Zurich Insurance Group sold shares in China’s third-biggest life insurer by premium income, New China Life Insurance, for about $283 million, according to a term sheet seen by FinanceAsia.
“The sale reflects Zurich’s desire to manage its financial exposure to a large single holding of shares,” said Geoff Riddell, Zurich’s chairman for Asia-Pacific, the Middle East and Africa.
Zurich said it intends to reinvest the proceeds of the sale into investments in Asia, without giving any details. Many of its US and European peers have targeted fast-growing Southeast Asia for new investment, where regulations are somewhat lighter and growth.
The disposal comes at a time when many foreign life insurers have become disillusioned with China despite its growth. China heavily restricts the percentage that foreigners can own in a domestic insurer, as well as regulating product approvals and the pace at which insurers expand across the country.
Foreigners’ market share in China was just 4% as of end 2011.
LIFE AT A CROSSROADS
The sale also comes as Chinese domestic insurers are competing with wealth management companies which often offer clients higher-yielding products. Other challenges include upcoming pricing reforms and hiring difficulties due to low wages for agents.
Domestic insurers have also been hit by heavy-handed regulation such as the bancassurance reforms in 2010. These short-term headwinds are offset by the longer-term secular gorwth story of China’s growing affluent class demanding more protection products.
New China Life has been wrestling with the shift from towards higher-margin protection products, away from savings products, and also trying to shift away from the bancassurance model towards selling via agents — with limited success. Zurich’s sale was equal to 3.1% of the total issued share capital of New China Life and took the form of a private placement to a small group of institutional investors conducted on the Hong Kong Stock Exchange.
The Swiss insurer sold 97.5 million of government-controlled New China Life’s Hong Kong-listed shares at HK$22.50 ($2.90) each. The shares were sold at a 6.4% discount to Thursday’s closing price of HK$24.05. Investment bank Goldman Sachs was the global coordinator and sole bookrunner for the sale.
Zurich continues to hold about 292.5 million New China Life shares listed in Hong Kong, representing about 9.4 % of the total issued share capital. The shares have lost about a third of their value since the start of the year due partly to overhang concerns.
Previously it had sold a 5% stake in February 2011, and $1.905 billion worth in December 2011.
Zurich first invested in New China Life in 2000.
