When completed, the $5b share sale will cover the insurer's capital requirements PICC Property & Casualty launches the first public offering by a mainland insurer today with an assurance that it will be able to meet minimum capital requirements without having to raise any more money. From New York yesterday by video-link, chairman Tang Yunxiang said that once the listing was completed, PICC's solvency margin would exceed that demanded by regulators. The hoped-for HK$5.4 billion global share sale would cover last year's solvency margin deficit of 3.1 billion yuan (HK$2.9 billion), while allowing scope for further business growth. 'No further financing alternatives [would be needed],' Mr Tang said. From the end of this year, better capitalised foreign property insurers will be given enhanced access to China's insurance market ahead of a full market opening a year later. But Mr Tang said domestic firms faced no competitive threat in the near future. The firm has increased its share-offer price range to between HK$1.60 and HK$1.80. With a price ratio of between 12.9 and 14.5 times this year's projected earnings, Hong Kong retail investors will be offered a slice of the world's fastest-growing insurance market, where sales penetration is still low and personal incomes are rising. Two weeks ago AIG agreed to take a third of the global share offer. Industry sources said this meant the international portion was fully taken up ahead of the book close this Thursday. The public offering, to close on Thursday, will raise about HK$540 million, with trading slated to begin on November 6. China International Capital Corp and Morgan Stanley are joint global co-ordinators. According to Mr Tang, foreign entrants will remain small players in China's insurance market due to stiff entry requirements that include a US$5 billion asset hurdle, a 30-year track record in the insurance industry and a minimum two-year track record of running a representative office in the country. The 14 foreign property insurers operating in China accounted for just 0.8 per cent of the overall mainland market. PICC is the dominant property insurer with about 70 per cent market share. Mr Tang confirmed that the sale of a nearly 10 per cent stake in PICC by its mainland parent would have to be transferred back to the National Security Fund, established to bolster the shortfall in the state's unfunded pension liabilities. China Life Insurance is the next mainland firm slated to tap international equity investors with a US$2 billion share offering, with Ping An Insurance expected to raise US$1.5 billion early next year. The insurance triumvirate collectively holds nearly 80 per cent of the mainland market worth US$37 billion in premiums. China Insurance International Holdings, which earns most of its income from Hong Kong operations and reinsurance, saw its share price double in the past five months. The stock trades at 47 times projected earnings, nearly three times the average level of the 33 Hang Seng constituent stocks. PICC has come under scrutiny due to its under-capitalisation, reflected by the huge solvency-margin deficit. Under a new mainland rule that takes effect this year, domestic insurers are required to earmark capital roughly equivalent to 16 per cent of their premium income to meet the minimum solvency margin. Based on PICC's net premium income last year of 37.13 billion yuan, the firm was required to earmark at least 5.93 billion yuan. But its solvency margin stood at just 2.8 billion yuan. 'After the listing, our solvency margin will exceed the minimum requirement with a big margin,' Bloomberg quoted chief financial officer Wang Yincheng as saying. 'In other words, we have left some room for future growth and currently have no plan to consider other financing alternatives.' Life insurance listing candidates China Life and Ping An are expected to generate strong investor demand as the life market offers a stronger headline growth rate than the property sector. The scarcity value of mainland financial stocks also bodes well for their listings. PICC is offering the public 300.52 million H shares, or 10 per cent of its global share offer. About 90 per cent of the global issue will be placed with international investors, including AIG.