Chubb, Fanhua drive insurance M&A in mainland China

Chubb Ltd. and Fanhua Inc. were the catalysts for some of the largest insurance deals in mainland China in recent years, according to an S&P Global Market Intelligence analysis.

Chubb raised its position in Huatai Insurance Group Co. Ltd. several times between 2020 and 2022, buying shares worth about 7.2 billion Chinese yuan. When announcing it had received regulatory approval to increase its stake in Huatai from 47.3% to 83.2%, Chubb highlighted that it was the first foreign financial institution to be a majority owner of a Chinese financial services holding company.

Chubb is clearly bullish on the potential of the mainland insurance market, Edwin Liu, research analyst at CLSA, said in an interview. Huatai has a "decent" market share in both the property and casualty and life insurance sectors, Liu added.

Fanhua Inc., which has made managing general agencies a priority in its acquisition strategy, has closed several deals this year, including the acquisitions of Jilin Zhongji ShiAn Insurance Agency Co. Ltd., Wuhan Taiping Online Insurance Agency Co. Ltd. and Ningbo Censhi Insurance Agency Co. Ltd.

Fanhua also closed the 3.57 billion yuan acquisition of Zhongrong Smart Finance Information Technology Co. Ltd. in 2022.

There should be more consolidation and M&A activity among mainland China managing general agencies going forward, according to Dustin Ball, Asia-Pacific financial services strategy leader at EY Parthenon.

Increased regulatory scrutiny is expected to be one factor driving that consolidation, Ball said in an email. For example, more than 2,000 insurance intermediaries have had their licenses revoked in recent years or are at risk of being revoked, while another 200 intermediaries already left the market in 2022.

Liu and Ball have differing expectations for future insurance M&A in the region.

Liu does not foresee notable M&A growth in mainland China following the lifting of three years of COVID-19 protocols. As the Chinese government officially allows full foreign ownership of domestic life insurers, some foreign companies may look for M&A opportunities in mainland China if they see appropriate opportunities, Liu added. However, any deals will typically be small as foreign entities tend to focus on the niche high-end customer segment and avoid direct competition with major domestic companies.

While M&A has not fully rebounded to pre-pandemic levels, Ball expects the market to recover in the coming three years.

A tightening of insurance license issuances is expected to play a pivotal role, as new entrants may find it easier to acquire an existing platform than gain a new license, Ball said. This trend is particularly visible in the tech sector, as insurtech made up approximately 37.5% of mainland China insurance deals between 2018 and 2023, he added.

AIA invests in China Post Life

The largest funding round since 2020 involved AIA, which acquired a 24.99% stake in China Post Life Insurance Co. Ltd. following a 12.03 billion yuan investment.

Liu said that transaction aims to pave the way for a bancassurance partnership between AIA China and Postal Savings Bank of China Co. Ltd., as new business from the partnership channel for AIA China grew significantly after the transaction. Liu does not expect more acquisitions by AIA in the mainland given that all major banks already have their own life insurance subsidiaries and are likely unwilling to partner with a third party.

As of Sept. 22, US$1 was equivalent to 7.30 Chinese yuan.