Japan-based Mitsui Sumitomo Insurance Co. Ltd. is betting on the growth potential of China's life insurance sector with its deal for a minority stake in a Chinese joint venture.
The MS&AD Insurance Group Holdings Inc. unit said May 23 that it would acquire Commonwealth Bank of Australia's 37.5% stake in Shanghai-based BoCommLife Insurance Co. Ltd., a joint venture with China's fifth largest lender, Bank of Communications Co. Ltd. It will pay 4.325 billion Chinese yuan for the stake, including a 1.125 billion yuan payment to CBA for its pro rata participation in a 3 billion yuan capital increase.
A Mitsui Sumitomo spokesman in Tokyo told S&P Global Market Intelligence that the move was partly a result of China's steps to widen foreign access to its financial sector, though the Japanese insurer has no plans to acquire a majority stake in BoCommLife at the moment. The spokesman said Mitsui Sumitomo may take stakes in other Chinese life insurers in the future.
Since 2017, Chinese authorities have announced a series of plans to open up access to the country's financial sectors, including raising the foreign ownership cap for life insurers to 51% and removing the cap entirely in three years. This has already drawn interest from foreign companies including Hong Kong's FWD Life Insurance Co. (Bermuda) Ltd. and Germany's Allianz Group.
The deal is Mitsui Sumitomo's second foray into the Chinese life insurance market. Between 2010 and 2016, it held up to a 7% stake in Hangzhou-based Sinatay Life Insurance Co. Ltd., but it exited that investment in December 2016. The Nikkei reported at the time that the move was down to Sinatay's decision to focus on real estate investments, in contrast to Mitsui Sumitomo's preference for a less risky approach.
"This new deal with BoCommLife is with a larger player than Sinatay, and I'd expect it to be more stable," said Michael Makdad, an equity research analyst with Haitong Securities International in Tokyo.
Partnering with Bank of Communications will give Mitsui Sumitomo a strong business base in the Chinese life insurance market, as well as allowing it to leverage the bank distribution channel, the Japanese insurer said. It also noted that China is the third-largest life insurance market globally, after the U.S. and Japan.
"In recent years [Japanese] insurers have focused more on [Southeast Asia] and India, but if deregulation opens up opportunities in China, they have long been watching the market," Makdad said.
Mitsui Sumitomo in 2017 acquired a 97.7% stake in Singapore-based First Capital Insurance Ltd., now known as MS First Capital Insurance Ltd., from Fairfax Financial Holdings Ltd., among other deals by the company in recent years. Other purchases by Japanese insurance groups in the region include Nippon Life Insurance Co.'s 2016 acquisition of a 23% stake in India-based Reliance Life Insurance Co. Ltd., now Reliance Nippon Life Insurance Co. Ltd., and Dai-ichi Life Holdings Inc.'s deal to raise its stake in India's Star Union Dai-ichi Life Insurance Co. Ltd. to 44%, also in 2016.
Two other Japanese insurers, Nippon Life and Meiji Yasuda Life Insurance Co., hold 30% and 29.2% stakes in China-based Great Wall Changsheng Life Insurance Co. Ltd. and Founder Meiji Yasuda Life Insurance Co. Ltd., respectively. Mitsui Sumitomo also fully owns a Chinese property and casualty insurance subsidiary, Mitsui Sumitomo Insurance (China) Co. Ltd.
As of May 23, US$1 was equivalent to 6.39 Chinese yuan.
