Aviva Pushes Into Asia in Venture With Indonesia’s Astra

Jan 17, 2014 12:45 pm ET

(Updates with shares at close in fifth paragraph.)

Jan. 17 (Bloomberg) -- Aviva Plc, Britain’s second-biggest insurer, formed a joint venture with Indonesia’s PT Astra International, competing with firms including Prudential Plc vying for business in South East Asia.

Astra Aviva Life will provide Aviva products to Astra, Indonesia’s largest publicly traded company, and its subsidiaries including PT Bank Permata, the London-based company said in a statement today. The deal, subject to regulatory approval, is scheduled to start later this year.

“Entering the Indonesian market is a sensible step,” Ashik Musaddi, an analyst at JPMorgan Chase & Co. in London, with an overweight rating on the stock, wrote in a note to clients. “It’s a highly profitable market and the products sold in Indonesia are less capital intensive.”

Aviva Chief Executive Officer Mark Wilson, who marked his one-year anniversary with the insurer this month, is targeting high-growth markets such as South East Asia as he rebuilds capital depleted by the financial crisis. The former CEO of AIA Group Ltd. appointed his former colleague Khor Hock Seng to run Aviva’s Asia business last year.

The stock rose 0.9 percent to 476.4 pence in London, extending its rally this year to 5.9 percent.

Prudential, has also been expanding in South East Asia’s largest economy, which CEO Tidjane Thiam has cited as one of the firm’s “sweet spot” markets. The U.K.’s largest insurer by market value increased its earnings in Indonesia to 260 million pounds ($428 million) in 2012 from 18 million pounds in 2005, according to Musaddi.

Wilson, 47, said today the deal underlined Aviva’s commitment to Asia, which contributed about 3.6 percent of operating profit in the first half of 2013. The New Zealander headed Hong Kong-based AIA when it was owned by American International Group Inc. before he was replaced by Mark Tucker in the lead up to its initial public offering in 2010.

“Given the CEO’s background, it shouldn’t come as a surprise that he is focusing on Asia to drive growth,” Eamonn Flanagan, an analyst at Shore Capital Group Ltd., said in a note with a sell rating on the stock. “Given the experience of Prudential in Indonesia, he has picked a strong market in which to launch this JV.”

--Editors: Jon Menon, Steve Bailey