotes/nls/aig (AIG 39.23, +3.03, +8.37%) has already begun selling its operations as it struggles to repay a $120 billion government bailout, and in Europe others are following suit.
ING Group /quotes/comstock/24s!e:inga (NL:INGA 9.65, +0.47, +5.12%) /quotes/comstock/13*!ing/quotes/nls/ing (ING 14.38, +1.03, +7.72%) , citing pressure from the European Commission's antitrust enforcers, said earlier this month that it will break itself up and sell, or spin off its insurance businesses in order to repay state aid. See archived story.
Belgium's KBC Group /quotes/comstock/24s!e:kbc (BE:KBC 29.55, +0.12, +0.39%) may be forced down a similar path, according to some analysts, and Royal Bank of Scotland /quotes/comstock/23s!a:rbs (UK:RBS 35.21, -1.26, -3.45%) /quotes/comstock/13*!rbs/quotes/nls/rbs (RBS 11.82, -0.06, -0.50%) said Tuesday that it will sell its insurance business following a decision by European regulators. See RBS story.
Buffett potential buyer
"ING's separation of banking and insurance adds another insurance asset to the market," said Clark Troy, a Raleigh, N.C.-based analyst at Aite Group, a consulting group.
"Combined with AIG's need to divest itself of businesses to generate capital, and other insurance players that have been weakened by offering the wrong product mixes, means that sharp-eyed participants in the insurance market should be able to find value," he added.
Troy said he wouldn't be surprise to see Warren Buffett's Berkshire Hathaway /quotes/comstock/13*!brk.a/quotes/nls/brk.a (BRK.A 101,710, +180.00, +0.18%) /quotes/comstock/13*!brk.b/quotes/nls/brk.b (BRK.B 3,391, +10.00, +0.30%) make a major insurance acquisition in the next year or two.
Berkshire Hathaway owns several major insurance and reinsurance companies, including Geico and General Re. It also bought the NRG reinsurance business of ING in 2007.
Insurance stocks have had a rough ride in the crisis, with the Dow Jones Stoxx 600 insurance sector down over 42% over the last two years, compared to a 37% drop for the Stoxx 600.
However, the reasons behind the asset sales generally aren't related to the underlying performance of traditional insurance operations. In the case of ING and RBS it is losses in the banking side of the business which meant the firms needed state aid and now need to sell assets to generate cash.
In the case of AIG it was the massive risks taken on by its U.K.-based derivatives unit that led to its downfall.
Troy said there are few U.S. insurers that would be strong enough to make significant acquisitions, though one exception could be MetLife Inc. /quotes/comstock/13*!met/quotes/nls/met (MET 33.69, +0.25, +0.75%) , which has reportedly already offered over $11 billion for AIG unit American Life Insurance earlier this year.
If U.S. firms aren't interested, there could be one or two Canadian groups in better shape, such as Sun Life Financial Inc. /quotes/comstock/11t!slf (CA:SLF 28.16, -1.96, -6.51%) /quotes/comstock/13*!slf/quotes/nls/slf (SLF 26.26, -1.92, -6.81%) or Great-West Lifeco Inc. /quotes/comstock/11t!gwo (CA:GWO 23.78, -0.33, -1.37%) , Troy said.
In general the Canadian insurers have been less impacted by the weak financial markets and are keen to expand because Canadian markets are largely saturated, he added.
Eastern Europe attractive
In the case of ING, around 60% of the assets should be easy to sell -- mostly those in Latin America, Eastern Europe and Asia, said Royal Bank of Scotland analyst Thomas Nagtegaal in a note to clients.
The Dutch business could by the hardest to offload and Nagtegaal suggested it could eventually be spun off in an initial public offering.
Oppenheim Research analyst Stephan Kalb said, however that the likes of France's Axa /quotes/comstock/24s!e:cs (FR:CS 16.80, +0.07, +0.42%) and Germany's Allianz /quotes/comstock/11e!falv (DE:ALV 79.15, -0.40, -0.50%) could be interested in the Dutch business in the longer term as they might be able to generate cost savings given their strong presence in neighboring countries.
Deutsche Bank analyst Spencer Horgan said Axa and Allianz, along with Italy's Generali /quotes/comstock/23g!g (IT:G 17.42, +0.13, +0.75%) and Vienna Insurance Group /quotes/comstock/11i!vnrgf (VNRGF 63.25, +14.60, +30.02%) of Austria could all also be interested in operations in Central and Eastern Europe where there are promising long-term growth prospects.
There could be even broader interest in the Asian assets, which Horgan said "would very likely be appealing to a wide range of buyers, we think, from across the globe."
Among the highlights in Asia is ING's business in South Korea, where it is a top-five life insurer and the largest foreign player.
Firms that have expressed an interest in ING assets include Aviva /quotes/comstock/23s!a:av. (UK:AV. 395.70, -4.60, -1.15%) and Delta Lloyd /quotes/comstock/23r!dl (NL:DL 15.90, +0.12, +0.76%) , which began trading on the Amsterdam market on Tuesday following its initial public offering.
Delta Lloyd's CEO Niek Hoek told an analyst meeting Thursday that it would consider buying the assets of both ING and ASR Verzekeringen, the now state-owned Dutch insurance arm of Fortis, Dow Jones Newswires reported.
AIG has already made several sales in Asia, including an asset management business to Pacific Century Group and a Taiwan life insurance business to a group including Hong Kong's Primus Financial Holdings.
Aite Group's Troy said he also wouldn't be surprise to see Australia's Macquarie Group /quotes/comstock/22x!e:mqg (AU:MQG 47.65, -0.44, -0.91%) involved in some insurance deals. Macquarie in August agreed to buy an asset management business from Lincoln Financial Group /quotes/comstock/13*!lnc/quotes/nls/lnc (LNC 22.92, -0.38, -1.63%) for $428 million.
Other assets that will eventually come on the market include Royal Bank of Scotland's insurance operations, which include the dominant Churchill and Direct Line car insurance brands, after the European Commission demanded their sale.
RBS, however, has four years to complete the disposals and CEO Stephen Hester said the most attractive option currently is to spin the business off in an IPO towards the end of that period.
The likelihood of sales at Belgium's KBC is also unclear. Aite Group's Troy said the forced split of ING could be mirrored at KBC.
But analysts at Keefe, Bruyette & Woods said markets had overreacted to the ING breakup. Analyst Jean Pierre Lambert said KBC won't face a capital shortfall by 2012 and therefore shouldn't have to sell its insurance operations or raise more equity.
