Global churn may bring Chinese insurance firms to India

Chinese insurance firms could end up having a strategic stake in life insurance in India if their global acquisition plans attain fruition. Chinese insurers Ping An and China Life and other institutions like Bank of China have expressed their ambitions to acquire international insurance companies.

Earlier this year, media reports were abuzz with talks about a possible bid for UK insurer Prudential by Ping An - China's second largest insurance company. The company, which announced a net profit of $709 million for the Jan-Apr quarter, is listed both in Hong Kong and China. There are also reports that Bank of America is interested in bidding for Direct Line and Churchill Insurance Group owned by the Royal Bank of Scotland.

Post-liberalization, multinational insurers headquartered in the US, UK, Europe, South Africa, Canada and Japan have participated in the insurance industry in India. But, there is no Chinese company in this sector yet. Unlike banks, there is no rationing of license in insurance.

However, there is a ceiling of 26% on the total shareholding by foreigners in an insurance venture. But, despite the ceiling some companies have managed to acquire management control in their insurance partnership with the consent of the Indian partner.

If a Chinese insurer such as Ping An does acquire Prudential, it will give the firm a 26% stake in the largest private life insurance company - ICICI Prudential Life Insurance. According to sources, ICICI Bank does not have any exit clause if its foreign partner is acquired by another company.

Several, insurers in the West have been weakened by losses on account of their exposure to sub prime debt. Given their appetite for long-term investments, insurance companies are the main investors in mortgage securities. The mortgage crisis in the US has resulted in a fall in the market value of most mortgage securities forcing insurance companies to write down the value of their assets. In March this year, Prudential reported a 47% drop in pre-tax profit due to poor performance of its life fund after writing off credit risks in the US following the sub prime crisis.

Other insurers which have been insulated from the sub prime are seen as acquirers. Italian insurer Generali is seen as one such acquisitive company. One reason why the company has been able to post a 21% growth in profits was the absence of sub prime in its books. At that time everyone thought they were too conservative. Now everyone is happy.

Source: Insuremagic