Starr to Buy Major Stake in Dazhong Insurance
By Marius | Published June 08, 2011
Starr International, a Bermuda-based private insurance holding company, has acquired a 20 percent stake in the Chinese property insurer Dazhong Insurance Co Ltd.
This week, Starr was finally approved by the China Insurance Regulatory Commission (CIRC) to be a strategic equity investor in Dazhong Insurance and acquired an additional 286.5 million ordinary shares in the company. Neither Dazhong Insurance nor Starr disclosed any further financial details on the transaction.
The CIRC’s approval now enables Starr International, through its subsidiary division, Starr Insurance & Reinsurance, to hold a considerable equity position in Dazhong Insurance and become its single largest shareholder.
Maurice Greenberg, chairman and CEO of Starr International, remarked at the signing ceremony that China has been experiencing incredible growth, which in turn leads to an increasing demand for various insurance products and services.
Together, the companies will now look to leverage Starr International’s expertise in insurance product development and distribution to broaden Dazhong’s services and expand within China’s lucrative market.
“We recognize Dazhong as a company with great potential – one that is positioned to emerge as one of the most significant insurance organizations in the region,” Mr. Greenberg added.
Dazhong Insurance was established by 26 individual insurers in 1995, with a registered capital of CNY1.15 billion (US$177 million). The conglomerate provides property insurance and reinsurance in Shanghai and in the provinces of Anhui, Fujian, Jiangsu, Shandong, and Zhejiang. According to the CIRC, Dazhong Insurance had reported CNY463 million (US$71.3 million) in total original premium income for the first quarter of 2011.
The CIRC is also responsible for designating which localities foreign insurance players can operate in. This month, Chartis Insurance Company China, a wholly-owned subsidiary of Chartis, was granted approval to establish a Jiangsu branch in the city of Nanjing. Chartis China now has five branches operating out of Shanghai, Guangdong, Shenzhen, Beijing and Jiangsu, entrenching its position as the largest foreign property and casualty (P&C) insurer in China.
The CIRC further noted that in the first four months of the year, the Shanghai insurance market alone produced total original premium income exceeding CNY24.82 billion (US$3.8 billion). Of that total, property insurance accounted for CNY6.79 billion (US$1.05 billion); life insurance CNY16.29 billion (US$2.5billion); accident insurance CNY517 million (US$79 million); and health insurance CNY1.23 billion (US$189 million).
The Chinese insurance market has been seen as a lucrative investment opportunity for many large multinational insurance companies as well as investors from the financial-services sector. Industry analysts predict China and India will become the main drivers of global insurance premium growth, as persistent economic growth in these large countries will boost the size and purchasing power of their middle class.
Total written premiums in China’s insurance market reached CNY1,452.8 billion (US$221.4 billion) in 2010, a year on year increase of 30.4%.The acceleration of urbanization, increases in per capita income, an improved social security system, enhanced distribution reforms and service level optimization coupled with stronger insurance awareness, are all positive factors contributing to the brisk development of the domestic Chinese insurance industry. As interest rates rise, profitability for insurance companies will also see further improvement.
While China is technically open to foreign insurers, they are faced with more restrictions and a more active regulatory authority than in many other countries. Foreign insurance companies have normally found success in China through investing and operating as joint venture partners with another major local insurance conglomerate.
Some major current multinational Chinese insurance company joint ventures include the Sun Life Everbright and the Aviva-Cofco partnerships. Other notable foreign insurers with partnering agreements in China include Zurich and Generali, with associations involving both New China Life Insurance and China National Petroleum Corporation respectively.
Last year, Canadian insurance giant Sun Life Financial’s 20 percent stake in a China Everbright Group business became the first foreign joint venture operation to be recognized as a domestic Chinese company by the China Insurance Regulatory Commission.
Goldman Sachs entered the Chinese life insurance market earlier this year after successfully purchasing a 12.02 percent stake in Taikang Life Insurance Co Ltd, China’s fifth-largest insurer by premiums. The acquisition gave the US Investment bank a long-sought-after foothold in the world’s largest insurance market.
Merger and acquisition activity throughout the rest of Asia is set to maintain significant growth in 2011 due to stronger investor confidence in the market. Insurance business growth in Asia is expected to outperform that of other more mature markets, with India, Indonesia and China leading the way.
Insurance Companies Mentioned
A leading property-casualty and general insurance company, Chartis has over 45 million policyholders in 160 countries worldwide. With more than 90 years experience in the insurance industry, and a range of progressive products, Chartis aims to help clients comprehensively manage risk.
Dazhong Insurance Co., Ltd. provides insurance products and wealth management services. It operates in the delta region of Yangtze River and in east China. The company was founded in 1995 and is based in Shanghai, China. Dazhong Insurance is a subsidiary of China Life Insurance Co., Ltd.
Starr Insurance, comprised of CV Starr & Co and Starr International USA, underwrites aviation, marine, energy, property and excess casualty insurance, including risks with international exposures. The company targets industrial, commercial, retail and government entity risks globally.