AIA Agrees to Buy China Post Life Stake for $1.9 Billion

(Bloomberg) -- AIA Group Ltd. has agreed to acquire a stake in China Post Life Insurance Co. for about 12 billion yuan ($1.9 billion) to bolster its China expansion.

The Hong Kong-based insurance giant will buy a 24.99% stake in China Post Life, subject to regulatory approvals, AIA said in a filing to the Hong Kong exchange on Tuesday. AIA closed 0.8% higher at HK$96.5 in Hong Kong on Wednesday.

The deal marks AIA's second effort this year to boost its distribution network in the world's most populous nation. AIA is accelerating expansion in mainland China as Covid travel restrictions continue to curb sales of insurance to Chinese visitors, previously a key driver for its Hong Kong unit. Mainland China has eclipsed Hong Kong as the largest contributor of new business value for the insurer.

China Post Life, a subsidiary of China Post Group Co., is a bank-affiliated life insurer focusing on the mass-affluent market in China. It has access to a retail distribution network of around 40,000 financial outlets in the country and more than 600 million retail customers. The group's banking arm has more outlets than its second- and third-placed peers combined, Daiwa Capital Markets analysts led by Leon Qi wrote in a Tuesday note.

“We see the investment as a good move of AIA Group to tap into unexplored customer segments and regions currently not touched by AIA China,” Citigroup Inc. analyst Michelle Ma wrote in a note.

China Post Life's focus on a population segment a touch less affluent will help expand the clientele of AIA's China unit, she added. The deal will provide rapid access to rural China, Bloomberg Intelligence analyst Steven Lam wrote in a note late Tuesday.

The value of the proposed investment represents 1.34 times China Post Life's book value on a pre-money basis as of the end of 2020, the company said. Value of new business for China Post Life was about $269 million last year.

The valuation looks high compared with smaller peers listed on China's domestic stock market and China Post Life's low solvency ratio, Lam said. Still, it is manageable for AIA, which has a strong solvency position and cash surplus. The price tag only represents about 2.9% of AIA's shareholder's equity at the end of 2020, Frank Yuen, senior analyst at Moody's Investors Service said.

AIA won regulatory approval this month for a new branch in Hubei province. It plans to expand to two new regions in China a year, it said.

The insurer which traditionally relied on agents to sell insurance has been expanding bancassurance distribution. It agreed to buy the life insurance arm of Bank of East Asia Ltd. in March.

“A caveat is that we have not observed many successful life joint ventures in China given different management philosophy, hence fruits to be reaped hinge heavily on execution,” Ma wrote.