CPIC to Buy Additional Shares of Shanghai Rural Bank

As one of the three leading insurance groups of China's Mainland, the financial center Shanghai-based China Pacific Insurance (Group) Co., Ltd. (CPIC, 601601.SH) may participate in the private share placement of Shanghai Rural Commercial Bank at a price of CNY 5 billion.

Last year, Shanghai Rural Commercial Bank made the net profits of CNY 1.97 billion, rising 166% year on year. Actually, the rural lender has set the goal to get listed in the coming three years. For one thing, the investment in Shanghai Rural Bank can bring stable returns to CPIC; for another, the insurance giant can further diversify its bancassurance channels via the investment.

In industry insiders' opinion, insurers make the investment into banks out of the need for long-term assets allocation. In addition to Shanghai Rural Commercial Bank, CPIC is also the shareholder of Bank of Hangzhou, a city lender expected to get listed sooner or later. Over 2009, CPIC got about CNY 20 million worth of the dividends from the Hangzhou-based bank.

Another example is China Reinsurance (Group) Corporation (China Re), which has benefited CNY 1.35 billion from the listing of China Everbright Bank (601818.SH). Also, Ping An Insurance (Group) Company of China Limited (Ping An, 601318.SH, 2318.HK) has owned 10.33% of Taizhou Commercial Bank at a cost of CNY 361 million.

On the other hand, commercial banks have become major buyers of the equity of insurance firms. In April, city-level Bank of Beijing (601169.SH) got a 50% stake in ING Capital Life Insurance Co. from Beijing Capital Group at a cost of CNY 681.8 million. Later, ING Capital Life Insurance Co. was altered into ING-BOB Life Insurance Company Limited.

Last month, China's top foreign exchange lender Bank of China (BoC, SH: 601988, HK: 3988) was approved to wholly take over BOC Insurance from Bank of China Group Insurance Company Limited (BOCG Insurance). In the meantime, BOC Insurance is in talks with Heng An Standard Life Insurance Co., Ltd. about making equity investment into the latter. News said that BoC will not only buy a 25% stake that Standard Life Assurance owns in Heng An Standard Life Insurance via BOC Insurance, but also purchase more stake of Heng An Standard Life Insurance from its Chinese parent Tianjin Teda Investment Holding Co., Ltd., after which, BOC Insurance is expected to control about 50% of Heng An Standard Life Insurance.

In addition, China's largest commercial bank Industrial and Commercial Bank of China (ICBC, 601398.SH, 1398.HK) reportedly would take over certain stake of the joint venture AXA-Minmetals Assurance Company Limited.