HKU843
HUNG-GAY FUNG
GERALD YONG GAO
PING AN’S OVERSEAS EXPANSION:
FINANCIAL UNCERTAINTIES AND RISK
MANAGEMENT
By 2007, China’s Ping An Insurance Co. (“Ping An”) had grown into the second-largest life
insurer in China. Its goal was to become a universal financial services provider by expanding
into asset management and banking. These three businesses were the foundation of Ping An’s
“three-pillar strategy”. It had already made two domestic banking acquisitions, but none in
asset management. In November 2007, Ping An attained a 4.2% stake in Fortis, the BelgoDutch financial conglomerate, and planned to acquire a 50% stake in Fortis’ asset
management business, which would be a big step towards reaching its goal. Yet this
ambitious overseas expansion plan was crushed by the adverse effects of the US subprime
problem and the global financial crisis. By October 2008, the value of Ping An’s stake in
Fortis had dropped more than 70%, causing a reported loss of US$2.3 billion in the third
quarter of 2008.1 In April 2009, Ping An reported a 99% plunge in net profit for 2008 on
account of an impairment charge of US$3.3 billion related to its stake in Fortis and losses in
equity investments.2 In the midst of a global financial storm, how could Ping An navigate
forward?
An Overview of the Global Insurance Industry
Brief History
The roots of the modern insurance industry could be traced back to marine insurance in the
13th century, when merchants in Europe sought investors willing to share the risk of seaborne
transportation.3 A merchant would circulate an inventory list of the cargo and investors would
mark their names underneath the description of the items they were willing to accept liability
1
From 1995 to June 2005, the Chinese yuan was linked to the US dollar in a fixed exchange rate system at a rate of US$1 = Rmb
8.11. From June 2005 the yuan has been linked to a basket of currencies. On 31 December 2008 the exchange rate was US$1 =
Rmb 6.85.
2
Or, A. (9 April 2009) “Ping An Profit Falls 99%”, Wall Street Journal.
3
Marine insurance covered the transportation risk of cargo over the seas.
Andrew S. Li prepared this case under the supervision of Professor Hung-Gay Fung and Professor Gerald Yong Gao for class
discussion. This case is not intended to show effective or ineffective handling of decision or business processes.
© 2009 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or
transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the
internet)—without the permission of The University of Hong Kong.
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Ping An’s Overseas Expansion: Financial Uncertainties and Risk Management
for. This practice of selecting and rejecting risks by “writing under” gave rise to the term
“underwriter”. Other branches of insurance emerged later: life insurance (in 1536), fire
insurance (in 1666) and casualty insurance (in 1848).4
The initial form of insurance in the US was marine insurance underwritten by British insurers.
The first US insurer was a fire insurance firm founded in 1752, and the first US life insurer
was founded in 1759. Casualty insurance came in 1864. Insurers could underwrite multiple
areas but chose to specialise in one, forming the monoline system of underwriting only one
type of insurance. Patterned from the status quo, regulation was developed to reinforce the
monoline underwriting and only changed to multiple-line underwriting in the late 1940s.
Property and casualty (“P&C”) insurers were formed, but life insurers remained separate.
Other specialised insurers evolved, but the industry in general was broadly divided between
non-life and life insurers.5
Non-life underwriters, predominantly P&C insurers, protected property. The principle was to
restore individuals back to an earlier financial position after a loss. Major areas included
home property protection, auto protection, commercial property protection, individual
liability protection and commercial liability protection. Relative to life products, the time
horizon for non-life products was much shorter, and the products were fairly standardised.
These products were sold through such channels as the internet, postal services and direct
sales.
Life underwriters protected against various human life contingencies. In the event of death, a
life insurance contract protected the survivors. In the event of living longer than expected and
not having enough money, an annuity provided a stream of income. Life insurance products
were generally marketed as either individual or group. Typically, life insurance agents sold
individual life insurance directly. The premiums were paid regularly (eg, annually, semiannually, quarterly or monthly). For group insurance, a master policy was issued to an
employer for the benefit of employees. Group life involved mass selling and mass
administration and provided the lowest cost of protection. Because life insurance products
were more differentiated and of longer duration, consumers placed greater importance on
insurers’ financial viability, brand strength and company size.
Business Model
The business model of providing insurance was to generate profit from the underwriting
process and the investment process. In the underwriting process, the insurer selected the risks
to be insured against and the appropriate premium to charge for accepting those risks.
Actuarial science was used to calculate the optimal pricing. The underwriting process was
profitable if the premiums received exceeded the incurred losses and underwriting expenses.
The collected premiums were then invested to generate investment returns to cover claims.
Ideally, investments were made in assets that matched the liabilities. As non-life contracts
were typically of short duration (ie, a few years), investment returns were composed of
interest on bonds, dividends on stocks, interest on collateral loans and interest on bank
deposits. Life contract liabilities had much longer time horizons, such as 10, 20 or 30 years.
Consequently, life insurers invested in all the areas that non-life insurers did, as well as
mortgage loans and real estate.
4
Fire insurance covered loss of or damage to property due to fire, while casualty insurance covered loss of or damage due to
liabilities.
5
Vaughan, E. and Vaughan, T. (2008) Fundamentals of Risk and Insurance, 10th Edition, John Wiley & Sons Inc. pp. 74–76.
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To measure performance, the industry had developed a number of metrics. For non-life
insurers, the combined ratio was the key metric to measure underwriting profitability.6 For life
insurers, it was less standardised, but some used the operating expense ratio.7 One common
key metric for both life and non-life insurers was the solvency ratio, which indicated the
ongoing viability of the firm.
Banks and Insurance8
In the US, the Glass–Steagall Act of 1933 prohibited banks from owning insurance firms or
security brokerages. Following the global convergence trend, the compartmentalisation ended
in 1999 when the US Congress passed the Financial Services Modernization Act (also known
as the Gramm–Leach–Bliley Act). In Europe, banking and insurance had combined to form
bancassurance. 9 Universal banking generally referred to banking that involved commercial
banking, brokerage and insurance in one form of organisation, typically seen in European
countries.
The Insurance Industry in China
Early History
The insurance industry was nationalised with the formation of the People’s Insurance
Company of China (“PICC”) when the People’s Republic of China was founded in 1949. All
domestic insurance work ceased, as the communist state alone was to administer social
welfare. With Deng Xiaoping’s economic reforms in 1979, PICC gradually restored domestic
operations in 1980, marking the rebirth of the Chinese insurance industry.
