There is not much room left in Canada to grow, say the largest Canadian life insurance companies, and so they are expanding beyond our borders. International operations already account for the majority of revenues for some insurers; a trend likely to continue as global markets open even further.

Sun Life Financial, for example, operates in the United States, the United Kingdom, Hong Kong, the Philippines, Japan, Indonesia, India, China, and Bermuda. By second quarter 2002, it conducted 42% of its business domestically, 43% in the U.S., 14% in the United Kingdom, and 1% in Asia.

Sun Life’s recent purchase of Clarica made it the market leader for individual life and annuities, group benefits, and group retirement services. Sun Life is also now the fifth largest financial institution by capitalization. Only Royal Bank, TD Bank, Scotia Bank, and the Bank of Montreal are bigger.

According to James Prieur, President and Chief Operations Officer at Sun Life, in an interview with The Insurance Journal, the company’s new situation leaves little room for growth. “Essentially, with the kind of market share that we have, in the longer term we can probably only grow at the rate that the market grows.”

On the other hand, Mr. Prieur is keen on the view beyond the border. “When you look outside of Canada the opportunities are just immense. In the United States the normal rule of thumb is that the market is ten times as big, but in financial services it is 20 times as big as the Canadian market because there are more wealthy Americans.”

Life insurance premium sales in the U.S. grew 2.4% from US$119.9 billion in 2000 to US$122.8 billion in 2001. From 1997 to 2001, the total market value grew 13.5%.

“The mix of business Sun Life has got makes us a pretty strong competitor. We are so diversified by geography and product that we can weather pretty much any kind of storm.”

Mr. Prieur adds, in the U.S., “we are aiming to be a top ten player in every market that we are in.”

Sun life’s growth rate is much higher in the U.S. than it is in Canada because it is focused on a couple of pieces of the market, continues Mr. Prieur. In life insurance, it is focused on the top end of the market, the very affluent, and that market is growing much faster than the broad market for insurance generally.

“The broad market in the U.S. has a growth rate with a fairly low single digit, but the affluent market is growing much faster. Then, the annuity business had been growing at a much faster pace, 20% per year for a long period of time, and now we’ve gone into a downturn,” says Mr. Prieur. “In group insurance we are focused on mid-sized corporations. That’s a market that has been growing pretty quickly so our sales growth there has been about 15% compounded for about ten years. We see that as being able to continue.”

Mr. Prieur is even more enthusiastic by Asia, calling it the greatest growth opportunity in life insurance today. He lists China and India particularly as the hottest emerging markets. While each comes with their share of regulatory or cultural challenges, potential benefits far outweigh costs.

India requires partnership with a domestic insurer, which Sun has with the Aditya V. Birla Group. Mr. Prieur forecasts insurance sales there will match those in Canada by end 2003 or latest 2004.

With an Indian population of about one billion, and the 300 million or so middle class are a major target for insurers. About 70 million of the total are insured, but until 2000 only two state-led insurers were in the market, so sales lagged.

In addition, the average annual premium growth in India generally doubles a global average of 3%-4%. The average premium value of coverage sought per individual is about US$5 for life insurance, compared to US$14 in Mexico, US$18 in Brazil, US$1,079 in the U.S., and US$3,236 in Japan.

In China, in the meantime, regulations confine foreign insurers to one city. “But if you look at the greater metropolitan area of Tianjin, which is the city that we are in, that comprises 15 million people,” Mr. Prieur hastens to point out. “That’s half the population of Canada in one mid-sized Chinese city. The numbers in Asia are immense. We won’t be making significant amounts of net income in Asia for five to seven years, but boy are we going to have a significant amount of growth!”

China’s insurance sector has had 10% to 15% revenue growth for several consecutive years, and is forecast by the China Insurance Regulatory Commission, an insurance watchdog, to attain a total value of insurance premiums of US$33.82 billion by 2005.

Accounting for less than 2% of the gross domestic product, compared with 11% for Japan and 8% for the U.S., insurance is still relatively small in China, according to news portal China Daily November 23, 2001. In 2000, life insurance accounted for 62.5% of total insurance revenues.

Continued growth

The Bank of China predicts the overall insurance market will soar from US$19.5 billion for 2000 sales, under 1% the $2.4 trillion global market, to US$120 billion within the decade. By 2010 foreign insurers, now with 1.85% share of the life market, could hold 25%, and up to 50% by 2020, according to the forecast.

