Posted on Aug 12, 2011 by Sergio Ulloa
In a move that runs contrary to volatile global financial market conditions at present, New China Life Insurance yesterday filed an application to the Hong Kong exchange to begin raising as much as HK$31.2 billion (US$4 billion) in funds through a dual initial public offering (IPO) in Hong Kong and Shanghai. This listing could be the first in a series of IPOs by Chinese insurance companies as firms seek fresh capital
to fund expansion plans in the world's fastest expanding consumer economy.
New China Life, the mainland's third-largest life insurer by premium volume, is planning to sell 20 percent of its total equity through a dual IPO in Hong Kong and Shanghai in October, according to industry sources. This week, the insurer completed the first formal step in the listing process by submitting its A1 with Hong Kong's Heng Seng Index. The two largest Chinese insurance companies, Ping An Insurance and China Life Insurance, have already been listed on both overseas and domestic bourses, and New China Life's IPO could drive the rest of China's insurers to market. Indeed around US$25 billion worth of share offerings in Hong Kong and Shanghai could be coming to the market over the next few months from Chinese insurance companies alone. State-owned China Reinsurance and People's Insurance Company (PICC
) announced plans to raise between US$5 billion and US$6 billion in a dual listing this year. Taikang Life Insurance, the Asian nation's fifth-largest insurer by premiums, has also targeted between US$3 billion and US$4 billion from a Hong Kong listing in the next couple of years.
The Beijing-based New China Life had CNY93.6 billion (US$14.3 billion) in premium income last year, and around a 9 percent share of the country's insurance market, according to the CIRC. The company, part owned by Zurich Financial Services, has been successfully adapting to China's booming insurance market conditions and has recorded a compound annual premium growth rate of 40 percent from 2005 and 2010. Today, New China Life has over 1,400 offices in China and around 24 million policyholders.
New China Life has had to restructure itself ahead of their planned IPO to meet strict solvency requirements imposed by the China Insurance Regulatory Commission (CIRC) and to enable further business development. In March, the life insurer placed CNY 14 billion (US$2.18 billion) worth of shares to twelve existing shareholders through a rights issue. The transaction increased New China Life's registered capital base, up to CNY 2.6 billion (US$405 million) from CNY 1.2 billion (US$187 million), which in turn raised its solvency margin to above the required 100 percent for listing.
If approved, New China Life would be involved with the first substantial IPO in the Asia-Pacific region since worldwide credit ratings agency Standard & Poor's made the controversial decision last week to lower the long-term sovereign credit rating on the United States of America
for the first time ever. The listing application will test investor confidence as markets continue to struggle to adapt to the US downgrade as well as the deepening debt crisis in Europe. Both American and European stocks have been in flux as concerns mount over Western policymakers' ability to adapt and rejuvenate the flagging global economy. This is turn has affected regional Asian markets. The Heng Seng Index has fallen 15 percent so far this year, while The Shanghai Composite is down 8.1 percent. This market downturn has threatened Hong Kong's IPO market, the world's largest bourse last year, with delays to some US$19 billion worth of share sales from the dozen companies planning to soon list on the city's exchange. Indeed, the continued volatility in the stock market has already provoked several companies to delay or cancel plans to list in Hong Kong in the past few months.
This persistent global economic turmoil will likely affect the pricing of New China Life's shares. According to financial analysts close to the deal, if the insurer was listed in May the share sale could've raised as much as US$5 billion. Now, given recent events, investors are more risk averse and New China Life will raise between $3 to 4 billion when it heads to market.
Outside these macroeconomic concerns, China's insurance industry will continue to be an attractive avenue for investors due to the country's huge population, favorable economic conditions and an under-penetrated market. According to the latest CIRC figures
, total written premiums in China's insurance market reached CNY 1,452.8 billion (US$221.4 billion) in 2010, a year-on-year increase of over 30.4 percent. Meanwhile, the total premium income reported by Chinese insurance companies surpassed CNY 805.66 billion (US$123.95 billion) in the first half of the year, a 13 percent rise on last year's figures. The total value of life insurance premium income stands at CNY 569.7 billion (US$ 88.1 billion).
The domestic Chinese insurance companies benefit in particular from an entrenched market presence and the inability of foreign insurers to operate independently in the world's second largest economy. While the insurance industry is technically open to foreign players in China, they face restrictions and a more active regulatory authority than in most other countries, which pushes them towards investing and operating as joint venture partners with local Chinese insurance and banking conglomerates. Demand for foreign investment and expertise still holds risk however, as despite decades of pronounced growth, the insurance industry remains largely immature, blighted by poor performers and questionable business practices. Market observes will be watching closely to see if New China Life can dual list successfully.
Insurance Company Mentioned
New China Life
New China Life Insurance Co., Ltd (NCI?has headquarters in Beijing and was established in 1996. It is a large national insurance company, with products including traditional protection products, bonus products as well as the products that have a strong financial management function. With sustained, healthy and harmonious development of the company, the brand value of NCI is a valuable asset.