With nationwide operations in both life and non-life businesses, PICC owned the market until
the emergence of Ping An (formed in 1988) and China Pacific Insurance Company (formed in
1991). The insurance industry focused on a limited range of products: group life, simple life
and personal accident insurance products.10
In 1992, in order to facilitate its entry into the General Agreement on Tariffs and Trade—the
precursor to the World Trade Organisation (“WTO”)—China pledged to open up its insurance
industry. Not long after, American Insurance Assurance (“AIA”) won regulatory approval to
be the first foreign player in China. In addition to introducing innovative products such as
whole life insurance, term life insurance, endowment and annuity products, AIA introduced
the agency distribution system.11 The second and third foreign insurers to enter China were
Tokyo Marine and Fire Insurance (in 1994) and Winterthur Swiss Insurance (in 1996).
Limitations on geography and business products were placed on foreign insurers to protect the
domestic insurers.12
6
The combined ratio was calculated by adding the loss ratio to the expense ratio for the period under consideration. The loss
ratio was calculated by dividing the losses incurred by the premiums earned. The expense ratio was calculated by dividing the
expenses incurred by the premiums written. If the combined ratio was less than 100%, the underwriting was profitable..
7
The operating expense ratio was calculated by determining general and administrative expense as a percentage of net earned
premium.
8
Vaughan, E. and Vaughan, T. (2008) Fundamentals of Risk and Insurance, 10th Edition, John Wiley & Sons Inc: New Jersey,
pp. 86–87.
9
Bancassurance was the selling of insurance through a bank or a full merger of banking and insurance operations.
10
Chan, K. (28 January 2004) “China Life Insurance—The Slate—Wide and Clean”, Nomura.
11
A term life product provided basic life insurance protection for a stated period of time. In other words, it paid the beneficiary if
the death of the insured occurred within the stated term. In contrast to term life, whole life products provided life insurance
benefits for the entire lifetime of the insured; The traditional way of selling life insurance in China was to approach state-owned
enterprises directly. In an agency distribution system, life insurance was sold “door-to-door” through agents.
12
Zhuang, C. and Kristensen, J. (June 2002) “The Chinese Insurance Market”, XL Winterthur.
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PICC, China’s biggest insurer, transformed into an insurance holding company in 1996 and
restructured again in 1999 to abide by China’s Insurance Law. The two main subsidiaries
resulting from the last restructuring were China Life, which conducted life insurance business,
and PICC, which conducted non-life insurance business.13
Regulatory Environment
With the gradual restoration of competition in the insurance industry in the 1980s, the
regulatory function of PICC was under the central bank, the People’s Bank of China
(“PBOC”). PBOC introduced a number of key insurance regulations, such as the 1983
Regulations on Contracts for Property Insurance, the 1985 Provisional Regulations on the
Administration of Insurance Enterprises, the 1992 Provisional Measures on the
Administration of Insurance Institutions with Foreign Investments in Shanghai and the 1995
Insurance Law of the People’s Republic of China.14
On 1 October 1995, the Insurance Law came into effect and detailed provisions on licensing
of insurance companies and intermediaries, separation of life insurance and property and
casualty insurance, regulation of market conduct, regulation of insurance products, measures
of the financial condition and performance of insurance companies, and the supervisory and
enforcement powers of the regulatory authority. In addition to regulating the insurance
industry, PBOC was in charge of supervising and regulating the banking and securities
industries. However, the 1997 Asian Financial Crisis prompted the government’s decision to
minimise risk by establishing firewalls between the three. In November 1998, the China
Insurance Regulatory Commission (“CIRC”) was created to supervise and regulate the
growing insurance market.
On 28 October 2002, CIRC amended the Insurance Law to align the industry more closely
with international practices. Salient changes included: increased disclosure requirements from
insurance companies; stricter reserve and solvency requirements; greater leeway on insurance
products; wider investment channels, including equity investment in insurance-related entities
such as asset management companies; more severe penalties for market misconduct; and
lowered barriers to entry by allowing more foreign insurers into the market and allowing P&C
insurers to provide accident and short-term health insurance products.15
China, abiding by WTO accession requirements, opened up its insurance market and removed
all geographic and product restrictions by the end of 2004. However, foreign life insurers
were still required to operate as joint ventures, whereas non-life insurers could be wholly
owned by foreigners. Nonetheless, CIRC maintained control over the pace of license
approvals as joint ventures had to submit an application for each branch.
CIRC stipulated how the insurance funds were to be used. Prior to June 2003, insurance
companies had been restricted to investing only in state-owned enterprise bonds. Over time,
the restrictions were relaxed and a portion of the funds could be invested in the stock market
and in the equity of non-listed banks. By 2008, insurance companies were able to better match
their long-term liabilities with long-term investments in infrastructure projects such as
highways, energy projects and urban facilities16 [see Exhibit 1 for the insurance investment
rules as of 2008].
13
Chan, K. (28 January 2004) “China Life Insurance—The Slate—Wide and Clean”, Nomura.
Allen, A. (1999) The Insurance Industry in China, Asia Information Associates Ltd: Hong Kong, pp. 34–36.
15
Ping An (2004) “IPO Prospectus”, pp. 168–169.
16
Chang, M. (29 September 2008) “Ping An”, Deutsche Bank.
14
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The Modern Insurance Industry
As of 2007, China’s penetration rate for non-life and life insurance remained low. China’s
P&C penetration rate was 1.1%, compared to 2.8% for Taiwan and 3.6% for South Korea.
China’s life insurance penetration rate was 1.8%, compared to 12.9% for Taiwan and 8.2%
for South Korea.
From 2002 to 2007, premiums for P&C companies grew at a compound annual growth rate of
23%, while the disposable per capita income in urban areas grew at a compound annual
growth rate of 12%. Life insurance gross written premiums increased 22% year-on-year in
2007. With the country’s massive population (1.3 billion in 2007) and double-digit real GDP
growth rate (11.9% in 2007), Deutsche Bank analysts proclaimed that the opportunity was
immense for both non-life and life underwriters in China.17
Non-Life Market
By July 2008, there were 29 domestic and 14 foreign non-life insurance companies in China,
up from 11 and seven in 2002. The top three underwriters (ie, PICC, China Pacific and Ping
An) accounted for 66% of the non-life insurance market, down from 97% in 2000 [see
Exhibit 2].
The major lines of business were motor vehicle, commercial property, cargo, liability and
personal-accident injury insurance. Because third-party-liability motor insurance was made
compulsory in June 2006, it accounted for the highest percentage of the industry’s gross
written premiums (70%). The country’s motor vehicle ownership rate (defined as the number
of passenger vehicles per capita) was still low at 2.4%, in comparison to South Korea at 25%
and Japan at 45%.
