Evolution of Chinese capital and insurance market
Driven by government focus on strategic investments, Chinese insurer’s M&A strategy may see a shift from accumulating foreign assets to investing in insurance businesses that help expand footprint in developed European markets as well as under penetrated Asian markets.
Chinese regulations for investments, particularly outbound investments, started to relax from 2012. In 2014, Chinese Banking and Insurance Regulatory Commission (CBIRC) relaxed rules on source of funds to be used for acquisition. This conducive environment acted in sync with the fund insurers were creating from growth in sale of “Universal Life insurance” products.
The leading insurers hence started to pursue international expansion strategy driven by desire to access low-cost insurance funds in world’s low-interest markets.
However, starting 2017 multiple factors including ban on sale of Universal Life Products as insurance, anti-corruption investigation and foreign currency restrictions acted as speed breaker for the M&A activity.
In 2018, the government introduced regulation restricting outbound investments by private firms. While the policy encouraged investments that were a part of company’s strategy, it discouraged M&A that simply meant to transfer assets abroad or were driven solely by short-term returns. This emerging clarity encouraged insurers such as Fosun and China Re to pursuing acquisitions in the H2 2018.
CASE STUDY: THE RISE AND FALL OF ANBANG
Anbang founder Wu Xiaohui started the company in 2004, which grew modestly till 2010 when it entered Life insurance market. Over 2010-2013, the company progressed to gain ~1% share in the Chinese life market however as the sale of Universal Life Product picked up in 2013, Anbang gained exponential share in this fast growing market.
Anbang made a fortune from sale of Universal Life products which were sold to individuals seeking higher returns compared to bank deposits. As these investments linked policies became market sensation, Anbang capitalized on this fund to acquire multiple foreign assets. However the run stopped as these products were banned to be sold as insurance in Q2 2017 while Anbang founder was arrested for fraud on unauthorized use of Universal Life sales to prop-up company capital.
After 3 years of unprecedented growth in Universal Life products, the Chinese regulator realized that an early surrender of such products may lead to a stampede like situation in financial markets. It hence started investigating this product and later banned them to be sold as insurance.