Sunshine Insurance Looks for Sunny Skies in Hong Kong with IPO Bid

Key Takeaways:

• Sunshine Insurance has applied to list in Hong Kong, and could become China’s 10th listed insurer if the bid is successful
• Company is launching its bid into a weak market, with most insurers now trading at price-to-book ratios well below 1

By Christina Meng

China’s insurance sector is in the throes of change, with companies seeking to improve their products even as the pandemic dampens consumer demand. At the same time, weak investor sentiment has cast a shadow over many companies’ stocks. Against such a gloomy backdrop, it’s not surprising that no new Chinese insurers have listed in the last five years.

But that isn’t fazing the bright-eyed Sunshine Insurance Group, which on Tuesday filed an IPO prospectus to list in Hong Kong. If it succeeds, the company will become China’s 10th listed insurance company and the first to list since the 2017 Hong Kong IPO by ZhongAn Online Property and Casualty (6060.HK), an online-only insurer backed by insurance giant Ping An (OTC PNGAY), as well as tech giants Alibaba BABA and Tencent TCEHY. If the listing plan meets with a warm reception, the company could go public within the next six months.

Established in July 2005 with registered capital of 10.35 billion yuan ($1.6 billion), Sunshine Insurance is one of China’s better-known large private insurers, with subsidiaries engaged in property, life, credit guarantee, asset management, medical and health insurance. Last September it was featured for an 11th straight year on a list of the “Top 500 Chinese Enterprises,” ranking 194th.

Like many of China’s leading entrepreneurs in such highly regulated industries, the company’s founder and Chairman Zhang Weigong is an industry veteran with strong background in the regulatory realm. That includes former tenure as director of the insurance office in the city of Nanjing, and Communist Party secretary and director of the insurance regulator in South China’s affluent Guangdong province.

The company’s prospectus shows it achieved solid growth even in the face of a broader weak demand during the pandemic. Its gross written premiums (GWPs) grew about 16% from 87.9 billion yuan in 2019 to 101.8 billion yuan in 2021. Its net profit over that time grew at a similar rate from 5.1 billion yuan in 2019 to 5.9 billion last year. Its total assets grew by a third to 333 billion yuan over that period, while its average return on equity over the last three years was 11.0%, 10.6% and 10.3%, respectively.

At the end of last year, Sunshine had 2,895 branches, covering most of China. It also works with third-party agents, with 2,038 exclusive agency outlets in its network. By the end of last year it had about 25.4 million individual and 430,000 institutional customers.

In 2020, the company ranked among China’s top 10 domestic insurance companies in three important indicators of owner’s equity, insurance business income and comprehensive income. It is generally considered a leader in product development, innovation ability and health insurance.

At the same time, frequent equity conversion has led to a scattered shareholder structure, with no controlling shareholder at the moment. From the end of 2018 to the second half of 2021, it disclosed 10 shareholding changes involving 18 enterprises, which included the withdrawal of six shareholders and introduction of eight others. That differs from many private companies, especially in the tech realm, where a single shareholder, often the founder, owns a controlling stake of voting rights and is thus the clear decision maker.

Bright prospects despite short-term challenges

China’s insurance industry has grown rapidly in recent years, as consumers and companies become familiar with such products and services that were once mostly supplied by the state. That means insurers have needed to rapidly evolve to meet changing customer needs, fight off new competitors and adjust to frequent policy changes.

Insurers have also had to deal with changing consumer expectations for what they want from insurance, especially since the pandemic’s arrival. Flexible new competitors like ZhongAn, which are backed by insurance technology platforms and technology giants, have also forced many traditional enterprises like Sunshine to rethink their playbooks in terms of sales channels and products.

Sunshine could also face headwinds as it tries to launch its IPO into a capital market at a low ebb. In recent briefings to discuss their 2021 results, most listed insurers said they believe their shares are undervalued. As of April 20, share prices for most Hong Kong-listed Chinese insurers were well below their net assets per share. Examples include China Taiping (0966.HK) and PICC (1339.HK; 601319.SH) with price-to-book (P/B) ratios of 0.38 and 0.42, respectively; China Pacific (2601.HK; 601601.SH) at 0.65; and Ping An at 0.98.

Though the timing isn’t the best, Sunshine, which has been planning to list for many years, may see such a move now as a way to charge up its development. What’s more, market sentiment could change for the better in the months between the company’s first public filing and its eventual trading debut.

And despite short-term pandemic-related setbacks and the ever-present potential for new regulation, trends still look positive over the longer term due to the market’s big potential. Demand for health, pension, wealth management and other products are expected to promote the industry’s continued advancement, as both individuals and companies become increasingly aware of the value of insurance.

China currently has just nine insurers listed at home and abroad. Those include Shanghai-listed PICC; China Life Insurance (2628.HK; 601628.SH); Ping An; China Pacific; and Xinhua Insurance (601336.SH). Four others are listed in Hong Kong: China Taiping, China Property (2328.HK), China Reinsurance (1508.HK) and ZhongAn.

Besides Sunshine, several other domestic insurers have also sought mainland and Hong Kong listings over the last five years, but none have succeeded. In August 2019, Guohua Life Insurance tried to go public through a backdoor merger, but failed after 10 months. China National Agricultural Insurance also applied for an A-share IPO on the mainland at the end of last year, though its prospectus has yet to be made public.

In becoming China’s 10th listed insurer, Sunshine would offer investors a new choice of a major private player, even though its assets are far smaller than many of its larger, mostly state-owned peers. The listing could provide new opportunities with the influx of big new funds, but will also provide challenges if weak market sentiment lingers.