Attracted by the strong growth potential and ease of entry, many smaller non-life underwriters
(both foreign and domestic) continued to enter the market, resulting in intense price
competition and poor underwriting profitability. To improve the market environment, CIRC
introduced a number of measures in 2008, such as more stringent enforcement of the solvency
margin rules, encouraging insolvent insurers to either exit or merge with one another, and a
new premium-settlement system whereby customers used terminals to pay cash directly to
insurers instead of paying agents.18
Life Market
By July 2008, the life insurance market remained highly concentrated, with the top three
insurers (China Life, Ping An and China Pacific) accounting for approximately 65% market
share of the life insurance market, down from 96% in 2000. They were the only players with
nationwide reach, strong brands and high service levels. The number of smaller domestic
insurers grew to 59 in 2007, from about 43 in 2005. The foreign market share stood at 4.9%,
with AIA leading with 0.94% [see Exhibit 2 for market shares of the major non-life and life
insurers].
The major lines of business were individual life insurance and group life insurance. The major
life underwriters introduced unit-linked products 19 in 1999 and dividend products
(participating life 20 and annuity products) in 2000. Policyholders viewed the unit-linked
products as an investment with some insurance protection added on. With a culture of high
17
Chang, M. (29 September 2008) “China Insurance”, Deutsche Bank.
Ibid.
19
A unit-linked product offered an investment vehicle such as a mutual fund with life insurance benefits.
20
A participating product entitled the policyholder to “participate” in the distributable earnings in the form of dividends.
18
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savings and the absence of an adequate social security system, savings-type insurance
products dominated the Chinese market, accounting for over 80% of the life market in 2000.
Participating products were offered as an intermediary blend of term life insurance and
investment-linked products. They offered lower guaranteed rates, but the policyholder shared
in the investment profit or loss of the insurance company. With increased investment
awareness and demand for a savings product with an investment feature, the demand shifted
from non-participating policies to participating polices. In 2002, participating policies
represented 49% of total premiums and 90% of total new premiums.
In 2004, universal life products were introduced.21 Like participating products, they offered a
mix between term life insurance and investment-linked products. The attractiveness of
universal life products was attributed to flexibility, transparency and a lack of alternative
high-yield investments. After considering the tax-deferred benefits, universal life crediting
rates of 3.20–3.35% were superior to the term-deposit and bank deposit rates offered at the
time, which were both subject to 20% tax.
The main distribution channels were agents, direct sellers and intermediaries, such as banks
(bancassurance), which was introduced in 2000. The main products typically distributed
through the bancassurance channel were investment-type products (ie, unit-linked, universal
life and, to a lesser extent, participating life products) [see Exhibit 3 for information on the
distribution channels of insurance products in China].
The Development of Ping An
History
In 1985, Peter Ma, the deputy manager of a small, state-run security-fund firm near Shenzhen,
lobbied the regulators for permission to set up the country’s first privately run insurer as an
alternative to the state monopoly PICC. Ma was granted permission and started the Shenzhen
Ping An Insurance Company in 1988. It focused on providing property, freight-transport and
liability insurance. 22 In 1994, Ping An expanded into life insurance. In developing the
company as a diversified financial services provider, it established a number of subsidiaries
such as trust, health insurance and annuity insurance providers, and made several bank
acquisitions. By 2008, Ping An had eight subsidiaries nationwide [see Exhibits 4 and 5].
Culture, Vision and Strategy
By integrating Western management ideas with traditional Chinese philosophy, Ping An
formed a novel corporate culture. Its stated mission was as follows:
21
A universal life product was similar to traditional whole life products, except the policyholder had greater transparency and
flexibility. That is, the policyholder could vary the premium payments and death benefits. Essentially, the collected premiums
less the monthly payments for the insurance protection were deposited into an account and earned interest. The rate of return
on the interest was determined by the insurer every month and was termed the “investment-credit rate”. In China, universal life
insurance escaped estate duties and the investment could accumulate tax-free.
22
Hamlin, K. (October 2007) “China’s Would-Be Giant Killer”, Institutional Investor—International Edition.
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For investors, Ping An’s goal is to produce stable return and boost asset
values.
For customers, the Company aims to provide the best services with integrity.
For employees, Ping An’s commitment centers on being a responsible
employer and provides for the lives and careers of its employees.
For Society, Ping An’s commitment is based on the Company’s desire to give
back to society and contribute to the development of the country.23
- Ping An
Ping An’s values were as follows:
Corporate:
Ping An constantly seeks to achieve excellence in all aspects of its business,
building on a strong foundation of Chinese culture and traditions
Team:
Our business is based on unity, energy, learning, and innovation.
Individual:
Our employees focus on integrity and trust and are continually striving for
the highest achievement. 24
- Ping An
Ping An's operating concept was to “combine a pioneering spirit with distinctive
professionalism to achieve lasting success”.25 Its stated vision was:
To become one of the world's top ranking financial services and insurance
groups and a leader in the financial industry. We believe that our ability to
innovate has helped us maintain our leading position in the market and
capitalize on the growing demand for insurance services in the PRC.26
- Ping An
In a May 2007 presentation, Ping An outlined its three-pillar strategic framework [see
Exhibit 6] and three-stage strategy.27
STAGE
1
2
3
BUSINESS
PROFIT CONTRIBUTION
•
•
•
•
•
•
•
•
•
Core profit driver for the next 5 years
Life Insurance
P&C Insurance
Banking
Investment
Consumer Finance
Annuity
Health Insurance
New Distribution Channels
Third Party Asset Management
Next 3–10 years
Next 5–15 years
Figure 1: Ping An’s Three-Stage Strategy
23
For details, see Ping An’s website: http://www.pingan.com/about/en/culture.jsp (accessed 31 March 2009).
Ibid.
25
Ibid.
26
Ibid.
27
Ping An (14 May 2007) “Performance & Strategy of Ping An”, Company Presentations.
24
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Management Team
In line with a corporate culture combining East and West, 68 of the company’s top 100
executives were recruited from overseas.28 The management team had deep local knowledge
combined with extensive international experience. Two key people were Ma, the founder, and
Louis Cheung.
Ma had been the chief executive since April 2001 and chairman since April 1994. He
obtained his doctorate degree in money and banking from Zhongnan University of Economics
and Law and was a member of the 11th National Committee of the Chinese People’s Political
Consultative Conference.29
Cheung, who had led the McKinsey team that redesigned the investment process and
information technology platform for Ping An, was hired as senior adviser, chief information
officer and chief financial officer in 2000. A native of Hong Kong, Cheung had worked as an
engineer before obtaining his PhD in business information systems from the University of
Cambridge30 [see Exhibit 7 for Ping An’s key management team].