So far, Sun Life makes money everywhere except its new markets in China and India. That is expected, says the company’s president, citing seven to eight years as rule of thumb for attaining profitability in new markets.

Even in the United Kingdom, where insurers had invested heavily in poorly performing markets, Sun Life is turning a profit. Rationalization, cost savings, and refusal of new business there allow Sun to survive, if not thrive, though a withdrawal from the market is underway nonetheless, with no new business being taken.

Profits from the Philippines alone sustain the company’s Asian operations, says Mr. Prieur.

The company has 20% of the market there, having been in business since 1895 and being second only to AIG.

Manulife Financial

Another Canadian insurer in the Philippines is Manulife Financial. Established there since 1901, the recent purchase of the life insurance and pension and education operations of CMG Philippines from Commonwealth Bank of Australia increased its share to 6.6% by total 2000 life insurance premiums, bringing it to fourth in that market.

Manulife operates over three continents, with second quarter 2002 results showing 35% of operations in Canada when reinsurance activities are excluded. It obtains 42% and 23% of its business from the U.S. and Asia respectively.

Vic Apps, Executive Vice-President for the insurer’s Asian operations, affirms the Canadian market is saturated. “The Canadian market is a market where the game is all about market share.”

Sixth largest Canadian financial institution and seventh largest North American life insurer by market capitalization, Manulife is third by premium in individual life and group insurance, and second in individual annuities in Canada.

Beyond the border its perspective is different, says Mr. Apps. Market share is not as important in places like the US, where the largest players only hold about 5% of the market. There the game is about choosing growth areas and exploiting them.

Mr. Prieur has the same to say of Asia. “When you are in Asia everyone’s concern is that the pie gets bigger. The markets are just increasing at a huge rate.”

He says that if the economy is not well developed, insurers start with a plain endowment policy and then as the market gets more sophisticated, they offer variable or universal life. “Then eventually you end up with the development of capital markets and mutual funds. There is a natural progression of products as though economies get more sophisticated,” explains Mr. Prieur.

“We want to be a leader in the market so we were the first company to introduce universal life in India. We are also introducing a similar product in the Tianjing market,” he states.

Mr. Apps agrees with Mr. Prieur that Asia is the next big market. Manulife has long-standing operations in Asia, with business in Hong Kong, Indonesia, Japan, Philippines, China, Singapore, Taiwan, and Vietnam.

In China, Manulife outshines Sun Life, having recently trail-blazed as foreigner by being granted license to operate in a second city, Guangzhou. It partnered with chemical company Sinochem Group five years ago in Shanghai, and Mr. Apps predicts the company will break even for the first time this year, ahead of the seven year rule of thumb for profitability in new markets.

Mr. Apps foresees massive opportunities in China. In its first year of business Manulife-Sinochem brought in $1.1 million in premiums. Two years later, premiums had risen to $15.4 million. That is 4% of the insurance market in a city of more than 16 million.

“This will be big business over the next 10 to 20 years. We’re breaking even in Shanghai with 2000 agents – now multiply that by dozens of cities.” Other foreigners will enter the market, but that is not a concern given the size of the market. “What’s important is our ability to manage growth,” he says.

Mr. Apps sees Manulife being in 12 to 15 cities within 10 years, and notes that is not as conservative as it may sound. “It’s not like starting a branch in Saskatoon, where if you do a good job, you have 50 agents in five years. We’re talking 10,000, or 15,000 or maybe 20,000 people working for Manulife.”

Of course, developing markets and economies are not without quirks. In one weird twist, Manulife Indonesia was declared bankrupt by a corrupt judge with the Jakarta Commercial Court. This despite the fact that Manulife has over 10% of the country’s life insurance market, is the largest foreign insurance company, and is the most profitable insurer in Indonesia. The ruling was overturned, but it speaks volumes on the cultural adjustments encountered when operating globally.

Then, when Manulife moved into Japan it did so by buying a distressed book of business. The result is a long road to target earnings, for which the company has set at the target of a quarterly $30 million. Though it had anticipated losing about half its acquired 1.5 million policies through normal attrition over two years, real trends have been still harder. In addition, the company reports that its Japanese operational costs are 10% to 15% higher than the industry average.

Undeterred, Manulife will launch its first variable annuity products in January, its first investment-based product since it entered the country.

