Mergers & Acquisitions

Hong Kong insurers brace as they become acquisition targets

Hong Kong insurers are drawing worldwide interest from a wide range of suitors thanks to buoyant sales of life policies to mainland Chinese visitors

PUBLISHED : Friday, 23 September, 2016, 6:09pm
UPDATED : Saturday, 24 September, 2016, 7:45am

Hong Kong insurance companies have become highly sought after as takeover targets, drawing interest from both mainland Chinese and international insurers, as Hong Kong emerges as a hub to capture the exodus of savings flooding out of China.

Industry experts say brisk sales of life policies and other investment savings products have made Hong Kong insurance companies the envy of their global peers.

Asia Financial Holdings president Bernard Chan, who oversees the second largest general insurance company in Hong Kong, said the pace of mergers and acquisitions in the insurance sector this year underscores the global interest in gaining a foothold in Hong Kong. The frenzied pace of deal-making is unlike anything he has seen in two decades.

“It is once in a lifetime thing to see so many buyers chasing to buy insurance companies in Hong Kong,” Chan said. “Hong Kong insurance companies have become the hottest item in town.”

He said he has personally fielded more than 10 enquiries this year from foreign parties regarding the sale of insurance companies operated by his group.

“They want to buy life insurance companies, general insurance companies and reinsurance companies as they are all profitable,” Chan said.

He said the overtures come from groups seeking to break into the Hong Kong market, either by acquiring an existing insurer or building their own operations from the ground up pending licence approval.

“Traditionally we have only seen insurance companies buying another insurance company. This year, however, we have seen many different type of buyers from private equity funds, hedge funds, conglomerates or real estate companies seeking to buy insurance companies in Hong Kong as part of the country’s going out policy,” he said.

There were eight takeovers of Hong Kong insurers by overseas and mainland companies in the first eight months this year, up from six last year and three in 2014, according to Thomson Reuters data.

In June mainland real estate company Fujian Thai Hot Investment agreed to pay HK$10.6 billion to buy the life insurance operations of Dah Sing Financial Holdings, to rank as the biggest insurance sector takeover this year. The deal is still pending regulatory and shareholders approval.

JD Capital, also known as Beijing Tongchuang Jiuding Investment Management, in August last year agreed to spend HK$10.7 billion to buy Hong Kong life insurance business Ageas.

Chan Kin-por, lawmaker for the insurance sector in Hong Kong, said several applicants have applied for insurance licences to operate in Hong Kong. The Office of Commissioner of Insurance has granted three new licences in the last three months.

“There are an increasing number of mainlanders buying insurance policies in Hong Kong in recent years, which has pushed up the total sales of insurance products in the city. This has benefited many Hong Kong insurance companies and attracted many new investors to the Hong Kong market,” the lawmaker said.

Mainlanders spent HK$30.1 billion buying life insurance products in Hong Kong in the first half of this year, representing 37 per cent of all policies sold during the period. Last year mainlanders bought HK$31.6 billion, representing 24 per cent of all policies sold.

Mainlanders have greater product choice in Hong Kong, as well as the option to buy policies denominated in either US dollars or Hong Kongm dollars. The currency option is seen as providing some security from the depreciating yuan, which fell 2 per cent against the US dollar in the first half of this year after dropping more than 5 per cent last year.

However, Bernard Chan believes some proposed takeovers may not get regulatory approval.

The insurance regulator will seek reassurances that the acquiring party has suitable management ability, he said.

“The regulator will require the buyers to explain why they want to step into the insurance business and what are their business plans. The regulator will not allow someone who does not know insurance to manage an insurance company. The buyers usually would need to retain existing management to ensure the company is managed in a professional manner,” he added.

Chan said his company has no intention to sell its flagship Asia Insurance, but he stopped short of ruling out the possibility. “We have to consider all options for the best interest of our shareholders,” he said.

A more likely acquisition target is Hong Kong Life, a joint venture insurance company co-owned by Asia Insurance with four other banks.

Chan said his company has appointed Goldman Sachs and Nomura as financial advisers.

“We want the advisers to look at all possibilities regarding these potential suitors. It may end up in a takeover, adding in new shareholders or doing nothing,” he said.