HSBC to take full control of its Chinese life insurance joint venture

HSBC latest foreign bank to take advantage of new rules to further open up China’s financial services sector
The acquisition is the latest big bet by HSBC on future growth in the mainland

HSBC

Chad Bray

Published: 6:07pm, 4 May 2020

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HSBC said on Monday it had agreed to buy out its life insurance joint venture partner in China, the latest foreign firm to take advantage of new rules designed to further open up the financial services sector in the mainland.

The bank, which is based in London, but generates most of its revenue in Asia, said it would acquire the remaining 50 per cent it does not own in HSBC Life Insurance Company, also known as HSBC Life China, from its Beijing-based partner National Trust. Details of the transaction were not disclosed.

The acquisition is HSBC’s latest bet on growth in the mainland.

As part of a massive overhaul announced in February, the bank said it would shift more resources from capital-intensive businesses, such as its investment bank and some business lines in Europe and the United States, to growth markets, such as Hong Kong and mainland China.

“Despite the current difficult environment engendered by the Covid-19 pandemic, we continue to take steps to implement our growth strategy,” Noel Quinn, the HSBC chief executive, said in a statement. “This transaction supports our ambition to accelerate growth within our Asian franchise, particularly in the dynamic and fast-growing Greater Bay Area, where we fully intend to expand in all lines of businesses.”

The coronavirus, which causes the disease Covid-19, has infected more than 3.5 million people globally and disrupted economies from New York to Singapore, forcing banks to set aside tens of billions of dollars in addition to provisions for loan losses. It also added to an already challenging environment for banks as policymakers have taken interest rates to historic lows to try to stimulate economic activity.

HSBC increased its provisions for bad loans globally to US$3.03 billion in the first quarter, even though only about US$200 million of those related to the mainland or Hong Kong, its biggest market. The bank was also forced to pause parts of its reshaping, including as many as 35,000 job cuts, as the crisis hit. The restructuring is the third major overhaul of HSBC in a decade.

Despite the difficult operating environment, Quinn, however, has moved ahead with other parts of the restructuring, including cost cuts and reshuffling senior management.

Based in Shanghai, HSBC Life China was formed as a 50-50 joint venture in 2009. As of December 31, it had 1.03 billion yuan (US$146 million) in registered capital and a presence in nine mainland cities, including Beijing, Guangzhou, Shanghai and Shenzhen.

The company’s products include annuities, critical illness cover and whole-life policies and would expand its wealth offerings in the mainland, an important area for future growth at the lender.

The transaction is subject to regulatory approvals, including from the China Banking and Insurance Regulatory Commission.

HSBC set up a majority-controlled securities joint venture, HSBC Qianhai Securities, in the mainland in 2017 after it won approval under a different set of rules specifically for Hong Kong-based banks.

Beijing announced last July that it would relax rules on foreign ownership of financial services firms including life insurers starting on January 1, which was earlier than expected. The move came against the backdrop of an 18-month trade war between the United States and China, which has threatened to reignite in recent weeks, and a slowing economy.

Since the beginning of the year, several banks, including Credit Suisse, Goldman Sachs and Morgan Stanley, have moved to take majority control or full control of their securities joint ventures. In April, JPMorgan Chase agreed to take full control of its asset management joint venture.

French insurer AXA agreed to pay 4.6 billion yuan in November 2018 to buy out its Chinese property & casualty joint venture partner and Allianz received approval that same month to set up its own wholly owned insurance holding company in Shanghai last year.

Separately, the Hong Kong Insurance Authority issued its fourth virtual insurance licence to ZA Life, a joint venture between ZhongAn Technologies International Group and Fubon Life Insurance (Hong Kong). ZA Life plans to sell life insurance and critical illness products in the future.

Digital insurers can only sell products online and cannot hire any agents or brokers. Regulators in Hong Kong have introduced virtual banking and insurance licences since 2018 as part of an effort to bolster the city’s fintech sector.

Additional reporting by Enoch Yiu

This article appeared in the South China Morning Post print edition as: HSBC buys out China insurance venture

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