In September 2006, Euromoney magazine named Ping An Asia’s best-managed insurance
company. It was also named the best-managed company in China and fifth-best in Asia, based
on feedback from over 100 research and financial institutions. The respondents noted that
Ping An was a leader in senior manager hires with “international experience, strong corporate
governance and market-based operations”.31
Business Model and Results
Ping An was China’s first financial conglomerate, providing insurance, investment
management and wealth management to approximately 41 million individuals and two
million corporations in 200832 [see Exhibit 8 for the profit breakdown of Ping An by business
unit].
The major contributing business units were life insurance, P&C insurance, banking and
securities.
Insurance
For life insurance, the main products distributed were term life, whole life, universal life and
unit-linked insurance, as well as par products33 [see Exhibit 9]. These products were primarily
distributed through agents, group sales representatives and bancassurance channels. Group
insurance was primarily offered to large state-owned entities, foreign-invested enterprises,
privately held Chinese companies and government branches. The company’s bancassurance
intermediary relationships included China Post, the four largest national commercial banks
and many other mainland banks.
As of 2007, Ping An sourced 22.5% of its premiums from first-tier cities (ie, the relatively
developed and high-income cities Shanghai, Beijing and Shenzhen), compared to 7.3% for
China Life. It had the leading market shares of 18.2% in Beijing, 22.3% in Shanghai and
28
Hamlin, K. (October 2007) “China’s Would-Be Giant Killer”, Institutional Investor—International Edition.
This was a political advisory body in China with delegates from various political parties and organisations, as well as
independent members.
30
Hamlin, K. (October 2007) “China’s Would-Be Giant Killer”, Institutional Investor—International Edition.
31
For details, see Ping An’s website: http://www.pingan.com/about/en/news_70086.jsp (accessed 9 January 2009).
32
For details, see Ping An’s website: http://www.pingan.com/about/en/insurance.jsp (accessed 9 January 2009).
33
Lo, K. and Ho, S. (18 January 2008) “Ping An Insurance”, ABN AMRO.
29
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26.9% in Shenzhen, ahead of China Life with 14.2% in Beijing, 18.6% in Shanghai, and
21.2% in Shenzhen.34
In October 1999, Ping An pioneered the introduction of unit-linked products (both individual
and group) to China. In mid-2004, Ping An was one of the first market leaders to sell
universal life products, which comprised 50% of Ping An’s new policy premiums in the fiscal
year 2005.35
Non-life products were categorised as automobile, non-automobile, and accident and health.
In 2008, the composition breakdown in terms of gross written premiums was: automobile
(72%), non-automobile (23%), and accident and health (5%) [see Exhibit 10 for selected
financial data of Ping An].
Banking
In June 2007, the China Banking Regulatory Commission approved Ping An’s request to
merge Fujian Asian Bank with Shenzhen Commercial Bank to form Shenzhen Ping An
Bank. 36 With 49 branches in three cities and assets of US$9.9 billion, the bank was tiny
compared to the big four state-owned titans (ie, Agricultural Bank of China, Bank of China,
China Construction Bank, and Industrial and Commercial Bank of China), which had a
combined 73,000 branches and assets of US$3.2 trillion.37
Richard Jackson joined Ping An in October 2005 and was tapped to become the bank’s
president. With 20 years’ experience in various roles at Citigroup in South Korea, Hungary
and Poland, he brought a wealth of experience. Most notably, Jackson had grown Citibank
Hungary from a single-branch bank into the country’s fifth-largest bank.38
Securities39
With a buoyant A-share 40 stock market in the first half of 2007, the securities business
benefited substantially from brokerage fees, underwriting commissions and proprietary
trading investments. It had 22 branch offices nationwide.
Asset Management
As of 2007, the asset management business unit did not provide any significant revenue
contribution. Ping An Asset Management Co. Ltd was formed in 2005.41 In June 2006, China
Ping An Asset Management (Hong Kong) Company Ltd was also established.
In January 2007, John Pearce—the former chief executive of Australia’s largest fund manager,
Colonial First State Investments—was brought on as the chief investment officer and
chairman of China Ping An Asset Management (Hong Kong) Company Ltd. With US$49.0
billion in in-house funds, Pearce planned to grow and diversify the money management
business by expanding into overseas markets and competing to manage money for
institutional investors.42
34
Chang, M. (29 September 2008) “China Life”, Deutsche Bank.
Chang, M. (6 April 2006) “Ping An”, ABN AMRO.
36
For details, see Ping An’s website: http://www.pingan.com/about/en/news_70118.jsp (accessed 9 January 2009).
37
Hamlin, K. (October 2007) “China’s Would-Be Giant Killer”, Institutional Investor—International Edition.
38
For details, see Ping An’s website: http://www.pingan.com/about/en/news_70104.jsp (accessed 9 January 2009).
39
Lo, K. and Ho, S. (18 January 2008) “Ping An Insurance”, ABN AMRO.
40
Chinese companies were listed variously and on different stock exchanges. “A-share” denoted Chinese companies listed in
China and traded in renminbi. “B-share” denoted Chinese companies listed in China but not traded in renminbi. “H-share”
denoted Chinese companies listed in Hong Kong.
41
For details, see Ping An’s website: http://www.pingan.com/about/en/news_70100.jsp (accessed 9 January 2009).
42
Hamlin, K. (October 2007) “China’s Would-Be Giant Killer”, Institutional Investor—International Edition.
35
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09/445C
Key Competitors
Ping An’s key competitors were China Life in the life insurance segment and PICC in the
non-life insurance segment.
China Life
China Life was formed after the 1999 restructuring of PICC, the former state-owned
monopoly. Consequently, it was the largest life player, with a well established distribution
channel and wide geographic reach. However, as the largest player in the market, it also
suffered the most from the negative spreads that resulted from guaranteeing high rates of
return in the early 1990s.43
To fix the situation and facilitate a smoother initial public offering, China Life underwent a
restructuring in June 2003. In this restructuring, the “legacy” policies with negative-spread
issues were retained with China Life Insurance Company and the rest were given to China
Life, effectively giving China Life a clean slate. China Life had successful initial public
offerings on the New York Stock Exchange on 17 December 2003 and the Hong Kong Stock
Exchange on 18 December 2003.
Like Ping An, China Life slowly expanded into other areas. In 2006, China Life and China
Life Insurance Company established a P&C company and had total assets of US$233.9
million by the end of 2007. China Life also formed China Life Pension in 2007 and had total
assets of US$103.4 million by the end of the year [see Exhibit 11 for selected financial data
of China Life].
