The 15-year bancassurance agreement between Manulife Financial Corp. (MFC; 00945.HK) and Singapore’s DBS Bank Ltd. is credit negative, Moody’s Investors Service said.
Manulife’s Asian expansion is dilutive to its core strength, the rating agency said in a statement Monday.
“Its strong market presence is in its home market of Canada. MFC’s home market is highly concentrated and provides scale, recurring earnings power and considerable pricing power,” it said.
“An increase in MFC’s international operations will weaken MFC’s credit profile because of MFC’s weaker market presence internationally and the more volatile operating environments of international operations.”
The Toronto-based insurer will pay DBS US$1.2 billion over 15 years for the right to sell its products through the bank’s Asian network.
The deal is likely to lower the insurer’s capital adequacy ratio by 10 basis points (0.1 percentage point) this year, Moody’s said.
Starting Jan. 1 next year, the agreement will allow Manulife to sell life insurance and health insurance through the bank’s branches in Singapore, Hong Kong, mainland China and Indonesia.
The insurer will have access in the four markets to more than 2,000 sales staff, 200 branches and six million clients from the bank’s retail, wealth management and small and medium-sized enterprise banking businesses, a joint statement from Manulife and DBS said.
Many Asian countries have a low penetration of life insurance and favorable demographic trends, including a large emerging middle class.
The lack of state welfare schemes in these countries is seen as a key driver behind the potential growth of demand for insurance and savings products.
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