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January 28, 2019

Chinese insurer Union Life plans to divest controlling stake

Union Life Insurance is reportedly considering to divest a majority stake that is expected to elicit interest from AIA and the Asian unit of Prudential.

One source told Reuters that Union Life may sell nearly 51% stake, with an option to raise that to 100% in the future. The proposed deal is expected to value the Chinese insurer at $1.5bn to $2bn.

Initial bids are expected to be submitted by the potential suitors over the next few weeks, another source told the publication.

After the first-round bids, the shortlisting of the acquirers of Union Life’s stake is expected to be concluded by the end of this quarter.

Union Life has a strong customer base and product distribution network, which is likely to attract interests from foreign insurers who are not able to spread in the country due to limited physical presence.

“The limited distribution network will continue to be a challenge for foreign insurance companies even after raising holding in the joint ventures,” one of the sources told the news agency.

“So access to an established distribution network will be a major attraction,” the source added.

The proposed deal offers a chance to a foreign entity to own an insurance company in China, after recent announcement by Beijing to ease ownership rules and attract investors.

In 2017, China said that it would remove the ownership limit completely over the next three years.

Besides local insurers, a number of global insurance players are scrambling to gain a strong foothold in one of largest markets in the world where demand for insurance products is rising fast.

In 2017, Chinese life insurance premiums increased 21%, above its 10-year average of 14% and compared to a fall of 2.7% in advanced markets, including the US, according to Swiss Re data.

In November 2018, French insurer AXA agreed to acquire the remaining 50% stake in its Chinese joint venture (JV) AXA Tianping Property & Casualty Insurance for RMB4.6bn ($662.03m).

Allianz obtained permission from the China Banking and Insurance Regulatory Commission (CBIRC) to set up a fully-owned foreign insurance holding company in the country.

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