In a May 2008 presentation, China Life presented its three-step strategy to reach its goal of
becoming a top global financial and insurance group.44
Step
Description
1
1. Establish life business as core insurance business
2. Establish asset management as core non-insurance business
2
1. Build P&C business to become core business
2. Build pension business to become core business
3
1. Extend into banking, mutual fund, securities and trust businesses
Figure 2: China Life’s Three-Step Growth Strategy
PICC
The current PICC was the non-life business that resulted from the 1999 restructuring of PICC,
the former state-owned monopoly. Like China Life, it had inherited a substantial network.
PICC had maintained its leading position in the non-life market for over 59 years, though its
market share had eroded significantly since China’s accession to the WTO. In 2004, it had a
58.1% market share and, by 2008, it had 41.6% [see Exhibit 12 for selected financial data of
PICC].
43
A negative spread was a situation in which an underwriter promised higher interest rates than the prevailing interest yields it
was able to generate from its investments. In the early 1990s, interest rates were high, so life insurers offered guaranteed rates
of return of up to 11% for policies that ran for more than 10 years. When the deposit rate declined rapidly from about 11% in
the mid-1990s to 2.25% in 1999, the investment yields failed to meet the guaranteed rate of return, resulting in negative
interest spreads across the industry.
44
China Life (31 May 2008) “Improving Investment Environment & China Life’s Corporate Governance”, Company
Presentations, http://www.e-chinalife.com/IRchannel/files/presentation20080619En.pdf (accessed 13 June 2009).
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International Expansion
Much like foreign companies that made investments in China to gain market knowledge,
Chinese financial institutions bought minority stakes in companies overseas. To avoid
regulatory restrictions and political opposition abroad, they purchased relatively small
positions rather than making outright acquisitions. Aside from a good return on investment,
Chinese banks and insurers looked to gain expertise in risk management, information
technology, product development and customer service.45 [see Exhibit 13 for notable overseas
deals in 2006 and 2007 by Chinese financial institutions].
On 29 November 2007, Ping An announced it had purchased a 4.2% stake in Fortis, thereby
becoming the largest shareholder. The stake was later increased to 4.99% in 22 January 2008.
A further placement of 7.5 million more shares was made on 26 June 2008 to avoid dilution,
for a total purchase of US$3.42 billion. 46 Fortis’s board of directors invited a Ping An
representative to join the board, provided the stake remain above 4%.
At the time of investment, Fortis’s stock was trading at a price-to-book value of 1.1x. In
comparison, Hong Kong banks traded in the 1.8–2.5x range, and domestic Chinese banks
traded in the 3.0–4.0x range. Ping An shares rose 6.73% whilst the Hang Seng Index rose
3.92% after the public announcement.47
The price appears reasonable, especially in light of Fortis’s 25% and 30%
share price decline since June 30.48
- Deutsche Bank
It was speculated that the decline in Fortis’s share price was attributed to the uncertainty
around the ABN AMRO integration and the bearish market sentiment regarding financials.
The deal brings together one of the only global players with proven success
in the bancassurance model and a Chinese firm aspiring to build a significant
bancassurance-based franchise.49
- Finance Asia’s specialist close to the deal
Another specialist commented: “The deal is an ALM [asset-liability management] play for
Ping An as Fortis has a dividend yield of 7% and Ping An had a number of legacy policies.
The deal also allows Ping An to denominate part of its investment portfolio in Euro.”50
Other analysts were surprised by the deal size, as Ping An’s regulator-approved upper limit
for overseas investments was 5% of its assets. Deutsche Bank calculated that this one
transaction had committed 64% of Ping An’s total permitted overseas-investment allocation.51
On 19 March 2008, Ping An and Fortis announced that they had entered into a global asset
management partnership and that Ping An would buy a 50% stake in Fortis Investments for
US$3.35 billion. The deal was subject to regulatory approval.
45
Ngai, J. and Wang, Y. (June 2008) “Global Investment Strategies for China’s Financial Institutions”, McKinsey Quarterly.
€1 = US$1.5582 on 26 June 2008.
47
Ping An (6 October 2008) “Impairment of Investment in Fortis Group Shares”, Company Presentations; Hang Seng Index is
Hong Kong’s main stock market index.
48
Anand, S. (30 November 2007) “Ping An Buys 4.2% Stake in Fortis”, FinanceAsia.com,
http://www.financeasia.com/print.aspx?CIID=98369 (accessed 9 January 2009).
49
Ibid.
50
Ibid.
51
Ibid.
46
11
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Ping An’s Overseas Expansion: Financial Uncertainties and Risk Management
Ping An is very much interested to have a strong partnership outside China
for its asset management services as it has seen fast increasing demand from
its rich clients who desire to diversify their wealth. A strong partnership
means you are not just a financial investor but can also have a real influence
when you need your partner to help you with some specific deals. In this case,
you have to buy a big stake into it.52
- Chen, G. and Flaherty, M., International Herald Tribune
A Goldman Sachs report indicated that Ping An would benefit in three areas. First, there
would be improvement in Ping An’s capital management scale and products, particularly
enhancing third-party asset management. Second, Ping An would obtain skills in product
design, investment management, research, information technology and marketing. Third, the
joint venture might give Ping An competitive advantages over domestic competitors in
overseas investment and investment products.53
Ma called the deal an important step in the company’s three-pillar strategic framework. 54
Fortis
Fortis was formed in 1990 through the merger of NV AMEV, a Dutch insurer, and VSB
Groep, a Dutch bank. By the end of 1990, AG Group, a large and dominant Belgian insurer,
joined the merger. Through organic growth and acquisitions of other banks and insurance
firms, Fortis grew substantially in Europe and abroad. It formed a number of joint ventures
and alliances with Asian financial institutions, such as Haitong Securities Co. Ltd in
Shanghai, Maybank of Malaysia and the Industrial Development Bank of India Ltd. On 17
October 2007, as part of a consortium with Royal Bank of Scotland and Banco Santander,
Fortis took over the Dutch bank ABN AMRO.55
In March 2008, Fortis and Ping An announced their asset management partnership.
We call [the joint venture] a win-win and we want to quickly win on both
sides. Our teams will work with Ping An and define what these quick wins
can be, so that we can immediately get the machine in motion.56
- Jean-Paul Votron, chief executive of Fortis
Although Fortis had operated for a few years in Asia, it only had seven branches and eight
representative offices. In partnership with Ping An, Fortis intended to grow the contribution
from the asset management business from 10% to one-third of net profits in three years.
Outsiders considered the deal to be an effort by Fortis to bolster its capital position, having
reported a subprime-related write-down of US$2.7 billion.57 Critics reasoned that it did not
make sense for Fortis to sell the asset management business so cheaply. Analysts reported that
Ping An had received the better half of the bargain, paying a mere 1.8% instead of the nearly
3% (of assets under management) that Fortis had paid for ABN AMRO’s assets.58
52
Chen, G. and Flaherty, M. (14 March 2008) “Ping An to Buy Major Stake in Fortis Unit”, International Herald Tribune.
