China expected to pursue larger role in U.S. insurance marketReprints
Chinese companies such as conglomerate Fosun International Ltd. will become larger players in the U.S. insurance market, which they see as a key step in their global expansion.
Shanghai-based Fosun last month announced plans to acquire Southfield, Michigan-based Meadowbrook Insurance Group Inc. for about $433 million, becoming the first Chinese company to buy a U.S. insurer outright.
The move wasn't surprising, given the growing interest of Chinese companies — with their government's support — in investing in insurance and other industries abroad, experts say.
“I think you're going to see more of it this year,” said Boris Lukan, a principal with Deloitte Consulting L.L.P. in Chicago. Korean and Japanese companies also are expected to bid for U.S. insurance assets, he added.
“If you want to be seen as a global player, you have to have a position in the U.S.,” Mr. Lukan said.
“We'll see more acquisitions moving in both directions between Chinese and U.S. insurance entities as a result of increased comfort on both sides,” said John Wicher, principal of consultant John A. Wicher & Associates Inc. in San Francisco. “It's like dating; it takes awhile.”
Chinese buyers also are looking elsewhere, particularly Europe, where a weak economy and the strength of the Chinese yuan against the euro may create greater opportunities, said Stuart J. Valentine, international counsel at Debevoise & Plimpton L.L.P. in Hong Kong.
But the U.S. is the world's largest economy in gross domestic product, and Chinese investors see U.S. insurers “as trophy acquisitions,” Mr. Valentine said.
With interests in mining, pharmaceuticals, retailing, asset management and tourism, Fosun has made a string of insurance acquisitions in the past year. Before last month's Meadowbrook announcement, Fosun bought a 20% equity stake last August in Bermuda-based Ironshore Inc., becoming Ironshore's largest shareholder. In January 2014, it secured a foothold in the European Union with a e1 billion ($1.18 billion) bid to take over state-owned Caixa Seguros e Saude S.A., Portugal's largest insurance group, from the Portuguese government.
As for Meadowbrook, Fosun said it will not only give it a platform to “establish a significant presence” in the U.S. property/casualty marketplace, but also will be an added source of “long-term high-quality capital” for its investments. Fosun Chairman Guo Guangchang previously has expressed admiration for Warren Buffett's use of insurance and reinsurance subsidiaries' “float” to build Berkshire Hathaway Inc.
The rapid expansion of Chinese business and industry internationally provides another motive for Chinese investors seeking insurance assets in the U.S. and elsewhere, Mr. Valentine said.
China's government a decade ago started pushing private and state-owned companies to invest abroad. They have since moved into mining, infrastructure construction, aircraft leasing and other businesses outside China. Chinese insurers want to be able to provide services wherever those companies and their employees are located, he said.
They are not likely to move rashly, though, after hard experiences investing in financial services businesses overseas, experts say.
Shenzhen-based Ping An Insurance (Group) Co. of China Ltd., one of the country's largest insurers, had to write off most of a 23.9 billion yuan ($3.85 billion) investment in Fortis Group after the Belgian insurance and investment company foundered in 2008 and was broken up by the Belgian and Dutch governments.
Rather than commit huge sums to far-flung businesses, Chinese investors have trod more carefully since then. Fosun is an example, Mr. Valentine said, looking close to home in Hong Kong to establish Peak Reinsurance Co. Ltd., its first insurance venture outside China, in 2012.
Similarly, China Reinsurance (Group) Corp. worked for three years with Catlin Group Ltd. to underwrite through a special-purpose Lloyd's of London syndicate before announcing in November that it would form a stand-alone syndicate to write open-market business starting with reinsurance. Syndicate 2088 is the first Chinese-owned Lloyd's syndicate, and China Re said it eventually will take over management from Catlin.
Chinese acquirers may sometimes make bold, large-scale moves if the right opportunity presents itself. Typically, though, acquisitions are likely to be small to medium in size, Mr. Valentine said.
While Chinese firms may have a growing presence in the U.S., new investment isn't likely to come in a flood, said Robert Hartwig, president of the Insurance Information Institute Inc. in New York. “I don't think we're on the leading edge of a massive wave of Chinese investment in the insurance industry,” but the Chinese are looking worldwide for opportunities, he said.