Another day, another Chinese acquisition of an insurance company in the U.S.
Struggling with ultra-low interest rates that have hammered investment income, Genworth Financial, one of America's top sellers of long-term care cover, needs the cash. And China Oceanwide seems happy to fork out $2.7 billion. However the investment firm, whose U.S. forays have so far been largely focused on real estate, may come to regret it.
Chinese companies like Fosun and HNA, which is now buying a stake in Hilton, have long looked overseas for growth. Oceanwide has bulked up so much in the U.S. over the past few years that it has more assets there than in Hong Kong or China.
Spurred by a falling yuan, these corporations are hoping to emulate Warren Buffett's Berkshire Hathaway, whose insurance premiums have provided the leverage to fund other acquisitions. Genworth would be Oceanwide's biggest purchase yet.
But owning an insurer such as Genworth isn't quite the same as owning property. Nor is it analogous to having a firm like Fidelity & Guaranty Life, which Anbang is going after, in your stable.
While Richmond, Virginia-based Genworth has been ramping up its exposure to mortgage insurance, its focus remains selling long-term care cover, the sort of policies people buy to help pay for things like nursing homes and live-in aides. With almost everyone in America taking longer to die, that's a tough business, and costs are climbing. Caring for the elderly has become so expensive you'd be better off putting Mom or Dad on a really long cruise.
At $2.7 billion, the acquisition isn't great value either. Oceanwide is offering $5.43 a share, a level Genworth hasn't traded at since October last year. The U.S. insurer has a 12-month target price of $4.08, and six analysts covering the stock all rate it a hold. Genworth trades well below one time book, implying investors don't believe in the value of the assets.
More broadly, buying insurance companies overseas doesn't always turn out so well for Chinese firms. Fosun saw first-half earnings from its insurance business drop 40 percent to 1 billion yuan ($148 million), due in part to lower investment income from a purchase it made two years ago in Portugal.
For Genworth, Oceanwide is a much-needed lifeline. But the Chinese company may find it's overpaid for a less buoyant business than it reckoned.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
(Corrects accounting figure in seventh paragraph.)
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