$1.55 billion for 11% stake in second-largest insurer expected to help listing

SHANGHAI - China's National Social Security Fund, which has invested 10 billion yuan ($1.55 billion) to buy an 11 percent stake in the People's Insurance Co (Group) of China (PICC), will be PICC's sole investor before the insurer's planned listing, according to a source who was involved in the deal but declined to be named.

"PICC entered talks with many investors and finally chose us as the sole investor," the person told China Daily on Tuesday on condition of anonymity.

"But the deal has yet to be approved by the China Insurance Regulatory Commission (CIRC)."

The stake purchase was first announced on June 15 by the $130-billion pension fund and the Ministry of Finance, the sole owner of PICC.

But at the time the parties did not disclose the size of the stake the pension fund would hold.

On Tuesday, PICC Chairman Wu Yan said in a statement to reporters that the pension fund's 10-billion-yuan investment will buy a stake of about 11 percent.

Wu added in the statement that PICC, China's second-largest insurer, will "prudently" time its initial public offering, which also needs to be approved.

"PICC will file a listing plan with the China Securities Regulatory Commission after the deal is approved by CIRC. A listing will occur at soonest by the end of this year, as it takes time for PICC to go through all the requisite procedures," said the person familiar with the deal.

The State Council approved PICC's restructuring and listing plan in 2009, the year the integrated insurer became profitable. The insurer, founded in 2005, earlier said a public listing would help replenish the funds needed for the swift expansion of its subsidiaries, including PICC Life Insurance Co Ltd and PICC Property and Casualty Co Ltd.

PICC's revenue jumped 37 percent last year to 264.7 billion yuan, with premium income amounting to 246.4 billion yuan. Its net profit also hit a record.

Pulling in a strategic investor is a prerequisite for PICC to become a public company, as Chinese law requires a company to have at least two shareholders before it can go public.

Sun Ting, an insurance industry analyst with Shenyin Wanguo Securities, said that, compared with other investors, the participation of a national pension fund can smoothen PICC's road to a listing.

"The pension fund is government-backed and enjoys close ties with regulators and government agencies. It can help PICC better deal with some of the regulatory issues on its way to go public."

Sun added that the 10-billion-yuan fund injected can also help PICC cope with its declining solvency ratio, which is the size of an insurance company's capital relative to its premium written.

PICC's fast growth has dragged down its solvency ratio. Last year, two of PICC's core subsidiaries, PICC Life Insurance Co Ltd and PICC Health Insurance Co Ltd, saw their solvency ratio drop 57 percent and 96 percent, respectively, to 124 percent and 115 percent, nearing the 100 percent deadline set by CIRC.

"The fund injection will boost PICC's solvency ratio and help it ride out the period before its listing," Sun said.

China Daily

(China Daily 06/22/2011 page15)