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Saturday, January 09, 2010

UOB selling life assurance unit to focus on core banking business

United Overseas Bank (UOB) having sold off its non-core life assurance arm to UK's insurer, Prudential, UOB is set to yield a one-time gain of $85 million. Looking at UOB's current share price of over $19.92 and many brokerage houses targeting it to be around $23, is there really room for growth? To fork out almost $20,000 for UOB is a huge sum of money for me and so, better not.

The deal between UOB and Prudential is a sound one. Instead of succumbing to competitive pressures from larger life insurers, the group's alliance with Prudential in Asia offers new growth opportunities for its bancassurance business. UOB’s life insurance business was "sub-scale", making small losses in accounting terms, and needed to be either sold off or have more investment ploughed in to make it work. It is reported that the deal between UOB and Prudential is a 12-year one, allowing the former to distribute latter’s products in three Southeast Asian markets for initial 12 years.

Prudential having bought over UOB's life assurance unit, all existing UOB's policies will be under the custody of Prudential. As part of Monetary Authority of Singapore (MAS)'s guideline, all life insurers must have at least a minimum Capital Adequacy Ratio (CAR) of 120% to be considered "healthy". I believe this CAR will be abide even after the acquisition.

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