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China Life Chairman Alan Wang

Invading the Mainland with a Joint Stock Deal

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Invading the Mainland with a Joint Stock Deal

Source:CW

China Life is about to become the first Taiwanese insurance company to crack the China market through an equity participation arrangement with no management rights. On what calculus is China Life chairman Alan Wang relying?

Invading the Mainland with a Joint Stock Deal

By Shiau-Jing Ding
From CommonWealth Magazine (vol. 464 )

On December 27, 2010, China Life Insurance Co., Ltd. called an emergency corporate conference to explain details on what the company termed "the biggest investment project of the chairman's eight-year tenure."

"A lot of people have been asking: What exactly is China Life's China strategy?" China Life's slightly built chairman Alan Wang promptly and succinctly noted after bustling into the room like a gust of wind.

As the assemblage waited with bated breath, expecting Wang to directly announce the company's new investment project, he instead took a detour, digressing into a discourse on the development of the China market and a cross-strait financial forum held in Beijing.

It wasn't until he got to "China Construction Bank (CCB) is the world's second-largest bank. They have indicated their intentions to set up their own life insurance enterprise and to seek the participation of a Taiwanese partner," that the glimmer of an answer was disclosed in his grin, as he subsequently announced the answer to the riddle. "I am delighted to announce to all gathered here today that CCB has chosen China Life as its business partner in that venture... This company is called Pacific-Antai Life Insurance Co., Ltd., which will be renamed Jianxin Life. CCB will hold a 51 percent stake in the new company. China Life will hold 19.9 percent and will be the only external investor and participating insurer."

Embedded in Wang's statement was a veiled acknowledgement of CCB's leading managerial role in the investment project. China Life's cooperative venture with CCB will make the company Taiwan's first life insurer gain entry into the China market through equity participation with no management rights, rather than joint venture investment. Unlike ventures by Cathay Life, Shin Kong Life, Taiwan Life and one still in planning by Fubon Life, all involving management rights, Wang, who made his bones in investment, has employed a different calculus.

A Decade's Worth of Profits in a Year

In Wang's assessment, CCB's more than 13,000 outlets nationwide – four times the number of branches of all Taiwanese banks combined – need only be wisely put to use for there to be a very real possibility of Jianxin Life squeezing into a top-five position with a 10-percent market share within six years. Thus, China Life's 20-percent stake translates into a two-percent market share.

"Compared to others with controlling rights, in the same six years, I can move at 70 times the pace," Wang exclaimed. "In one year, we can do what others do in ten." Wang is unshakably confident this equity participation arrangement will allow China Life to surpass other Taiwanese competitors.

Although Wang refrained from naming names, the only Taiwanese life insurer that has been active in China for six years is Cathay Life. After those six years, Cathay currently holds a 0.03 percent share of the China market.

"He's a little arrogant, very self-confident," says Wang's former boss Lin Wen-ying, now honorary chairman at Taiwan Life. "To think he can pull this off, he must be supremely confident."

An MBA graduate of the University of Texas, Wang is one of only a few Taiwanese life insurance company chairmen who rose through the ranks as a chief investment officer. Now a near 30-year veteran of the insurance industry, Wang continues to move almost entirely in investment circles.

Consequently, industry insiders' appraisals of the man are frequently laced with the characteristics of a man of high finance: "extremely smart," "highly capable." Some also feel he's a little high-strung, with rapid-fire speech.

Wang was with Nan Shan Life for 21 years, climbing from an assistant with the investment department to executive vice president for investments. With foreign companies demanding a solid asset base, Wang became one of the best in the business for Nan Shan, delving into investment in sustainable, long-term 20-year and 30-year government bonds. He soon became known as a top name in Taiwan's bond market.

Shortly thereafter, Wang took on a six-month stint as lead investment officer at Ping An Insurance (Group) Co. of China, Ltd. During that period an old bond market friend, former KGI Securities chairwoman Shirley Shen Wang, recommended him to Chinatrust family scion Angelo Koo, then an executive at China Life. That same year, Koo backed Diana Chen in outmaneuvering Liu Tai-ying to gain managerial control of China Development Financial Holdings – earning the nickname "the Cheetah" in the process. It was at this crucial moment that Wang took China Life funds and invested in China Development Financial Holdings, thus establishing his credibility in the eyes of major shareholders.

