China Life on FT

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so surprised this morning to read about China Life on FT, on which coverage is rare. altogether there are three articles on our company.

China Life plots overseas insurance buys

By Geoff Dyer in Beijing and Patti Waldmeir in Shanghai

Published: November 17 2008 22:15 | Last updated: November 17 2008 22:15

China Life, the world’s largest life assurer, is eyeing overseas acquisitions as it seeks to take advantage of the global financial crisis to gain a foothold in foreign markets.

Liu Lefei, chief investment officer, said the crisis in financial markets was not yet over, but China Life believed the moment to begin making overseas investments was fast approaching.

“We are cautiously but actively looking for M&A opportunities,” Mr Liu said in an interview with the Financial Times. “We have been doing a lot of research and the opportunities are becoming more and more obvious.”

China Life has yet to make any overseas strategic investments, and its investment portfolio is also almost entirely domestic.

Potential targets were more likely to be small or medium-sized financial groups and could be anywhere in the US, Asia and Europe. He also said large financial groups that had run into trouble were likely to start selling off non-core assets. “Over the next few months, we believe there will be a lot more merger and acquisition activity,” he said.

China Life has been mentioned as a potential buyer for parts of AIG’s Asia-Pacific business if the troubled insurance group puts the assets up for sale.

However, bankers said the group might also prefer to take small stakes that could be both a financial investment and a platform for future acquisitions once it is more comfortable overseas.

The comments are the first public sign from a large, well-funded Chinese financial group that the recent market chaos is seen as a window to make opportunistic investments.

Chinese groups made a number of high-profile investments last year in overseas financial groups before the worst of the credit crisis hit the sector.

China Investment Corp bought stakes in Blackstone and Morgan Stanley, which have dropped sharply in value. Ping An Insurance made the first overseas investment by a Chinese insurer when it bought a 5 per cent stake in Belgo-Dutch group Fortis, which was later partly nationalised. The group booked a Rmb15.7bn ($2.3bn) loss on the Fortis investment.

China Life, the country’s largest insurer and a big institutional investor, had previously said it would focus more on its fast-growing home market rather expand aggressively overseas. At the end of September, the group had Rmb30.5bn of cash on its balance sheet.

In recent months, Chinese officials have signalled that big investments in overseas investment groups were now on hold. However, Mr Liu said that the group had not been barred from making acquisitions.

Speaking at a conference in Shanghai yesterday, Jin Liqun, chairman of the supervisory board of CIC, said: “While there are apparently huge risks lurking in the way ahead, this provides at the same time huge investment opportunities.”

He added: “In the short term you may see some slowdown in Chinese investment overseas . . . but I don’t think we should all close our doors because of the risks.”

Howard Chao, an M&A expert at the law firm O’Melveny & Myers, said that Chinese companies would probably not face political problems if they bid for insurance groups in the US.

“It should be doable to acquire a mid-sized insurance company in the US,” he said. “Taking control of a US bank is still going to be sensitive. But even a substantial minority stake should be possible.”

Acquisitive China Life can take its pick

Published: November 17 2008 22:07 | Last updated: November 17 2008 22:07

China Life, which told the Financial Times it is preparing an overseas acquisition strategy, can take its pick of targets given the havoc the global financial crisis has wreaked on the market values of insurers.

Obvious targets could be parts of American International Group, which are on the block after what was once the world’s biggest insurer was rescued by the US government following losses on insurance written on complex financial instruments.

One of the most valuable parts of AIG likely to be put up for sale is its Asian life assurance operation. This could have an embedded value – which reflects the worth of in-force life assurance policies – of $18bn-$20bn. However, AIG has indicated it could retain a stake in this business.

Roman Cizdyn, analyst at Blue Oar Securities, says AIG is likely to be “an early port of call, particularly in the region”.

Alternatively, China Life could join forces with another insurer seeking to pick up parts of AIG.

Prudential, one of the biggest UK life assurers, is eyeing AIG’s Asian operation, and is talking to potential strategic investors about helping it to acquire the assets. The investor could take a stake of up to 20 per cent in the Pru.

China Life has in the past been mentioned as interested in the Pru, given the UK insurer’s strength in Asia. People familiar with the Pru’s negotiations said China Life could contribute to the fundraising but it was unlikely to be the lead investor on any deal.

But China Life, which is primarily interested in small to medium-sized financial groups, could look further afield, Mr Cizdyn suggests, to insurers in the US or Europe.

“If you wanted to be adventurous you could take a lump of US, or a lump of Europe,” he says.

Shares in the Pru’s rival Aviva have also fallen sharply, and with business in Asia, it could also be an attractive target for an overseas investor looking to take a strategic stake.

In contrast to the Pru, Aviva has ruled itself out of the race for parts of AIG, declaring any assets would be “grossly overvalued”.

Elsewhere, US life assurers, particularly those that sell popular savings products with guarantees built in, have been hard hit by the global financial turmoil.

Allianz, the German insurer, has invested $2.5bn in The Hartford to shore up the US life assurer’s finances.

Rival MetLife sold $2.3bn of new shares last month to strengthen its capital base.

But analysts at Goldman Sachs expect more US life assurers to raise capital.

“We believe each of the companies in our coverage universe will need to raise incremental capital,” they said in a recent note.

In continental Europe, the global financial turmoil has taken its toll on Aegon, the Netherlands-based insurer. However, like rival ING, it has accepted a €3bn ($3.8bn) capital injection from the Dutch state, and it is unclear how an overseas strategic investment would sit with a government stake.

But China Life is likely to be mindful of the the risks of investing in overseas insurers. A year ago rival Ping An took an almost 5 per cent stake in Fortis, but it has seen the value of its investment in the Belgo-Dutch financial group plunge.

Deal-hungry China Life

Published: November 17 2008 22:03 | Last updated: November 17 2008 22:03

AIG of the US showed that insurance is neither strait-laced nor safe. China Life wants to go one better and prove the industry has guts of steel. Undeterred by global recession and volatile markets, China’s biggest insurer is embarking on an overseas shopping spree. Put another way, the $86bn company is calling the bottom of the market. Exactly how much it proposes to blow, however, and where, is for the moment unclear.

There is little in the (short) canons of Chinese insurers to suggest their investments pay off. China Life’s smaller rival Ping An has destroyed nearly $3bn of value through its holding in Europe’s Fortis. Policy holders’ money ploughed into domestic equities has also evaporated. China Life recorded a $1.2bn loss on its investments in the first nine months of the year, equivalent to two-thirds of operating profit.

Even yields on bonds and deposits – staple fodder of Chinese insurers’ investment portfolios – are faltering after a series of interest rate cuts by the central bank. None of this, of course, is good news for the insurers’ shareholders either. Returns on equity this year are likely to be about half the 22.5 per cent notched up last year.

Going further afield, to presumably far more mature markets, is not an obvious way to reverse that trend. At best, China Life can hope to pick up decent assets on the cheap that will provide a stable if dull income stream once the industry normalises. Only by paying bottom dollar can it hope to squeeze out returns since any cost synergies will be minimal.

China Life has $4.5bn of cash on its books and its shares are valued at a robust 25 times this year’s consensus earnings, more than double the sector average. That, and a phalanx of under-employed investment bankers, appears to have turned its head.

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