Loan to partly finance CP Group's purchase of Ping An stake

However, CP Group has not yet released details on how much of the investment will be borrowed. Siam Commercial Bank (SCB) was the group’s consultant on finalising the deal. 

HSBC Holdings said in a statement last Wednesday that it had agreed to sell its 15.57-per-cent stake in Ping An to CP Group for $9.39 billion (Bt288 billion), equivalent to 59 Hong Kong dollars a share. Charoen Pokphand is buying the shares through three indirect wholly owned units, HSBC said.

In a statement released by CP Group yesterday, it noted that the planned acquisition would require consent from the China Insurance Regulatory Commission. Parties involved in the transaction will promptly disclose relevant information through Hong Kong Stock Exchange channels for the benefits of interested parties. 

The group expressed confidence in Ping An Insurance Co and its management led by Dr Peter Ma, chairman of the Chinese insurer. 

Ping An Insurance provides casualty, property and life insurance as well as financial services, and is China’s second-largest insurance company. 

CP Group added that it was confident that any business alliance that may be developed with Ping An would benefit both partners. 

 

GROWTH RECOVERED

Meanwhile, Ping An Insurance (Group) Co said growth in new business value recovered in the second half of 2012 after a decline in the first six months. 

The embedded value of new individual life policies has resumed growth and the most profitable, protection-type, 10-year or longer contracts sold through agents have returned to the path of growth after some volatility in the first half, chief insurance officer Li Yuanxiang said last week. 

Barclays said Ping An’s new business value, which gauges the estimated profit from new policies sold, might rise 13 per cent in the second half as agent sales shift back to long-term risk-protection products, improving from a 9-per-cent drop in the first half. 

“We’re encouraged by the actions the company is taking to improve the quality of its agency force, including comprehensive training plans, well-designed sales support and monitor systems, and clear growth targets,” Barclays analysts led by Mark Kellock wrote in a report on Friday after meeting with Li. 

“The successful execution in agency is critical for future new business value growth – a key driver of value creation.” 

Margins of new business should be able to remain stable for the long term, a trend that investors including CP Group care more about than the short-term numbers, Li said. 

Ping An enjoys the highest individual agent productivity among Chinese insurers and the highest new-business profitability thanks to its strong presence in bigger cities and effective management of its agent forces, according to Core Pacific Yamaichi International. 

Joyce Huang, a Hong Kong-based director for insurance at Fitch Ratings, said yesterday: “When we look at life insurers’ capital strength in real terms, we would also consider the impact of profits their business can generate in the future. If there’s any improvement in the profit margin of Ping An’s new business value, it will contribute positively to the company’s capital level.” 

Li said Ping An planned to expand its presence to as many as 12 per cent of China’s counties from 8 per cent, a move that would boost premiums without sacrificing margins, as it would be selling the same products in the less wealthy regions as in big cities and would only pick the relatively good counties. Founded in 1988 as China’s first joint-stock insurer, Ping An has grown into the nation’s second-biggest insurance company, with 74 million clients, more than 175,000 employees, and about 500,000 agents. 

The change in its biggest shareholder will not have any impact on the company’s insurance operations, Li said. 

The Barclays analysts wrote: “The importance of agency cannot be understated, given this accounts for more than 90 per cent of the company’s new business value each year. Steadily increasing the number of county markets covered and increasing the productivity levels in these new markets could be a key driver of Ping An’s future new business growth.” 

China’s insurance market expanded an average 19 per cent a year in the past decade to become the world’s sixth-biggest, while insurers’ assets jumped tenfold, according to the China Insurance Regulatory Commission. Premiums income declined 1.3 per cent in 2011 as regulators tightened rules on selling coverage over bank counters and insurers adjusted their product mix to improve profitability. 

“The market remains good and the room for growth is huge, especially individual life insurance,” Li said. “One should not become sceptical about the potential for China’s insurance market because of the volatility caused by bancassurance.”