Zurich Financial Services AG will spend as much as $420 million to participate in the capital raising of unlisted New China Life Insurance Co., or NCI, a move aimed at maintaining the Swiss firm’s foothold in one of the world’s fastest-growing insurance markets.
The Swiss life and nonlife insurer, which during the past two quarters had been hit by property asset write-downs and litigation costs that have dented its bottom line by about $500 million, said Wednesday that it will buy as many as 280 million new shares of China’s third-largest life insurer, allowing Zurich Financial to maintain a 20% stake in the company.
NCI’s share issue was initiated to improve the company’s balance sheet. Like banks, insurers need to back client assets, called premiums, with capital. If an insurer is able to attract premiums quickly, capital levels need to be bolstered to make sure that claims can be paid out in case of a calamity.
“Our decision to participate in NCI’s share issue reflects our belief that China’s fast-growing insurance sector represents an attractive investment opportunity,” Zurich Financial Chief Executive Martin Senn said.
“The Chinese government has expressed a clear intent to further develop the country’s insurance market, and NCI is well-positioned in the life market. In addition to our investment in NCI, we continue to focus on building our own insurance business in this important growth market,” Mr. Senn said.
Zurich Financial bought its first stake in NCI in 2000, when China’s insurance market was partially opened to foreign investors. With China’s inclusion in the World Trade Organization in 2001, markets were further liberalized and, since 2006, Zurich Financial also has had its own branch in the country through an office in Beijing.
NCI, which was created in 1996 and is expected to go public in the next few months, had gross written premiums of nearly $10 billion and a market share of 9.3% in 2009, according to Zurich Financial.
China and other emerging markets in Asia and Latin America are growth contributors for Zurich Financial.
The insurance market in China has current growth rates of more than 30%, according to the China Insurance Regulatory Commission. Growth is expected to remain high as an increasing number of affluent Chinese look to protect their assets and businesses through insurance coverage.
“The deal is good news and makes Zurich Financial one of the few European insurance companies still trying to tackle the Chinese market in a serious way,” said Kepler Capital Markets analyst Fabricio Croce, who expects the deal to have a positive effect on future earnings.
Source : The Wall Street Journal
