Banks Not Go Smoothly When Investing in Insurers

Industrial and Commercial Bank of China (ICBC, 601398.SH, 1398.HK), China Construction Bank (CCB, 601939.SH, 0939.HK), and Bank of Beijing do not go smoothly when making equity investment into the target insurers.

On September 10, 2009, Chinese insurance watchdog China Insurance Regulatory Commission just approved the plan for Shanghai-based Bank of Communications (BoCom, 601328.SH, 3328.HK) to acquire a 51% stake in China Life-CMG Life Assurance Company Limited from China Life Insurance (Group) Company. Because of relatively simple relation with the acquisition target, BoCom thus becomes the first commercial bank to win such a regulatory approval.

Earlier, Commonwealth Bank of Australia, the foreign parent of China Life-CMG Life Assurance Company, reportedly intended to sell more stakes in the joint venture to BoCom. Compared with BoCom, ICBC, CCB and Bank of Beijing did not go smoothly in their investment into the target insurers, due to complicated relations with the target insurers.

Based in Beijing as a state-owned commercial bank, CCB said that it did not make any progress in the investment into Happy Life Insurance Co., the insurance subsidiary of China Cinda Asset Management Corporation (Cinda AMC). Actually, CCB has also expressed the desire to acquire certain stake in Cinda AMC, but the deal relies on the approval of the State Council, the country's cabinet.

As a city-level lender, Bank of Beijing has not become the new shareholder of ING Capital Life Insurance Company Limited, a joint venture between Beijing Capital Group Co. and ING. The foreign group ING at the same time is the foreign strategic investor of Bank of Beijing. Actually, ING Capital Life did not run well due to the inharmonious relation between Capital Group and ING. Therefore, Bank of Beijing is believed to take the place of Capital Group sooner or later.

Actually, the equity relation between commercial banks and insurers would be a double-edged sword for insurance companies and threat seems to be more than cooperation. Once commercial lenders make investment into insurance companies, the banks could make use of the sale channels and customer resources of insurers to provide integrated financial products and services to customers. These banks actually have accumulated enough insurance talents reserve these years, thanks to the training programs provides by their insurance partners, which would be another challenge for insurance firms.

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