Schumpeter

Metamorphosis

Two Asian financial giants deserve to be betterknown

Print edition | Business

Sep 20th 2018

TOYOTA, Unilever, Barclays, Amazon, Tata. There are 71,000 listed firms in the world, but only a few hundred that many people know at least a little about. Schumpeter would like to propose two Asia-centric candidates: AIA and Prudential PLC. They pass the key tests of relevance. They are big, with a combined market value of $160bn. They are special, having grown profits faster than two-thirds of listed companies over the past decade. They have prospered against the odds, surviving wars, revolutionary Shanghai, decolonisation and the 2008 Wall Street crash. And they illustrate a global trend: the rise of Asia as a mighty force—perhaps eventually the dominant force—in global finance.

AIA and Pru are specialists in getting Asians to save through long-term insurance, typically life or health policies. They span 20 Asian countries, have over 60m customers and employ almost a million agents to sell their services. They are big investors in local financial markets. And they are beneficiaries of powerful trends. Asia’s middle class is growing but tends to have its savings stashed in cash. Welfare states do not yet offer an adequate safety net if family members get ill or die. An obvious answer to this is insurance, yet annual premiums are just 2.5% of GDP in emerging Asia, compared with 5% in western Europe.

stash

stash / stæʃ /
◙ verb [VN +adv. / prep.]
• (informal) to store sth in a safe or secret place
• 存放；贮藏；隐藏:
 »She has a fortune stashed away in various bank accounts.
  她有一大笔钱存在几个不同的银行账户下。

What is logical is not necessarily easy to achieve. Both firms have had to go on odysseys. AIA was founded in Shanghai in 1919 by an adventurer called Cornelius Vander Starr, and went on to be folded into AIG, a huge, rogue American financial conglomerate that got bailed out in 2008. AIA was spun out in 2010. Pru was founded in 1848 to serve the insurance needs of Britain’s middle class. Its annual report from three decades ago mentions Asia once. But in the 1990s it remembered that it had some operations in the region that were remnants of colonial times and sent out Mark Tucker, a young executive, to investigate. He ignited the business, later became boss of Pru and then AIA, and is now chairman of HSBC—one of several star executives to have been involved. Tidjane Thiam, boss of Credit Suisse, ran Pru in 2009-15.

odyssey

odys∙sey / ˈɔdəsi; NAmE ˈɑːd- /
◙ noun [sing.]
• (literary) a long journey full of experiences
• 艰苦的跋涉；漫长而充满风险的历程

【ORIGIN】From the Odyssey, a Greek poem that is said to have been written by Homer, about the adventures of Odysseus. After a battle in Troy Odysseus had to spend ten years travelling before he could return home.
• 源自希腊史诗《奥德赛》,相传为荷马所作,描述了奥德修斯在特洛伊战争后,辗转十年返回家园的种种经历。

spin out
• to make sth last as long as possible
• 拉长；拖长

remnant

rem∙nant / ˈremnənt /
◙ noun
1. [usually pl.] a part of sth that is left after the other parts have been used, removed, destroyed, etc.
• 残余部份；剩余部份
【SYN】 remains :
 »The woods are remnants of a huge forest which once covered the whole area.
  这片树林只是剩下的一部份,原来这一带是一大片森林。
2. a small piece of cloth that is left when the rest has been sold
• (织物的)零头,零料；布头 

Expanding life-insurance businesses is hard. You have to spend cash up front on marketing, agents and laying aside capital reserves. The profits are spread over decades: 67% of the undiscounted earnings from AIA’s book of policies will be realised after 2038. In Asia each national market grows over time but in volatile fashion, shrinking on average one year in every three. Currencies gyrate. The industry is fragmented—there are at least 100 life firms across Asia. Someone is always starting a price war.

gyrate

gyr∙ate / dʒaiˈreit; NAmE ˈdʒaireit /
◙ verb
• to move around in circles; to make sth, especially a part of your body, move around
• 旋转；使(身体部位)旋转,转动:
▪ [V]
 »They began gyrating to the music.
  他们随着音乐的节奏旋转起来。
 »The leaves gyrated slowly to the ground.
  树叶旋转着慢慢飘落到地上。
▪ [VN]
 »As the lead singer gyrated his hips, the crowd screamed wildly.
  当主唱者扭摆臀部时,观众发狂似地尖叫起来。

Both firms have found ways to cope. They are geographically diversified. Each of India, Indonesia and Thailand have boomed since 2008, only to slow down. Between 2015 and 2017 Hong Kong took off as mainland Chinese flocked to sign up to policies in a location with rule of law, but it has since hit saturation point. Now parts of South-East Asia and mainland China are growing nicely again. The firms’ armies of agents are a barrier to entry that is hard to replicate, and both companies avoid writing policies that require markets to soar in order to be profitable.

flock

flock / flɔk; NAmE flɑːk /

◙ verb
• to go or gather together somewhere in large numbers
• 群集；聚集；蜂拥
▪ [V +adv. / prep.]
 »Thousands of people flocked to the beach this weekend.
  这个周末有好几千人蜂拥到了海滩。
 »Huge numbers of birds had flocked together by the lake.
  成群的鸟聚集在湖边。
▪ [V to inf]
 »People flocked to hear him speak.
  人们成群结队地去听他演讲。

saturation

sat∙ur∙ation / ˌsætʃəˈreiʃn /
◙ noun [U]
1. (often figurative) the state or process that happens when no more of sth can be accepted or added because there is already too much of it or too many of them
• 饱和；饱和状态:
 »a business beset by price wars and market saturation (= the fact that no new customers can be found)
  一家受价格战和市场饱和困扰的企业
 »saturation bombing of the city (= covering the whole city)
  对那座城市的全面性轰炸
 »There was saturation coverage (= so much that it was impossible to avoid it or add to it) of the event by the media.
  媒体对这一事件做了连篇累牍的报道。
2. (chemistry 化) the degree to which sth is absorbed in sth else, expressed as a percentage of the greatest possible
• 饱和度 