Huiying, C. (9 April 2008) “Ping An–Fortis Deal: Who Really Wins?”, Caijing.
54
Ibid.
55
Fortis (2009) “History of Fortis”, http://www.holding.fortis.com/general/history.asp (accessed 24 April 2009).
56
Lau, J. (4 April 2008) “Fortis Seeks Fresh Asian Alliances in Wake of Ping An Deal”, Financial Times.
57
Ibid.
58
Buerkle, T. (April 2008) “THE BUY SIDE—Mixed Blessing”, Institutional Investor.
53
12
Ping An’s Overseas Expansion: Financial Uncertainties and Risk Management
09/445C
Votron denied the connection with solvency:
To do it right in China you can't do it on your own […] It's too big, too
complex and you would only scratch the surface […] Ping An was the most
powerful distribution engine that we could find to help us grow.59
- Jean-Paul Votron, chief executive of Fortis
Credit Crisis
On Monday, 29 September 2008, Fortis became one of the casualties of the global credit
crisis. The Friday before, Fortis had named its third chief executive in three months. The
share price tumbled to its lowest in a decade. Belgium, the Netherlands and Luxembourg
bailed out Fortis by pledging more than US$17.5 billion to keep it from insolvency. In
exchange for this bailout, each country partially nationalised Fortis in their respective country
by taking a 49% ownership.60
Aftermath
Since Ping An’s initial investment in November 2007, Fortis’s share price had fallen 72% by
3 October 2008, leading Ping An to announce a 66% write-down of the Fortis investment.
Ping An further announced that it would terminate the sale and purchase agreement with
Fortis Bank to acquire the 50% stake in Fortis Investment Management, which was still
pending regulatory approval.61 On 8 April 2009, Ping An reported a 99% plunge in net profit
for 2008 on account of an impairment charge of US$3.3 billion related to its stake in Fortis
and losses in equity investments. The investment had lost more than 90% of its value since
October 2007. Some critics claimed that Ping An’s investment in Fortis was the worst
overseas investment ever made by a Chinese company. Nonetheless, Ma said Ping An would
not retreat from the international scene: “In the coming five years, we will continue to achieve
the strategic objective of being ‘financially integrated and international-leading’.”62
59
Ibid.
Sterling, T. (29 September 2008) “Benelux Nations Partially Nationalize Fortis Bank”, International Herald Tribune.
61
Chang, M. (7 October 2008) “Ping An Insurance Grp”, Deutsche Bank.
62
Or, A. (9 April 2009) “Ping An Profit Falls 99%”, Wall Street Journal.
60
13
Ping An’s Overseas Expansion: Financial Uncertainties and Risk Management
09/445C
EXHIBIT 1: INSURANCE INVESTMENT GUIDELINES
Investment type
Sub-category restrictions
Cash / deposits
Fixed interest
No restrictions
Government bonds - no restrictions
Financial bonds + Sub-bonds by commercial banks <30% total assets
(<10% in a single bank)
Sub-debt by commercial banks <8% of total assets (<5% in a single bank)
Corporate bonds (including convertible bonds and short-term financial
bonds) <30% total assets
- Corporate bond (enterprise bond) exc convertible bond; single issue
<10% of the issue and <3% of total asset (without guarantee); <20% and
<5% with guarantee
Sub-debt by insurers <20% net asset value, (4% in a single issuer)
Total investment in a single issuer (include bond guaranteed by the issuer)
<20% of total assets
Domestic
Bond investment in single enterprise (corporate) <10% of total assets
Credit ABS <2% of total assets, single credit ABS <10% of its issue scale
Equity
<20% of total assets
<10% for direct investment and <10% for fund investment
Concentration risk in one company <5% for total insurer's equity portion
<10% of total equity of a listed company
Need to report to CIRC, if total investment loss on a portfolio basis >10%
and gain >20%
Equity interest in non-listed
commercial banks (state-owned
banks, joint stock banks and city
banks in China)
Ordinary investment (<5% bank's
equity capital)
Ordinary investment - concentration risk in one bank <1% of total asset
Material investment (>5% bank's
equity capital)
Material investment - total investment balance <40% of insurers' paid in
capital
Overseas
Indirect infrastructure projects
Real estate
QDII (Qualified Domestic Institutional
Investors)
Currency market products, fixed
proceeds products and equity
products
<3% of total assets
For life insurer: <5% of total assets and a single investment <20% of total
project budget
For non-life insurer: <2% of total assets and a single investment <5% of
total project budget
Currently not allowed. However, investment using insurer's own capital for
it's own use allowed.
<15% of total assets
Structured deposits <5% QDII amount;
Mortgage backed securities <20% QDII amount;
Equities of Chinese corporate <10% of QDII amount
Concentration risk in one company <5% total shares issued and
outstanding
Concentration risk in a single debt <10% of QDII amount
Others
Hong Kong listed H-share and red chips <5% total assets
Need to report to CIRC, if total investment loss on a portfolio basis >10%
and gain >20%
Indirect infrastructure projects (under
consideration)
Real Estate (under consideration)
Private Equity
<8% of total asset, <5% for debt investment, <3% for equity investment
<5% of total asset (estimated); no cap in amended Insurance Law (draft)
Need CIRC approval case by case
Source: Chang, M. (29 September 2008) “Ping An Insurance”, Deutsche Bank.
14
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Ping An’s Overseas Expansion: Financial Uncertainties and Risk Management
EXHIBIT 2: MARKET SHARE OF NON-LIFE AND LIFE INSURERS
JULY 2008
Source: Chang, M. (29 September 2008) “China Insurance”, Deutsche Bank.
15
09/445C
Ping An’s Overseas Expansion: Financial Uncertainties and Risk Management
EXHIBIT 3: DISTRIBUTION CHANNELS
Distribution
Channel
Exclusive
agents
Products Sold
Individual life,
annuities, and
accident & health
Description
Independent agent sales
force. Main distribution
for individual life
insurance.
Compensation
Method
Commissions and
performance fees
Group insurance Group life,
annuities, and
sales rep /
accident & health;
Direct sales
/ P&C products
force
Full time employees. Main
distribution channel for
group life / P&C insurance
products
Salary and
performance bonus
Intermediaries
Commercial banks, post
office, savings
cooperatives, insurance
agencies and brokerage
companies
Commissions and
performance fees
Individual and
group products
Source: Chang, M. (29 September 2008) “China Insurance”, Deutsche Bank.
