With insurance premiums in China rising a whopping 24 per cent in the first nine months of this year, according to Bloomberg, it is little wonder that Chinese insurers are now turning their sights on western counterparts.
And as we well and truly know by now, when the Chinese do something, they don’t do it by halves. On Thursday alone came the news that Ping An Insurance, China’s second-largest insurer, has bought a 4.2 per cent stake in Belgo-Dutch financial group Fortis for $2.7bn, on top of the FT’s report that China Life Insurance – the country’s biggest insurer — is in talks with several potential acquisition targets.
Having bought chunks of western banks, private equity companies and other big firms, Chinese financial services companies such as Ping An are not only seeking diversification and returns, they are also aiming to develop one-stop, financial supermarket-style businesses, notes Bloomberg, targeting securities, asset management, banking — and of course, insurance. Beyond that, China Life already has a wide array of investments including stakes in ports, power producers, airports and other state-controlled sectors in which it has been directed to invest.
Beijing has been encouraging its giant state-owned banks to expand beyond the country’s borders by buying stakes in established financial institutions, notes the FT. It has also established a $200bn sovereign wealth fund. But it has yet to allow its insurance giants to expand abroad.
Ping An’s acquisition of a Fortis stake is the largest overseas acquisition by a Chinese insurance company, and follows the insurer’s recent $154m purchase of 9 percent of Hong Kong fund manager Value Partners, according to Reuters
China Life plans to buy a strategic stake in a large insurance company in Europe or North America, Yang Chao, chairman of China Life and its Hong Kong, New York and Shanghai-listed subsidiary, said on Wednesday.
“We are just talking for now, nothing has yet been approved [by the government],” said Yang, adding that Beijing supports large state-owned insurers investing in overseas assets.
The company seen as most likely to attract attention from Chinese insurers, according to the FT, is Prudential, the UK’s second-largest life assurer, which has built a powerful position in China and across the broader Asian region.
The UK’s Aviva, which is building up its business in Asia, would also offer a Chinese investor access to the UK, continental Europe and the US. Other potential targets include Axa and ING.
From the viewpoint of international insurers, selling strategic stakes to Chinese insurers would establish a long-term partnership and give them access to the booming Chinese market.
Mr Yang declined to name potential targets but said the western credit crisis presented a buying opportunity for his company because it had made financial institutions relatively cheap.
In contrast, even after a 20 per cent correction over the past month, Chinese listed companies, including China Life, are still trading at hefty premiums to their counterparts in more mature markets, notes the FT.
Andrew Moss, global chief executive of Aviva, told the FT in Beijing last week that “it makes absolute sense for companies like China Life or Ping An, given the market capitalisation they currently have, for them to be thinking about expanding further beyond their domestic market.”
One this is certain, as Anthony Muh, executive director at AllianceTrust Asset Management, which manages about $1bn in Asian equities, told Reuters: “We’re definitely going to see a lot more of that”.
For now, however, the deals are likely to be relatively low key as Chinese companies “have the money to invest, but they cannot be seen to play an influential role in acquisitions,” Mark Tan, a portfolio manager at UOB Asset Management in Singapore, which owns shares of Ping An and China Life, told Bloomberg. Ping An, for example, kept the purchase to below 5 per cent “as they’re sensitive to the political ramifications of taking too large a stake”, he added.