Carlyle to buy stake of insurer
(China Daily)
Updated: 2004-12-18 09:28

US private equity firm Carlyle Group reached an agreement with China Pacific Life Insurance Co to buy a nearly 25 per cent stake in China's third largest life insurer.

Carlyle and its partner, US insurer Prudential, will pay up to US$400 million for the 24.9 per cent stake, the highest foreign investors are allowed to own in a Chinese insurer, the Financial Times reported on Friday.

"We just received the application and are still reviewing the materials," a spokesman for the China Insurance Regulatory Commission (CIRC) told China Daily. The companies declined to comment on the deal.

Analysts said the deal appears to clash with Chinese rules, which require any individual foreign investor's ownership in a Chinese insurer to be no more than 10 per cent.

They said one possibility is Carlyle and Prudential each hold a 10 per cent stake in China Pacific Life, with the remaining 4.9 per cent held by their affiliated companies.

"Then they can circumvent the regulatory restrictions," said an insider who declined to be named.

The CIRC spokesman declined to comment whether the deal is in line with Chinese regulations, nor the possibility of its approval.

Chinese regulators have been encouraging local insurers to usher in foreign investment to improve their competitiveness in the face of growing foreign competition.

Earlier this month, the Chinese Government lifted all geographic and business scope restrictions on foreign insurers in accordance with the nation's commitments upon World Trade Organization accession.

"Macroeconomically, foreign investment will improve Chinese insurers' capital strength and improve their underwriting capacity," said Wang Xujin, director of the Insurance Research Centre at Beijing Technology and Business University.

"It can also help improve corporate governance as foreign investors will influence management with their expertise and experience," he added.

The investments by Carlyle and Prudential will be used to bolster China Pacific Life's balance sheet, which is burdened with loss-making policies written at a time of falling interest rates in the late 1980s and early 1990s, according to the Financial Times report.

Carlyle and Prudential are expected to appoint most of the senior executives, including the chairman of the management committee, the de-facto chief executive, the report said.

Three leading Chinese insurers launched initial public offerings last year and earlier this year in overseas markets. Foreign investors, eager to tap into the huge potential Chinese insurance market, demonstrated remarkable enthusiasm in the offerings.

China's insurance industry grew an average 30 per cent over the past 20 years, and is expected to stay in the fast lane on the back of its robust economic growth and growing personal wealth.

Life insurance premiums totalled 270 billion yuan (US$32.5 billion) in the first 10 months of this year, CIRC statistics indicated. Out of the total, China Pacific Life garnered 29.1 billion yuan (US$3.5 billion), about 10 per cent.

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