China’s Fosun to Invest in European, Japanese Insurers

By and Ye Xie | September 30, 2014

Fosun International Ltd., the investment arm of China’s biggest closely held conglomerate, is considering making more bets on insurers outside its home country, Chief Executive Officer Liang Xinjun said.

“We prefer investing in insurance companies in Europe and Japan,” Liang said in an interview yesterday in New York. “We have opportunities to invest in insurance companies at very reasonable prices.”

Fosun, which counts Liang and billionaire Guo Guangchang among its founders, is seeking to use funds from policy sales to make investments. The firm is emulating the model used by Warren Buffett, the world’s third-richest man, to build Berkshire Hathaway Inc., Liang said.

“We’d like to increase the percentage of insurance flows in our assets,” Liang said. “Insurance flow is low-cost, long- term and very sustainable capital.”

Liang said he favors insurers in Japan and Europe because valuations are “very reasonable.” Low interest rates in both places have helped push down company values, he said.

Fosun bought an 80 percent stake in the insurance unit of Portugal’s Caixa Geral de Depositos SA this year for about 1 billion euros ($1.3 billion). The Shanghai-based company also has a Hong Kong reinsurer, a life-insurance venture in China with Prudential Financial Inc. and a stake in a property- casualty operation in the country. In August, Fosun agreed to buy 20 percent of specialty commercial insurer Ironshore Inc. for about $460 million.

Fosun Group

Fosun International is the publicly traded investment arm of Fosun Group. The business also owns European fashion labels, New York’s One Chase Manhattan Plaza, and the Studio 8 filmmaker. Fosun has advanced 23 percent this year in Hong Kong trading.

Buffett is chairman and CEO of Omaha, Nebraska-based Berkshire, which has a market value of about $341 billion. In his first decades as CEO, Buffett focused on using premiums from insurance units to buy stocks. He later began acquiring whole companies, and now Berkshire derives most of its earnings from operating businesses in industries from energy and manufacturing to transportation and retail.

Moody’s Investors Service kept Fosun’s credit outlook at negative this month, saying that its “aggressive” investments raise debt levels. Adjusted net debt increased to 7.1 times earnings before interest, taxes, depreciation, and amortization for the year ended June 30, from 6 times in 2013, according to Moody’s.

The company is rated at Ba3, three steps below investment grade. Liang said leverage will decline because the expansion of the insurance business will provide enough cash flow to finance future investments without loading up on debt.

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