Chinese insurance plays came under profit-taking pressure Thursday after posting strong gains in recent sessions. News of Zurich Insurance’s exit from New China Life Insurance (NCI) (01336.HK, 601336.CN) provided the trigger for the broad sell-off in the sector.
The Swiss insurance giant agreed to sell its remaining 292.5 million H-shares in NCI at HK$25 (US$3.2) a share. It marks the second share sale since a block deal in July. After the latest sale, Zurich Insurance will walk away with a return of over 200 percent after a multi-year investment in the Chinese insurer.
Zurich Insurance’s exit, which comes just days after Singapore sovereign fund Temasek reduced its holding in China Pacific Insurance (Group) Co. (CPIC) (02601.HK), has inevitably raised concerns that foreign insurers may have lost faith in the Chinese market. Such worry is understandable, but somewhat misplaced.
As a matter of fact, both NCI and CPIC are doing fairly well in the domestic market. During the first nine months of 2013, NCI and CPIC saw their net profits jump 70 percent and 160 percent year-on-year, respectively. There are still plenty of opportunities for them to grasp as Beijing is encouraging the use of insurance to optimize the social security net in the country.
Zurich Insurance’s parting of ways with NCI at this moment may be more or less related to a rumor that swirled in the market recently that the Swiss firm may have bribed the children of influential veterans of the China’s ruling party before taking a major stake in NCI. The foreign insurance giant has asserted that it did not indulge in any wrongdoing in the process of becoming a key shareholder of NCI.
Meanwhile, one should bear in mind that Zurich Insurance’s divestment in NCI does not imply that it is withdrawing from China altogether. Instead, the company plans to boost its presence on its own. The foreign insurer received the nod in May from the China Insurance Regulatory Commission to elevate its Beijing branch office to a wholly-owned subsidiary, suggesting that the group is being allowed to expand its business in the country under its own brand.
– Contact the writer at [email protected]