Local insurance companies are at risk of incurring heavy losses from their investments in China after Shin Kong Life Insurance Co (新光人壽) saw the book value of its Chinese venture drop to zero at the end of the second quarter this year, a Legislative Yuan analysis released on Friday said.
Shin Kong Life Insurance, Cathay Life Insurance Co (國泰人壽) and Taiwan Life Insurance Co (台灣人壽保險), a subsidiary of CTBC Financial Holding Co (中信金控), have made investments in China through joint ventures with Chinese partners.
The analysis showed that the three insurers are reeling from losses at their Chinese ventures, with loss-to-investment ratios of 100 percent, 47.87 percent and 59.16 percent respectively as of June 30.
The ratio is calculated by dividing total losses by cumulative investments.
The figures show that Shin Kong’s investment in Shin Kong-HNA Life Insurance Co Ltd (新光海航人壽) is unprofitable, as it had lost all of its investment after pouring NT$1.095 billion (US$36.2 million at the current exchange rate) into the venture in 2009.
Shin Kong-HNA Life is a joint venture between Shin Kong Life and HNA Group Co (海航集團) of China.
The Taiwanese insurer had booked cumulative losses of NT$1.168 billion between 2010 and 2015, before posting an investment gain of NT$54 million last year, its financial reports showed.
Shin Kong Life on Friday said that it would book a disposal gain of 125 million yuan (US$18.9 million) if it gains the China Insurance Regulatory Committee’s approval to sell a 25 percent stake in Shin Kong-HNA Life to a number of Chinese asset-management firms for about 375 million yuan.
The company’s board approved the share sale on Sept. 6 last year.
Local property insurance companies’ investments in China also did not fare well, the analysis showed.
Cathay Century Insurance Co (國泰世紀產險) and Fubon Insurance Co (富邦產險) have set up wholly owned insurance units in China over the past few years, but the two firms reported loss-to-investment ratios of 28.47 percent and 77.62 percent respectively as of the second quarter, it showed.
The five Taiwanese insurers have invested a total of NT$13.863 billion in their Chinese ventures or units over the past 13 years, only to see the overall book value of their investment entities fall to NT$6.035 billion as of the end of the second quarter, meaning that the overall losses are approaching 57 percent of the total investments.
The analysis preceded today’s Financial Supervisory Commission report to the Legislative Yuan’s Finance Committee about the nation’s financial sector.
Given rising operating risk in China, lawmakers are expected to request the financial regulator to tighten control over local insurers’ overseas investments.
Chinese ventures face difficulties expanding their businesses and reaching an economic scale due mainly to differing opinions among major shareholders on how to run the companies, the Insurance Bureau said.
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