Investors in Chinese Insurers Shouldn't Overlook the Risks
China's insurance industry isn't exactly risk-free. Still, many investors likely will line up for next month's huge initial public offering of shares by the country's biggest life insurer, China Life Insurance.
The roadshow for the $2.5 billion IPO begins next week. China Life is just one of several China insurance companies raising funds on the heels of PICC Property & Casualty's $800 million offering a few weeks ago and ahead of next year's anticipated $2 billion offering by Ping An Insurance , another giant in China.
Fund managers say potential investors should take a hard look at the rapid growth of China's insurance business, and be aware of the sector's problems. These include slowing growth, poor risk management and overzealous salespeople. The biggest worry, the fund managers says, is the millions of policyholders who bought insurance in the 1990s that promised annual rates of return approaching 10%.
But in a rush to boost their China holdings, many investors might overlook the sector's downside and focus on its great potential. And investors will be drawn by the success of PICC's offering. Shares of PICC have risen 50% since trading began in early November.
Given the country's economic boom, many people remain eager to buy into China businesses. China Life will be listed in Hong Kong, where China stocks have risen 50% this year, according to Morgan Stanley Capital International.
With increasing numbers of Chinese joining the middle class, more people are buying life insurance, even if it isn't considered a must-have as in developed countries, says Elizabeth Soon, head of Asian equities at Standard Life.
Demographics also point to growth of life insurance in China. While less than 15% of the population is of retirement age at present, the figure will rise to 25% by 2035.
At Goldman Sachs, analysts estimate that growth in life-insurance premiums will average between 18% and 25% a year for the next decade. If penetration reaches the levels in the rest of Asia, China's insurance market "could have the potential to become one of the top-five global markets by 2010," they wrote in a research report.
There's one drag on insurance growth: the gap between the interest rates life-insurance companies can earn in today's markets -- premiums must be kept in bonds and low-yielding bank accounts -- and what they promised to pay policyholders in the high-inflation, high-return days of the early 1990s.
These days, insurance companies might be unable to get returns above 3% annually while paying out 8% or more on old policies. For that reason, many life insurers in China are technically insolvent at present.
China Life was carved out from its parent earlier this year. The unit holds policies written after June 1999, leaving the parent with the older and more expensive policies. While that leaves the parent in a difficult situation, it means China Life is doing relatively well. On a pro forma basis, the subsidiary earned $546 million last year on revenue of $6.1 billion, according to its prospectus, which supplied only pro forma data.
Some investors worry the parent may find a way to shift some of old policies to the subsidiary, cutting into its profitability. But analysts say that's unlikely, pointing out the parent still owns 75% of the China Life. In addition, the prospectus states that the subsidiary has no obligation toward policies written before 1999.
However small the risks are, they could affect the pricing of China Life's IPO. Fund managers say they believe that the shares won't cost more, on a price/earnings basis, than big global life insurers, despite the Chinese market's growth potential. Global life insurers generally are trading at between 12 times to 20 times 2003 earnings.
Some fund managers prefer ways to measure life-insurance companies that reflect industry-specific practices, such as the paying of premiums and commissions. David Cheung, investment director for U.K.-based Prudential Asset Management, prefers using embedded value rather than P/E ratios. That's a measurement that takes into account income from future premiums on existing policies.
The underwriting banks, China International Capital, Citigroup, Credit Suisse Group's Credit Suisse First Boston and Deutsche Bank, are expected to announce a price range for the shares this weekend.
中国保险类股未必很"保险"
中国保险业绝对不是投资的避风港。不过，中国最大的寿险公司中国人寿保险股份有限公司(China Life Insurance Co., Ltd.)即将于下个月进行的规模庞大的首次公开募股(IPO)估计还是会吸引许多投资者追捧。
中国人寿将于下周开始对其总额25亿美元的IPO进行巡回推介。几周前，中国人民财产保险股份有限公司(PICC Property and Casualty Company Limited)进行了价值8亿美元的新股发行，此后几家中国的保险公司竞相效仿。明年，另一家中国保险业巨头－平安保险(Ping An Insurance)将进行总额20亿美元的公开募股。
基金经理们称，对上述IPO感兴趣的投资者应该谨慎看待中国保险业的迅速增长，同时应该对保险业的种种问题心中有数。增长放缓、风险管理水平低以及销售人员过于热心推销等均是中国保险业目前存在的问题。据基金经理们说，最大的问题还在于，中国有数百万投保人是在上个世纪90年代买的保险，而当时他们得到的承诺是回报可高达10%。
然而在这场抢购中国保险类股的风潮中，许多投资者可能会只看到该行业的巨大潜力，而漠视其中的风险。投资者们将被中国财险首次公开募股的成功而吸引。该股股价自11月初上市交易以来已飙升了50%。
在中国经济迅速增长的大背景下，许多人热衷于买进中国概念股。中国人寿的上市地点将在香港，而据摩根士丹利资本国际公司(Morgan Stanley Capital International Inc.)称，今年迄今为止，香港的中国概念股已经上涨了50%。
标准人寿保险公司(Standard Life)负责亚洲股票业务的伊丽莎白?苏恩说，随著中国中产阶级人数的增加，越来越多的人开始购买寿险产品，而即使在发达国家，寿险也不是人人必买的保险产品。
从人口统计学角度来看，中国的人寿保险将出现增长。尽管目前处于退休年龄的人口比例不足15%，但是到2035年之前，这一比例将升至25%。
高盛(Goldman Sachs)分析师预计，在未来10年中，人寿险种的保费平均年增幅在18%到25%之间。他们在一份研究报告中写道，如果保险普及率达到亚洲其他地区的水平，那么在2010年前，中国保险市场有可能跨入世界前5大市场之列。
但保险业的发展面临一大牵制：寿险公司能从今天的市场中获得的利息（按规定，保费收入必须投入债市和收益率很低的银行储蓄）与它们承诺支付给90年代初期时投保的那些客户的回报（当时中国处于高通货膨胀之中，投资保险的回报率也较高）之间存在著巨大差距。
如今，保险公司的年投资回报率可能不足3%，而为早期保单而支付的回报却高达8%，有的甚至更高。鉴于此，中国的许多人寿保险公司从理论上讲正处于入不敷出的状态。
中国人寿在今年早些时候从母公司中剥离出来。这家子公司持有的保单均是1999年6月份之后的，之前那些代价高昂的保单则留给了母公司。虽然这令母公司处境艰难，但却意味著中国人寿相对会较为轻松。根据其招股说明书，这家子公司去年的预估收益为5.46亿美元，同期收入61亿美元。招股说明书中仅提供了预估数字。
一些投资者担心母公司可能会想方设法将部分早先的保单转移给子公司，从而导致其利润受损。但分析师们称，这种可能性不大，他们指出，母公司仍持有中国人寿子公司75%的股权。另外，招股说明书中明确指出，子公司对于1999年之前的保单没有支付责任。
无论风险有多小，但还是会影响到中国人寿IPO的定价。基金经理们认为，尽管中国市场存在增长潜力，但该股的本益比不会高于全球性大保险公司的股票。以2003年预期利润计算，全球性保险商的股票本益比基本上在12到20倍之间。
此次IPO的承销商包括中国国际金融有限公司(China International Capital Corp.)、花旗集团(Citigroup Inc., C)、瑞士信贷第一波士顿(Credit Suisse First Boston Corp., CSF.YY)和德意志银行(Deutsche Bank AG , DB)，预计上述银行本周末将公布此次募股的价格区间。