16
99%
Ping An P&C
Company of
China Ltd
99.06%
Ping An
Securities Co.,
Ltd.
86.77%
China Ping An
Trust &
Investment
Co., Ltd
99.88%
Ping An
Annuity
Insurance
Company of
China Ltd
97%
Ping An Health
Insurance
Company of
China Ltd
95%
Ping An Asset
Management
Co. Ltd
96%
China Ping An
Insurance
(Hong Kong)
Company, Ltd.
75%
Shenzhen Ping
An Bank Co.,
Ltd
90.04%
Ping An insurance (Group) Company of China, Ltd.
EXHIBIT 4: ORGANISATIONAL STRUCTURE
Ping An of
China Asset
Management
(Hong Kong)
Company, Ltd
100%
China Ping An
Insurance
Overseas
(Holdings) Ltd.
100%
Ping An’s Overseas Expansion: Financial Uncertainties and Risk Management
17
Source: Ping An (2008) “Fact Sheet”, HTTP://WWW.PINGAN.COM/CMS-TMPLT/OPENATTACH.DO?FILENAME=/INVESTOR/EN/FILE/SUMMARY.PDF
(accessed 29 January 2009).
Ping An Life
Insurance
Company of
China Ltd
09/445C
Ping An’s Overseas Expansion: Financial Uncertainties and Risk Management
09/445C
EXHIBIT 5: HISTORICAL HIGHLIGHTS
Year
2007
2006
2005
2004
2003
2002
2001
2000
1998
1997
1996
1995
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
1994
•
1988
•
•
Milestone
Listed in Shanghai Stock Exchange
Established Ping An Asset Management Company (HK), Ltd.
Acquired Shenzhen Commercial Bank
Established Ping An Asset Management Company, Ltd.
Established Ping An Health Insurance Company of China, Ltd.
Listed on Hong Kong Stock Exchange
Purchased Fujian Asia Bank Ltd. Renamed Ping An Bank Ltd.
Established Ping An Annuity Insurance Company of China, Ltd.
Introduction of nationwide auto claims services
Early pioneer promoting Universal Life products
Established Ping An Group
HSBC becomes strategic investor
Developed detail auto and fire rating program
Established customer contact management system – service
channel integration
Established nationwide call centre and internet portal (PA18)
Introduced on-line auto claims processing
Centralized financial management and implemented real time
reporting
Commenced bancassurance business
First to launch unit-linked products
Established value based KPI management system
Introduction of management incentive shares program
Appointed McKinsey & Co to help with restructuring
Centralized treasury function and investment management
Established Ping An Securities Co., Ltd and China Ping An
Insurance Overseas (Holdings) Ltd.
Established Ping An Trust and Investment Co., Ltd.
First domestic insurer to implement the individual life agency
system
First domestic insurer to engage an international auditor and
consulting actuary
First domestic insurer with foreign strategic investors: Goldman
Sachs and Morgan Stanley
Ping An expands into life insurance business
Established as a regional property & casualty insurance company
in Shenzhen
Source: Ping An, (14 May 2007) “Performance & Strategy of Ping An”,
Company Presentations; Hamlin, K. (October 2007) “China’s Would-Be Giant
Killer”, Institutional Investor—International Edition; Turton, C. (18 November
2004) “Ping An Insurance”, JP Morgan.
18
09/445C
Ping An’s Overseas Expansion: Financial Uncertainties and Risk Management
EXHIBIT 6: PING ANϗS THREE-PILLAR STRATEGY
Shared Customer Resources
Banking
Insurance
Asset
Manage
ment
Integrated Financial Services Platform
Source: Ping An (14 May 2007) “Performance & Strategy of Ping An”, Company Presentations.
19
09/445C
Ping An’s Overseas Expansion: Financial Uncertainties and Risk Management
EXHIBIT 7: KEY MANAGEMENT TEAM
Name
Current Position
Previous Experience
Starting
Year
MA
Mingzhe
Chairman & founding
CEO
Deputy Manager of China
Merchants Shekou Industrial Zone
Social Security Company
1988
CHEUNG
Chi Yan
Louis
Executive Director,
COO, CFO
McKinsey Global Partner
2000
SUN Jianyi
Executive Director,
Executive VP
KU Minshen
Stephen
MELDRUM
Chief HR Officer
Head Actuary
YOUNG
Wen Binn
CIO
LEUNG Ka
Kui Dominic
Chief Insurance Business
Officer
Richard
JACKSON
Chief Finance Business
Officer
Director of the
Investment Committee,
Chairman of Ping An
Security
YIP Lai
Shing
Deputy GM of Wuhan Branch,
People’s Insurance Company of
China
Human Resources Director of
Unilever HPC China
20 years with Lincoln National
(US based life insurer)
Formerly CIO with AETNA Life
and Aetna International (6 years
total in the two jobs) and
investment experience at Nomura
Asset Management (5 years)
Prudential Asia (Greater China
GM for 8 years), Taiwan Nashan
Life (8 years) and AIA (15 years)
Country Manager and Consumer
Business Head of Citibank Korea
CEO of DBS Vickers (Hong
Kong) Ltd.
1990
2001
1999
2003
2004
2005
2002
Source: Kellock, M. (14 July 2004) “Little Left on the Table; Initiating with a Hold”, Deutsche
Bank; Ping An (24 November 2006) “Building a Winning Franchise in China’s Fast Developing
Financial Sector”,
http://www.creditcard.pingan.com.cn/pa18Web/resources/jsp/openAttach.jsp?fileName=Present
ation_HKUST_2006.pdf&storeName=investor/200611/20061127105228222033.pdf (accessed 13
June 2009).
20
Ping An’s Overseas Expansion: Financial Uncertainties and Risk Management
09/445C
EXHIBIT 8: PING AN'S BREAKDOWN OF NET PROFIT BY BUSINESS UNIT
(in US$ M)
2004
2005
2006
2007
Life Insurance
395
517
833
1,589
Property & Casualty Insurance
32
62
153
303
Banking
1
10
224
Securities
89
218
Other businesses*
33
43
83
472
Total Net Profit
459
623
1,168
2,806
* Other business mainly include corporate, trust business and asset management business.
Source: Ping An (2004–2008) “Annual Report”.
EXHIBIT 9: RANGE OF INSURANCE PRODUCTS OFFERED BY PING AN
Protection
Investment
Product Type
Term Life
Whole Life
Par Products
Universal Life
Unit-linked
Source: Lo, K. and Ho, S. (19 January 2008) “Ping An Insurance”, ABN AMRO.
