Insurance News - Capital Concerns Drive New China Life’s Shanghai and Hong Kong Dual-Listing in D…
by admin on Nov.28, 2011, under Life and Health insurance
A solvency margin decline in the third quarter is driving New China Life Insurance Co. Ltd., the country’s fourth-largest life insurer, to start its initial public offering and preliminary price consultation activities for its Chinese A-share (Shanghai) and overseas H-share (Hong Kong) offerings in an effort to avoid potential regulatory limitations on its business operations due to inadequate capital, according to the insurer.
New China Life said it has been approved by the China Securities Regulatory Commission to conduct an IPO of up to 158.54 million yuan-denominated ordinary shares in mainland China. The offering will also be conducted concurrently with an overseas H-share offering, including Hong Kong, of up to 358.42 million shares.
The insurer said it will determine the offer price for the offering on Dec 8. It is expected to have the dual-listing in Shanghai and Hong Kong after Dec 12.
The joint sponsors and lead underwriters for the IPO are China International Capital Corporation Ltd. and UBS Securities Co. Ltd., noted the insurer.
Beijing-based New China Life said its solvency margin ratio was 106.1% as of June 30, 2011, but the ratio dropped to 86.6% as of Sept 30, mainly due to the negative impact on the fair value of its investment assets from volatile capital markets of China, and partly related to the continued growth of its insurance business, said the company in a pre-listing document filed with the Hong Kong Stock Exchange.
In China, insurance companies with a solvency margin ratio of between 100% and 150% are classified as adequate solvency level 1, according to the China Insurance Regulatory Commission.
“If we fail to satisfy the regulatory requirements regarding solvency margin ratio, the regulatory authorities may impose limitations on our business operations and investment activities, which may have a material adverse effect on our business, results of operations and financial condition,” said New China Life.
In the long term, the insurer said it aims to maintain a solvency margin ratio “higher than 150% to support its business growth and provide some certainty for profit distribution.”
A Hong Kong-based equity analyst earlier said that one of the problems with insurers in China is their capital situation. It is expected that equity losses would drive insurers to raise capital, even in a bad market, said Edward Jen, an equity analyst with the insurance sector research department at Samsung Securities Asia Ltd. (Best’s News Service, Oct. 28, 2011).
State-owned Central Huijin Investment Ltd. is the controlling shareholder of New China Life with a 38.82% stake in the insurer. Another state-owned company, Baosteel Group Corp., has a stake of more than 5%. Both companies are required to transfer state-owned shares held by them representing 10% of the size of the offering of A shares and H shares of New China Life to the National Social Security Fund Council, said the insurer.
Switzerland-based Zurich Financial Services Group holds a 15% stake in New China Life (Best’s News Service, July 5, 2011).
New China Life said it intends to capture “significant” opportunities arising from the rapid development of the Chinese life insurance industry, since total life insurance gross premium income in China represented only about 2.6% of Chinese gross domestic product in 2010.
“This penetration rate, which is significantly lower than those in the more developed markets in Asia, Europe and North America, indicates that the Chinese life insurance market has potential for further significant growth,” said New China Life.
The company said it will also explore new markets, including “senior care and health care-related insurance business, providing mid- to high-end insurance solutions through the wealth management channel, strengthening cooperation with large reputable enterprises, and establishing an online distribution channel.”
New China Life was established on Sept 28, 1996, and now has registered capital of 2.6 billion yuan (US$409 million). In 2010, the insurer generated gross written premiums of 91.68 billion yuan. For the first nine months of 2011, New China Life reported gross premiums of 74.36 billion yuan. Its market share stood at 9.7% at the end of September.
As of June 30, 2011, New China Life had 34 province-level branches, about 204,000 individual insurance agents and about 910 group insurance direct sales representatives, more than 25,000 bancassurance outlets, and about 15,000 employees. The insurer also had around 24.94 million individual life insurance customers and 57,000 institutional customers.
(By Rebecca Ng, Hong Kong news editor: Rebecca.Ng@ambest.com)
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