China Insurance Probe Won't Halt Firms' Overseas Urge

Diversification remains a key strategy and real estate is very much in demand.
At Closing, April 25th
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Xiang Junbo, the man on whose watch China's insurance industry flourished, is now himself under investigation. As Bloomberg News reported over the weekend, China's anti-graft agency is probing the nation's top insurance official as the government steps up a bid to rein in financial risks.

But with so many firms still hungry for returns and diversification, that shouldn't slow insurance companies' overseas buying. However, instead of upstarts like Anbang Insurance Group Co., whose portfolio of assets includes New York's Waldorf Astoria hotel, buyers will likely be more old school -- think Ping An Insurance Group Co. or China Life Insurance Co.

Policy Plus

Anbang Life, a big seller of universal life products, has seen its premiums soar

Source: Bloomberg Intelligence

Under Xiang, 60, who left Agricultural Bank of China Ltd. in 2011 to become chairman of the China Insurance Regulatory Commission, the nation's insurance industry developed rapidly. Relatively young players such as Anbang and Foresea Life Insurance Co. expanded through sales of so-called universal life insurance products -- short-term, high-yielding investments that include a small insurance component. To meet the heady returns promised by such policies, insurance firms embarked on buying sprees of listed, domestic companies.

While Xiang did tighten curbs on universal life products and moved to restrict some acquisitions of publicly traded firms, he was late to the party, acting only after China's top stock regulator, Liu Shiyu, called leveraged stock buyouts an act of "barbarians". Spurred into action, Xiang did to his credit freeze new share purchases by Evergrande Life Insurance Co., and draft a rule capping a single insurance company shareholder's stake in a firm to 33 percent.

Those moves may help put a stop to corporate raiders, but what they can't halt is international expansion. The nation's insurers had $49 billion of investments outside of China at the end of last year, equivalent to about 2.3 percent of assets, according to Bloomberg Intelligence. They're allowed to have up to 15 percent, implying at least another 1.9 trillion yuan ($275 billion) can still be deployed.

On the Hunt

Chinese insurers may pick up the pace of overseas investing as they pursue diversification and higher yields. Commercial properties in large U.S., European and Asian cities have been especially popular

Source: Bloomberg Intelligence

That's a tantalizing prospect, with rental yields on the mainland falling and countries such as Japan home to an array of attractive targets. Diversification remains a key strategy and real estate is still very much in demand.

While with Xiang's removal some insurers may find their activities at home stymied, expect many to remain a steady presence in offshore M&A.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

    To contact the editor responsible for this story:
    Katrina Nicholas at knicholas2@bloomberg.net

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