Chang Shih-chieh, a former commissioner on the Executive Yuan Financial Supervisory Commission and current professor at National Chengchi University's Department of Risk Management and Insurance, also describes Wang as more resembling an investment banker: "As an investment banker he would definitely want some kind of performance record in the business to lend credence to his accomplishments. Otherwise, things could get gloomy for a hired gun that is brought in and can't get the job done."

Over the past five years, things have been anything but depressing at China Life. Not only have assets turned over 2.7 fold, but profit and net worth have also dramatically improved. (See Table)

China Life has been Taiwan's most active insurance company when it comes to mergers and acquisitions. In 2007, it acquired the Taiwanese unit of Royal Skandia Life Assurance for NT$400 million, and in 2009 it paid the nominal sum of NT$1 to acquire the sales force and all outstanding policy liabilities and assets of Prudential PLC in Taiwan. China Life's sales force immediately rocketed from 4,000-strong to nearly 10,000, while vaulting to number five in Taiwan in terms of market share.

Wang himself has confirmed that he has served as an advisor on all the company's M&A ventures that are currently public. For the future, he has only one thing to say: "Never enough." He does not rule out the possibility of further M&A activity in Taiwan, provided there is a synergy with China Life.

The CCB Venture

His background in finance early on prompted Wang to decide on taking the equity participation route. Five years ago China Life set up a representative office in Beijing to seek out joint venture opportunities. During the 2009 news conference outlining the Prudential deal, however, he was already hinting at the future change of course, by emphasizing market access.

"Initially our thinking was to look at [China's] urban banks. At most we would have been satisfied with something on the level of Shanghai Pudong Development Bank," he says, barely able to contain his glee.

But Chinese authorities continued to refrain from liberalizations that would have permitted banks to invest in insurance companies. It wasn't until the end of 2009 that Chinese regulators specially authorized Industrial and Commercial Bank of China, Bank of China, Bank of Communications, China Construction Bank and Bank of Beijing to establish insurance enterprises. It was then that China Life began to broaden its aspirations.

In July and August of last year, China Life decided to vie for the project and Wang set about contacting various investment bankers, none of whom were able to put him in contact with the right people a CCB.

"We tried and tried and kept knocking on doors. But our representatives kept telling us that all the calls had been made and even their lower-level staffers refused to meet with us," Wang recalls.

Then one day Nomura Securities arranged a meeting with CCB chairman Guo Shuqing, and Wang cleared his schedule to fly off to Beijing, where he provided Guo with a backgrounder on China Life over the course of an hour. In all honesty, however, everyone had the feeling that China Life was wasting its breath and was not really in the running. So how did they ultimately emerge victorious?

"Efficiency! Our efforts exceeded his expectations," Wang says.

The experience of China Life's past two M&A deals had given its troops plenty of training, and with that they were able to square up to CCB's demands.

Even more importantly, China Life's timing was fortuitous as cross-strait relations took a turn for the better. Just at that point, China and Taiwan agreed during cross-strait financial negotiations to open the China market to the Taiwanese insurance industry for the first time. Wang frankly acknowledges that China Life received valuable assistance from various quarters along the way, not least from the Taiwan Affairs Office of China's State Council.

"The timing could not have been better," Wang says.

Compared with Industrial and Commercial Bank of China's French partner AXA Group and Bank of Beijing's partner ING, China Life is a minnow.

If the successful example of HSBC's 2002 outlay of US$600 million to acquire a stake in Ping An Insurance, now with a market value of some US$7 billion, is any indicator, Wang expects the value of China Life's equity in Jianxin Life to exceed that of China Life's total market value within 10 years. What cannot be overlooked, however, is that while HSBC entered into an equity participation arrangement, it has also continued to acquire licenses as its establishment of small town and village bank branches continued apace, and that is its long-term client base.

For the short-term, "CCB will take the lead and we'll act as consultant. This relationship must be clear so there's no overstepping," Wang says. "Local management will be better than management by outsiders, and we want to adhere to this paradigm."

But he adds that if there were a future need, a team would absolutely be dispatched to assist with management.

Would that management team serve on behalf of China Life or CCB? One might learn a lesson from Chinatrust Bank, which dispatched credit card consultants to China, only to see them ultimately taking orders from China Merchants Bank. Equity participating may be an extremely low-risk strategy but the role China Life will be able to play in China over the long term is by no means set in stone.

Behind high returns is the inevitable accompaniment of high risk. High returns at no risk will undoubtedly come with hidden costs. Coming from a background of finance and investment, Wang is likely to understand that point better than most.

Transalted from the Chinese by Brian Kennedy

Keywords:

好友人數