Metlife open for regional acquisition

Metlife, which recently acquired American Life Insurance Company (Alico) from American International Group, Inc. (AIG), expects to see double-digit growths and generate 5 per cent of its revenues from this region, its senior executive said.

In his visit to Dubai, William Mullaney, president of the US Business for MetLife says pior to the acquisition, 85 per cent of Metlife’s revenue and earnings came from the US and the balance from international business.

After the deal, completed in November 1, the company projects to get 40 per cent of its revenues and earnings outside the US, and expand its global footprint from 15 countries to over 60.

“We expect the Middle East to be one of the fastest growing regions in the world for Metlife. This is a new region for us,” Mullaney said. He said the US will still have the lion’s share of 60 per cent, Japan 20 per cent and the Middle East, Africa and South Asia around 5 per cent.

In what could be a sign of economic rebound, Alico has seen a double-digit growth in its premium base this year compared to last year’s, which witnessed pressures on premium fees and overall flat performance.

“We’ve seen a healthy increase and we have the foundation to sustain it. The level of insurance awareness is quite low in the region so this is a high growth area,” Michel Khalaf, regional president of Alico Middle East, Africa and South Asia, said.

In terms of acquisition, Mullaney said the company is not ruling out a possible deal in the region provided the transaction is strategically fit and price justifiable. “Our M&A department is open for business. We continue to believe there will be consolidation in the life insurance industry in the UAE, GCC, the US and all around the world so we continue to evaluate opportunities.”

In addition to lower insurance penetration, governments’ plans to make health insurance mandatory for employees could also beef up the volume of business. Abu Dhabi has already implemented this scheme while Dubai has put its plans on hold.

“There were plans to introduce this before the crisis but our understanding is that those plans were put temporarily on hold,” Khalaf said. “We continue monitor the situation. There may be opportunity for us but a lot of it will depend on the new regulation and legislation. Potentially it can present a big boost and hopefully we’ll have a chance to participate in some of these initiatives.”

Globally speaking, Mullaney is cautious that the low interest environment will fuel lower profitability and adversely affect the company’s earnings.

Insurers have been investing premiums in bonds that are yielding less than the bonds in their existing portfolios, leading to less investment income.
Insurers find it difficult to offset this by increasing premium fees because of the intense market competition.

“Economic recovery globally will continue to be slow so we don’t expect huge economic expansion,” he said. “Year 2011 will present some challenges for the insurance industry. Overall, we are anticipating a low interest rate environment, which has the potential to put pressure on some of our earnings. But we’ve anticipated these things and we’re in a good position to face this.”

In the region, the company plans to roll out new products and undertake a major rebranding marketing campaign.

Mullaney said the company will continue to use of the name Alico, until the Metlife brand catches up. “Based on the feedback from this region, we realised that Alico name is important so we’ll hold on to that brand as long as it makes sense.”