Dual challenges are market maturity and a lack of sophistication. Over 90% of Japanese individuals have already purchased life insurance or pension related products, but “in terms of sophistication of product and value they’re decades behind North America,” noted CEO Dominic D’Alessandro in a report by the Financial Post on Oct. 9, 2002.

For 2001, Asia excluding Japan accounted for 17% of Manulife’s US$1.159 billion profit, but it all came from Hong Kong, where people typically make eight times more than in Shanghai. Even with less than seven million people, Hong Kong brought in US$202 million in profit, while Shanghai, Taiwan, Vietnam, Indonesia, Singapore, and the Philippines reaped the insurer a total loss of US$5 million.

Canada Life

Canada Life is also in Hong Kong, as well as the United States, Ireland, the United Kingdom, Brazil, Germany, and the Caribbean. For its part, its focus outside Canada is on the U.K. and the U.S., while its Hong Kong activities are close to nil.

It recently bought the group life and long-term disability business of Royal & SunAlliance Insurance Group in the U.K. That made Canada Life U.K. market leader for group life, second largest group income protection (disability) provider and first among all group life insurers.

The acquisition might be viewed as contrarian when many are fleeing the area. Domestic insurers in the U.K., with large proportions of capital tied to equity, have fared badly along with the markets. Even foreign insurers, with much lower equity exposures, have been hurting. Sun Life, for example, is winding down its business there, citing poor opportunities.

Bill Acton, President and Chief Operating Officer at Canada Life, says it is a question of focus. Some segments are faring badly, but others are big opportunities. Areas like group pensions and some annuities, with relatively low regulatory requirements, allow the insurer to get reasonable spreads without needing to take big risks.

Canada Life’s share of the U.K. market for group disability insurance more than tripled to 21.5%, from 6.6% with its recent acquisition. The company had roughly 40% of its business in Canada before the acquisition. It’s combined business in the U.K. and Ireland now accounts for about 36% of the business proportion.

The U.K. life insurance market grew 5.6% from 2000 to 2001. It is the largest in Europe, but it is not the sole focus for Canada Life, which is also developing its German market rapidly. After just two and a half years there, it is already turning a profit, despite the common view that Germany is a somewhat staid and mature market.

In fact, its German operations have been rewarding enough that it continues to seek expansion in that market. As recently as November of this year it announced another acquisition, the purchase of the Irish based German life operations of Prudential UK plc for $205 million. A related press release said the buy brought the company to the lead position in the critical illness market.

Domestically, Canada Life is the tenth largest financial institution by market capitalization. “We would profile ourselves as being a top five player in all of our markets,” says Brian Lynch, Investor Relations Vice-President. He admits that is not always the case, but it is the aim.

Mr. Acton says size is not always a big deal. Economic up – or down – turns do not matter so much when your share of a market is limited. When you are exploiting more specific markets, and are small enough, “there is always someone with money.”

The company will focus on organic growth foremost in the near future, but Mr. Acton will not rule out further acquisitions, in any market it operates in. Open to the concept of operations in China, the company is not ready to take on the regulatory challenges faced there, India, or in Mexico, for example.

Domestically the insurer will seek growth by returning to recently overlooked lines such as mutual and segregated funds, says Mr. Acton. Abroad, it is poised to exploit opportunities as they arise.

Great-West Life

Great-West Life is the fourth biggest Canadian insurer, but its international activities are more limited and segregated. As member of the Power Financial group of companies, it separates its insurance lines into Great-West Life Assurance in Canada and Great-West Life & Annuity Insurance Company in the U.S.

Before the market downturn, U.S. activities accounted for 60% of the company’s business. Since, the proportion has fallen to 50% or so. The company would not provide commentary on its international affairs, noting a distinct corporate structure for its two North American businesses.

Industrial-Alliance Life

Industrial-Alliance Life, the eleventh biggest Canadian financial institution by market capitalization as at September 2002, rounds out the top five largest life insurers in Canada. It also has a share of its business abroad, with a small portion of life and health insurance lines extending into western U.S.

The bottom line? As markets develop and insurance takes off globally, the proportion of their business in Canada will shrink dramatically.

Mr. Prieur is quick to illustrate that the process has already begun, saying, “The surprising thing about Asia is how fast it is developing. When you are sitting in downtown Shanghai, and you look up, from certain angles you could be sitting in downtown Manhattan, except that the buildings on average are newer. The development is really quite astonishing. You are talking about markets that are developing very, very rapidly. It is an exciting place to be!”