Hong Kong’s Dah Sing has agreed to sell its insurance operations to Chinese conglomerate Thai Hot for $1.4 billion, according to a person familiar with the matter on Thursday, the latest sign that Chinese insurers and property firms are looking to diversify overseas.
Dah Sing, a financial services group, said on January 12 that it was exploring strategic alternatives for its life assurance business and its bank’s life insurance product offerings.
The Hong Kong financial services group’s clever structuring of its auction attracted initial interest from over 20 companies, according to a second person familiar with the matter.
Fujian-headquartered Thai Hot, a property-to-insurance conglomerate, is paying three times embedded value for the insurance operations, which includes both distribution and a manufacturing capability and licence, the person said.
The relatively high valuation reflects the scarcity in Asia of bancassurance distribution deals that enable insurance policies to be sold over bank networks.
"There is a battle for distribution going on," the person said on condition of anonymity.
Chinese companies are especially keen to buy overseas insurance companies and gain access to foreign currency at a time when capital outflows are coming under tighter control.
Taihot beat fierce competition from other Chinese suitors such as Beijing-headquartered JD Capital, which bid around $1.1 billion, and Guangdong-based property developer Country Garden.
Chinese insurance firms are bidding on other overseas assets too. Fosun is running the slide rule over Singapore-headquartered reinsurer ACR, while Anbang is keen to acquire MBK Partners’s ING Life Korea, according to people familiar with those deals.
The impetus to look abroad comes as the earnings of investment management firms and insurers in China are squeezed due to weaker economic conditions and falling interest rates. With the renminbi also expected to continue depreciating as market valuations slip, the onus is on these companies to try to deploy capital overseas quickly.
Real estate and investment firms are also targeting insurance companies as China makes it easier for insurers to put money to work in alternative investments, which can be higher yielding but are also higher risk.
JD Capital bid last August for the Hong Kong business of Ageas, offering HK$10.7 billion ($1.4 billion) in cash. It recently closed the deal. Evergrande Real Estate last year agreed to buy Chinese insurer Great Eastern Life Assurance.
Credit rating agency Fitch noted this week greater that asset risks make life insurers more vulnerable to adverse fluctuations in capital markets and a deterioration in credit quality as a result of a slowing economy.
Overreliance on short-term premiums also has the potential to accentuate asset/liability duration mismatches, in light of the generally long investment horizons in alternative investments.
Scarcity
Several factors ensured widespread initial interest in the Dah Sing auction. The first is the relative scarcity of such insurance assets for sale in Hong Kong.
Insurance sales in Hong Kong depend heavily on both agency salesmen going door-to-door and sales via bank networks, a route known as bancassurance.
Very few come up for sale and the large banks either have a captive insurance company or already have exclusive partners. Citigroup inked a deal with Hong Kong-headquartered AIA in 2013, Standard Chartered renewed its alliance with Pru last year, while HSBC came to an agreement with Germany's Allianz for some of its Asian markets in 2012.
While Hong Kong is a relatively mature and competitive market, one segment is growing fast: selling products to high net worth mainland Chinese.
Policies issued to mainland visitors swelled to new premiums of HK$31.6 billion in 2015, which was 24.2% of total premiums according to Hong Kong’s Office of the Commissioner of Insurance. That is up from HK$16.9 billion in the first three quarters of 2014.
Sales are still brisk according to industry participants despite more rigorous enforcement of rules capping the amount of insurance that mainland China's citizens can take out in Hong Kong, which can be a relatively simple way of transferring money out of the country. Previously insurance companies had been lax about sticking to the cap of $5,000 per transaction for buying policies.
Chinese card issuer UnionPay said in February that it was asking merchants to enforce existing rules capping card payments at $5,000 per transaction.
Hong Kong suspended a capital investment entrant scheme in January 2015 for Chinese nationals entering the Territory but not running a business there. Several insurers offered funds to applicants.
The insurance companies are not just offering long-term protection for health and property but also short-term wealth management products, which many mainland Chinese have found convenient for parking money offshore.
Citigroup is advising Dah Sing on its auction.
