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HSBC buys stake in Ping An Insurance
Hong Kong and Shanghai Banking Corporation (HSBC) Group signed an agreement with Ping An Insurance Co on Tuesday to buy a stake in China's second-biggest insurer, gaining access to one of the world's fastest-growing insurance markets.
HSBC Insurance Holdings Ltd, a wholly owned subsidiary of the HSBC Group will buy new common shares of Ping An, equivalent to 10 per cent of Ping An's enlarged issued share capital, for a consideration of US$600 million. The agreement is subject to regulatory and other approvals.
As part of the transaction, HSBC will also enter into separate agreements to co-operate with and to provide technical assistance and services to Ping An.
HSBC Group Chairman Sir John Bond said, "We are delighted with the opportunity to invest in and establish a strategic partnership with Ping An Insurance. China's insurance and wealth management businesses are growing rapidly and the long-term prospects are very favourable."
Life insurance grew by 43 per cent and non-life by 15 per cent in China last year.
In 2001, the insurance density (average per capita premium) exceeded 168.8 yuan (US$20). The penetration rate (percentage of premium income in GDP) is 3.64 per cent.
Taking such benchmarks into consideration, China's life insurance premium income is expected to double to 290 billion yuan (US$35 billion) by 2005, and foreign insurers are all sure to want a slice of this rapid-growing market.
China opened its insurance market to foreign players 10 years ago in a bid to tap foreign experience, and thus foster the development of the domestic insurance industry.
Under the World Trade Organization agreement, China will allow foreign insurers to set up joint ventures. Life and non-life insurers can take at most a 50 and 51 per cent stake in joint ventures respectively.
China will also phase out geographical restrictions in three years, allow foreign insurers to sell more products gradually over the next five years and permit wholly owned non-life subsidiaries in two years.
So far, over 30 foreign-funded insurers have set up operations in China.
However, they only occupy 1 per cent of the market nationwide. In Shanghai, the market most open to foreign insurers, only about 10 per cent of the premiums paid go to foreign players.
Analysts say buying a stake in a successful Chinese insurance company could be a short cut for foreign players to gain a larger market share, instead of forming new joint ventures.
Established in Shenzhen in 1988, Ping An Insurance has the second largest life insurance operation on Chinese mainland with a 28.7 per cent market share. It also has the third largest property and casualty insurance operation, with an around 9.8 per cent share of the market.
Ping An's Chairman and CEO Peter Ma said that with the assistance of shareholders, Ping An looks forward to becoming the leading financial services provider in the Chinese market.
Goldman Sachs Group Inc and Morgan Stanley also own a stake in Ping An.
It is also planning to list in Hong Kong.
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