AS the financial services industry stumbles from one disaster to the next, one slice of the sector -- life insurance -- is growing like topsy as Australians increasingly look to protect their income and lifestyle.
The way the industry sees it, the sector will hit its straps over the next decade as the population gets older and the economic downturn triggers a new-found conservatism in younger people taking out life insurance to protect their assets.
The sector grabbed attention on August 8 when Japanese life insurance giant Dai-ichi offered the only listed life insurer, Tower, a 34 per cent premium to the then share price to replace Sir Ron Brierley's Guinness Peat Group as the cornerstone investor with a 30 per cent stake. Dai-ichi paid $3.75 a share for the stake. The stock is currently trading at $2.12.
This interest in life insurance has prompted speculation that the banks, in need of capital to restore their balance sheets, will either sell or joint-venture their life insurance businesses, which are worth between $1 billion and $1.5 billion each.
The biggest life insurer is Commonwealth Bank, which has a 14.7 per cent market share, followed by National Australia Bank with 12.9 per cent and ING with 12.5 per cent.
As one investment banker said: "The big life insurance players in Australia are inside the big banks.
"In this environment, it doesn't matter how well the life insurance side of their business is doing.
"It is being dwarfed by the other negatives dominating the banks: exposures to collateralised debt obligations, a blowout in bad and doubtful debts, falling equity markets hurting their funds management businesses and a rising cost of debt."
Tower, which is the fourth-biggest life insurer with an 11 per cent market share, would no doubt be keen to take part in any consolidation, particularly given the deep pockets of its new shareholder Dai-ichi, which has consistently said it wants to increase its exposure to the Austalian market.
It is not hard to see why: according to financial services research house DEXX&R, the life insurance sector has been growing at least 12 per cent a year for the past few years and by 2017 it will treble to $6 billion.
In an exclusive interview with The Australian, Tower Australia boss Jim Minto said he was keen to expand Tower. He said it had a clean balance sheet and was looking for opportunities.
To this end, it recently forked out $136 million to acquire the 85 per cent of life insurance distributor InsuranceLine it did not already own.
"We have a simple business model and while global financial markets are sorting out a mess that will take years to unravel, I believe life insurance will do well," he said.
"When you are in a bull market people don't think things will go wrong for them. That has changed suddenly and now people are ... saying 'I can't afford life insurance but I have to have it'," Mr Minto said.
Besides a desire to reduce risk, other factors are making life insurance attractive. They include an ageing population, a conservative breed of young people taking out life insurance to protect their assets, and financial planners routinely offering life insurance inside super funds. It's not just financial planners feeling the need to flog something other than investment products.
As its name suggests, life insurance involves protecting your dependents against an untimely death. But these days it's just as likely to be about protecting your income against illness or other misfortunes.
Life insurance products have gained popularity among financial planners because investors have been deterred from putting their money into other wealth products closely linked to sharemarket returns.E.L. & C. Baillieu analyst Stewart Oldfield said: "Life insurance has ditched its image of being an ex-growth product sold only by an ageing and compromised planner force to one where it has a legitimate long-term place alongside superannuation as a wealth-protection tool."
But things weren't always this easy for Mr Minto.
Like the banks, Mr Minto knows a lot about monster debt and the types of financial instruments that are currently wreaking havoc on the global credit markets.
He got his first taste of it the day he was appointed chief executive of Tower Australia back in November 2002.
"I took the job with a day's notice and had to announce a massive loss of $100 million and cut the cost base by one-third," he said.
"It was a dire situation and everybody was panicking about our survivability." At the time, Tower Australia -- then part of the New Zealand Tower Group -- had a $30 million collateralised debt obligation that needed to be thrown in the dumpster.
Serendipitously, this experience repelled Tower from further investment in these instruments.
Tower also had a number of disparate and non-performing businesses, had just posted a multi-million loss and was under the stern gaze of the insurance regulator.
"It got down to a confidence issue.
"I couldn't afford to lose my nerve.
"The regulator was investigating the company, the banks had a big team inside crawling all over us to make sure we would survive, morale in the company was really low and I had to tell staff on December 15, 10 days before Christmas, that we were making 100 people redundant straight away."
Six years on, New Zealand-born Mr Minto has turned the company from a financial basket case into the country's only pure listed life insurance company, boasting one of the best-performing share prices of the financial services sector in the past year, record profits, fat profit margins, a spectacular industry growth outlook over the next decade, and a brand new strategic partner.
Mr Minto's handling of the odious task speaks volumes about the 57-year-old Kiwi's firm but affable management style.
He invited the sacked staff to the company Christmas party to reassure them it wasn't their fault but the fault of management.
The decision was controversial and caused mayhem. "But I said to everyone, we are all in this together, the people staying are lucky and the ones that are going are going because management did stuff that was wrong.
"It ended up being a positive occasion.
"I did it because I wanted to send a message to everyone that people are important and it wasn't their fault. They were getting smashed on TV, in the newspapers and I needed to get the team believing in itself quickly.
"It was a healing day and it brought the company together."
But the straight-talking Mr Minto said it was not easy restoring Tower to its current financial position, least of all convincing the investment community that the best move for Tower was to sell most of its businesses and concentrate on life insurance. "Most analysts and fund managers thought it was a joke," he said.
"I remember one saying to me 'life insurance? You have to be joking'. At that stage there were high interest rates and high unemployment, so income protection claims had been high, and most people thought the industry was unattractive."
Mr Minto is so passionate about life insurance that some of his favourite hobbies -- sailing, home renovating, exploring Australia and golf -- have fallen by the wayside.
Plenty of challenges and opportunities remain -- none more so than taking advantage of the vulnerable position of key local rival AIG, whose parent was recently rescued by the US Federal Reserve. "We want to be the market leader in future thinking and trends in life insurance," Mr Minto said.
From "The Australian, Business with the Wall Street Journal"