American insurance company Chubb has acquired the life and health businesses of Cigna in seven Asia-Pacific markets for $5.7 billion in cash. This move validates Prudential’s (PRU) increasing focus on the appealing dynamics in the Asian insurance market.

Penetration rates of savings, protection and health products are low in Asia, with China below 10% and India, Indonesia, Philippines and Thailand sub 5% in terms of premiums to GDP.

While there is meaningful population growth in these countries (excluding China), there’s also a sizable aging population that isn’t adequately covered, and there’s growing interest among the middle-class to buy products for their retirement and to shore up their parents’ situation.

Prudential has a leading position in fast-growing and increasingly affluent Asian markets, where it focuses on savings, health and protection.

Asian life insurance continues to grow strongly, and Prudential’s agency distribution network seems well placed to capitalise on strong medium-term trends to higher insurance penetration.

UBS analyst Colm Kelly recently argued that ‘Prudential’s Asia business is intrinsically undervalued to the tune of 40%’. Chubb’s acquisition of Cigna assets may act as a catalyst to close this valuation gap as more investors look at the opportunities on offer.

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