The result is that AIA and Pru’s Asian arm have increased their operating profits at a compound rate of 13% and 18% respectively, in dollar terms, since 2007. Two decades ago Asia represented 5% of Pru’s market value; now it is about 50%. AIA is worth twice as much as its former parent, AIG. The crumbs have become the biggest slice of the cake. For the global life industry Asian firms now represent 49% of total market value, up from 4% two decades ago.

crumb

crumb / krʌm /
◙ noun
1. a very small piece of food, especially of bread or cake, that has fallen off a larger piece
• 食物碎屑；(尤指)麪包屑,糕饼屑:
 »She stood up and brushed the crumbs from her sweater.
  她站起身掸掉了毛衣上的麪包屑。
2. a small piece or amount
• 一点；少许；少量:
 »a few crumbs of useful information
  点滴有用的消息
 »The government's only crumb of comfort is that their opponents are as confused as they are.
  政府唯一聊以自慰的是反对派与他们一样困惑不解。

China is a big part of the story. It has had fiascos, including Anbang, a deal machine and patronage vehicle masquerading as an insurance firm, that failed in February. But there are serious companies, too. Ping An is the most valuable life firm in the world and is admired for its use of data. China Life ranks third. AIA owns 100% of a mainland operation and Prudential has 50% of a joint venture with CITIC, a state-run conglomerate. These bets have achieved critical mass, delivering 18% of the new business written so far this year for AIA and 11% for Pru Asia. The two firms are set to join a tiny elite of multinational financial firms that derive a significant share of their global profits from mainland China.

fiasco

fi∙asco / fiˈæskəu; NAmE fiˈæskou /
◙ noun (pl. -os, NAmE also -oes)
• something that does not succeed, often in a way that causes embarrassment
• 惨败；可耻的失败；尴尬的结局
【SYN】 disaster :
 »What a fiasco!
  真是使人下不了台！

patronage

pat∙ron∙age / ˈpætrənidʒ; ˈpeit- /
◙ noun [U]
1. the support, especially financial, that is given to a person or an organization by a patron 
• 资助；赞助:
 »Patronage of the arts comes from businesses and private individuals.
  对艺术的资助来自企业和个人。
2. the system by which an important person gives help or a job to sb in return for their support
• (掌权者给予提挈以换取支持的)互惠互利
3. (especially NAmE) the support that a person gives a shop / store, restaurant, etc. by spending money there
• 惠顾；光顾 

masquerade

mas∙quer∙ade / ˌmæskəˈreid; BrE also ˌmɑːsk- /

◙ verb [V]
• ~ as sth to pretend to be sth that you are not
• 假扮；乔装；伪装:
 »commercial advertisers masquerading as private individuals
  乔装成普通百姓的商业广告商

One risk to them is technology. For now, customers still like dealing with a human (armed with an iPad) when signing complex policies. But startups accessing customers through their phones could make agents obsolete. Colm Kelly, an analyst at UBS, has surveyed 800 agents in Asia, and half of them think that digital distribution is a “big threat”. The management of AIA and Pru need to take this more seriously. Another danger is an economic crisis in Asia, spurred by trade wars or a sell-off in emerging markets. Insurers are inherently opaque. Still, in the 2008-09 downturn AIA and Pru Asia avoided big underwriting-and-investing banana skins, while new sales dipped only a little.

Deal or no deal

Instead the big test may be consolidation. China is easing its rules on foreign ownership, which will prompt a reshuffle among the long tail of 26 other foreign life firms that have a presence there. Ping An and China Life may seek to buy a presence abroad. Continental Europe’s two giants, AXA and Allianz, both say that they eschew big deals, but have spare cash, half an eye on Asia and 20-year records of empire-building through acquisitions.

eschew

es∙chew / isˈtʃuː /
◙ verb [VN]
• (formal) to deliberately avoid or keep away from sth
• (有意地)避开,回避,避免 

For AIA, the danger is that it overpays for small deals or faces a big new competitor. For Prudential the risk is it faces an opportunistic takeover bid. It is the smaller of the two, with a less mature book of business that throws off less cash. In 2019 it will spin off its British arm. The idea is to lose this baggage so that Pru gets a racier valuation, but the unintended effect may be to make it a sitting duck. Ping An has reportedly been sniffing around its Asian business. Pru’s board should resist any bid and stiffen its shareholders’ resolve. Both it and AIA belong at the forefront of a new generation of Asian financial multinationals.

♠ spin off

spin / spin /

◘ ˌspin 'off (from sth) ◘ | ˌspin sth∽'off (from sth)
• to happen or to produce sth as a new or unexpected result of sth that already exists
• 脱胎(于某事物)；(从某事物)派生,衍生；随之而产生:
 »products spinning off from favourite books
  从一些畅销书衍生出的产品
--› related noun spin-off 
◘ ˌspin sth∽'off (business 商) (especially NAmE)
• to form a new company from parts of an existing one
• 从…脱离出来(组建新公司):
 »The transportation operation will be spun off into a separate company.
  运输部门将脱离出来组建为一家独立公司。
◘ ˌspin sth∽'out
• to make sth last as long as possible
• 拉长；拖长