China Life weighs risks for gain
The chairman of the mainland's largest life insurer, China Life Insurance, told a financial forum in Shanghai this year that while the top of the mountain offers the best views, it can be a precarious place to be. As head of cash-rich China Life since 2005, Yang Chao has to balance the potential upside of overseas investments with a good measure of risk aversion.
China Life evolved from the People's Insurance Company of China, which was established in 1949. The life insurance assets were spun off by Beijing in 1999 and injected into the newly created China Life.
It had total assets of 990.1 billion yuan at the end of last year. And with mainland insurers only allowed to invest 15 per cent of premiums in equities and mutual funds - the remainder mainly ploughed into low-yield debt markets - speculation about overseas acquisitions by China Life began bubbling up in the media two years ago, as Beijing encouraged capital outflow in a bid to contain soaring inflation.
In hindsight, its delaying of major acquisitions looks like a stroke of good luck.
The overseas investment campaign, led by the mainland's US$200 billion sovereign wealth fund and its No 2 life insurer, Ping An Insurance, ran into trouble in less than a year when the Western merger and acquisition market was hammered by the global credit crisis.
In the third quarter of last year Ping An suffered an impairment loss of 22.79 billion yuan on the value of its investment in Belgian-Dutch banking and insurance group Fortis. An impairment loss is a charge taken to write down an asset with an overstated book value.
Yang told the forum that while exploring overseas markets was 'a must', it was also essential to control risks.
'In tandem with the yuan's increasing role in the region and its pace of internationalisation, we have to speed up to internationalise the Chinese insurance sector,' he said.
China Life has made a series of successful equities bets since last year.
In March last year it pumped US$300 million into Visa's initial public offering and was rewarded with a handsome return.
In May this year, it bought a tranche of H shares in China Construction Bank from Bank of America, after being directed to do so by the central government. To date, those shares have jumped more than 40 per cent from the purchase price of HK$4.20.
China Life reaped an investment return of 48.23 billion yuan last year despite a record 65.4 per cent slump on the mainland's A-share market.
And it posted a net profit of 18.2 billion yuan for the first half of this year, up 15.2 per cent from a year ago, after benefiting from a strong rally in the A-share market.
Now in a position of strength, China Life has been approached by foreign banks and securities firms seeking to raise money, according to reports.
Earlier this year, it was among the bidders for AIA, the Asian insurance unit of American International Group. It pulled out of the bidding when the attempt to sell AIA failed but is now mulling plans to buy into the IPO of Agricultural Bank of China, one of the mainland's Big Four lenders.
Against the odds
Despite a record slump on the mainland's A-share market last year, China Life posted an investment return of, in yuan,: 48.23b
