Asia insurance deals fell to 31 in the first half from 41 a year earlier.
HSBC Holdings Plc’s $2.1b sale of its Singapore life insurance business will free capital whilst allowing the bank to keep selling insurance, but analysts said the deal reflects portfolio simplification rather than a broader move by Asian banks away from insurance ownership.
“It’s case by case,” David Yin, senior vice-president at Moody’s Ratings, told Insurance Asia. “The insurance business is more complex and consumes capital. Meanwhile, it could also have synergy with traditional retail banking business and increase the stickiness of customers.”
HSBC agreed on 24 July to sell 100% of HSBC Life (Singapore) Pte. Ltd. to Allianz, with completion expected in the first half of 2027 subject to regulatory approval. HSBC will continue selling Allianz insurance products under a 15-year exclusive distribution agreement.
The transaction lets HSBC release capital tied to insurance underwriting whilst continuing to offer insurance products to wealth customers.
Under a distribution model, an insurer produces the policies and takes the insurance risk, whilst the bank sells them through its customer network and earns fees or commissions.
Yin said tighter capital requirements over the past decade have increased the amount insurers must hold against investment risk, market movements, and differences between assets and long-term policy obligations.
Those requirements could make insurance ownership less attractive when a bank could earn higher returns by deploying the same capital elsewhere, he pointed out.
Banks can retain insurance sales and fee income by partnering with specialist insurers or selling stakes in their insurance businesses without committing as much capital to underwriting, Yin said.
Moody’s Ratings said the HSBC transaction is credit positive because it supports the bank’s portfolio simplification and frees capital from its insurance manufacturing business whilst preserving insurance access for Singapore wealth customers.
The transaction is expected to generate a pre-tax gain of about $1.8b and add as much as 15 basis points to HSBC’s common equity Tier 1 capital ratio once the gain is transferred to the group, Moody’s said.
HSBC’s ratio was 14% at the end of March.
HSBC will also receive an initial $157.4m cash payment linked to the Allianz distribution agreement, which will be recognised over the agreement’s term, plus variable payments tied to performance.
“The release of tie-up capital and potential gains from the sale will improve a bank’s capital position,” Yin said in an emailed reply to questions.
“Apart from that, we need to assess the impact of the transaction on the bank’s franchise, ability to serve clients, and profitability to decide how it would affect the bank’s rating,” he said.
Insurance deals across Asia and Oceania fell to 31 in the first half from 41 a year earlier, whilst disclosed deal value dropped to $2.1b from $5b, according to an August analysis by Ernst & Young Solutions LLP.
Southeast Asia recorded nine insurance transactions, up from eight, but disclosed deal value fell to $123m from $478m, it said.
Kathy Chan, an equity analyst at Morningstar Asia Ltd., said HSBC’s sale is part of its “simplification strategy to focus on markets where it holds a clear competitive advantage instead of a strategic shift from manufacturing to distribution.”
“HSBC still mentioned its in-house insurance manufacturing contributes to the success of its wealth management business, particularly in Asia,” Chan said.
She cited Oversea-Chinese Banking Corporation Ltd., whose insurer Great Eastern Holdings Ltd. remains part of the group as OCBC expands its wealth management business.
For banks, the financial case for selling an insurer can instead be improving the return generated on their capital, Chan said.
“Manufacturing insurance often requires more regulatory capital as a safety buffer against future claims, which could dilute return on equity,” she said. “Selling it would often be return on equity accretive due to lower capital requirements.”