21
2008
(432)
122
211
80
88
70
Ping An’s Overseas Expansion: Financial Uncertainties and Risk Management
09/445C
EXHIBIT 10: SELECTED FINANCIAL DATA OF PING AN
(in US$ M, except percentages)
Individual life
Bancassurance
Group life
Total Life Gross Written Premiums
Automobile
Non-automobile
Accident & Health
Total Non-Life Gross Written Premiums
2004
5,248
852
1,185
7,285
910
518
54
1,482
2005
5,658
165
1,030
6,853
1,094
590
78
1,763
2006
6,696
135
996
7,828
1,614
614
118
2,347
2007
7,532
103
1,125
8,760
2,225
770
168
3,163
2008
8,820
313
1,118
10,250
2,829
903
212
3,944
Key Metrics
Net Earned Premiums (US$ M)
Administrative Expenses (US$ M)
Operating Expense Ratio
Expense ratio
Loss ratio
Combined Ratio
Net Investment Yield
Solvency margin ratio (Life)
Solvency margin ratio (Non-Life)
2004
7,149
540
7.6%
20.2%
77.0%
97.2%
4.1%
123.1%
158.7%
2005
6,687
627
9.4%
23.3%
72.0%
95.3%
4.2%
140.7%
153.4%
2006
7,710
882
11.4%
31.7%
63.9%
95.6%
4.3%
183.1%
131.3%
2007
8,625
1,295
15.0%
36.5%
61.1%
97.6%
4.5%
287.9%
181.6%
2008
10,182
1,283
12.6%
35.5%
66.5%
102.0%
4.1%
183.7%
153.3%
Distribution Channels
Sales Agent
Group Sales Representatives
Bancassurance
2004
199,997
1,605
20,023
2005
200,193
1,644
27,222
2006
205,437
2,127
24,214
2007
301,801
2,857
26,310
2008
355,852
3,366
39,878
Fixed maturity investments
Term deposits
Bond Investments
Other Fixed maturity investments
Equity investments
Investment Properties
Cash, cash equivalents and others
Total Investments
2004
2005
2006
2007
2008
Carrying
Carrying
Carrying
Carrying
Carrying
Value
%
Value
%
Value
%
Value
%
Value
11,726
39.9% 10,075
28.0%
8,629
17.8%
4,845
7.5%
12,323
16,486
56.1% 23,325
64.9% 27,348
56.4% 27,575
42.8%
41,867
99
0.3%
126
0.4%
202
0.4%
352
0.5%
544
879
3.0%
2,225
6.2%
6,536
13.5% 15,669
24.3%
5,310
220
0.7%
181
0.5%
207
0.4%
203
0.3%
804
N/A
N/A
N/A
N/A
5,569
11.5% 15,781
24.5%
6,986
67,834
29,408 100.0% 35,933 100.0% 48,491 100.0% 64,424 100.0%
Source: Ping An (2004–2008) “Annual Report”.
22
%
18.2%
61.7%
0.8%
7.8%
1.2%
10.3%
100.0%
09/445C
Ping An’s Overseas Expansion: Financial Uncertainties and Risk Management
EXHIBIT 11: SELECTED FINANCIAL DATA OF CHINA LIFE
(in US$ M, except percentages)
Individual life
Group life
Accident & Health
Total Life Gross Written Premiums
FY04
7,316
50
1,548
8,914
FY05
9,227
127
1,586
10,940
FY06
11,691
167
1,619
13,477
FY07
13,346
128
1,737
15,211
FY08
15,801
47
1,904
17,752
Key Metrics
Net Earned Premiums (US$ M)
Administrative Expenses (US$ M)
Operating Expense Ratio
Net Investment Yield
Solvency Margin Ratio
FY04
8,732
961
11.0%
3.5%
315.4%
FY05
10,796
1,056
9.8%
3.9%
273.4%
FY06
13,394
1,363
10.2%
4.3%
349.5%
FY07
15,141
1,722
11.4%
5.8%
525.2%
FY08
17,653
1,768
10.0%
5.0%
310.0%
Distribution Channels
Sales Agent
Group Sales Representatives
Intermediaries
2004
668,000
12,000
87,000
2005
640,000
12,000
89,000
2006
650,000
12,000
87,000
2007
638,000
13,000
90,000
2008
716,000
12,600
94,000
Debt Securities
Equity Securities
Term Deposits
Statutory deposits – restricted
Loans
Securities purchased under agreements to sell
Cash and cash equivalents
Total Investments
2004
2005
Carrying
Carrying
Value
%
Value
21,932
40.1%
37,307
2,521
4.6%
5,773
25,620
46.8%
24,068
584
1.1%
781
57
0.1%
143
41
0.1%
3,973
7.3%
4,095
72,169
54,728
100.0%
Source: China Life (2004–2008) “Annual Report”.
23
%
51.7%
8.0%
33.4%
1.1%
0.2%
0.0%
5.7%
100.0%
2006
Carrying
Value
52,248
13,941
25,617
781
346
7,330
100,263
%
52.1%
13.9%
25.5%
0.8%
0.3%
0.0%
7.3%
100.0%
2007
Carrying
Value
64,698
28,489
24,612
843
1,043
738
3,696
124,118
%
52.1%
23.0%
19.8%
0.7%
0.8%
0.6%
3.0%
100.0%
2008
Carrying
Value
84,071
10,961
33,324
898
2,617
4,976
136,847
%
61.4%
8.0%
24.4%
0.7%
1.9%
0.0%
3.6%
100.0%
Ping An’s Overseas Expansion: Financial Uncertainties and Risk Management
09/445C
EXHIBIT 12: SELECTED FINANCIAL DATA OF PICC
FY04
22.2%
76.8%
99.0%
115.4%
Expense ratio
Loss ratio
Combined Ratio
Solvency margin ratio
FY05
29.1%
68.1%
97.2%
136.7%
FY06
29.5%
69.4%
98.9%
135.0%
FY07
33.8%
68.3%
102.1%
189.1%
FY08
28.4%
74.7%
103.1%
145.0%
Source: PICC (2004–2008) “Annual Report”.
EXHIBIT 13: NOTABLE DEALS IN 2006 AND 2007
Investor
Industrial and Commercial
Bank of China
China Investment (CIC)
Bank of China
China Development Bank
China Construction Bank
Target
The Standard Bank of
South Africa
Morgan Stanley
Singapore Aircraft
Leasing
Barclays
Bank of America
(Asia) in Hong Kong
Transaction
US$5.49 billion for 20% share
US$5 billion for 9.9%
US$3.4 billion for 100%
US$3 billion for 3.1% share
US$1.25 billion for 100%
Source: Ngai, J. and Wang, Y. (June 2008) “Global Investment Strategies for China’s
Financial Institutions”, McKinsey Quarterly.
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