IAG Close to Abandoning China Pacific Property Share Acquisition

Insurance Australia Group Limited (IAG) announced that its planned investment in China Pacific Property Insurance Company (CPPI) has been “suspended.” However, IAG then stated: “barring any substantial changes in CPIC’s [China Pacific Insurance Co.] short-term strategy, it is unlikely to proceed.” CPPI is the property division of CPIC.

IAG first announced plans to acquire a stake in CPPI more than two years ago (See IJ web site Feb. 21, 2005). Subsequently it signed a “a memorandum of understanding” in Feb. 2006 with CPPI, which would have resulted in IAG’s acquiring a 24.9 percent stake in the company. “Draft transaction agreements” were executed in July 2006.

These were submitted to the China Insurance Regulatory Commission (CIRC). “However,” said IAG’s bulletin, “final execution of the transaction was delayed by changes and uncertainty within CPIC as it prepared for an IPO. Most recently, this has included the introduction of US private equity shareholders at CPIC level, which places new constraints on IAG’s proposed investment in CPPI.”

IAG’s CEO Michael Hawker expressed his “extreme disappointment” that the deal has apparently fallen through. He also indicated that IAG “had displayed maximum flexibility and good faith in accommodating changes requested by CPIC to the original in-principle July 2006 agreements.”

Hawker further explained that “CPIC, due to its own IPO and related US private equity considerations, is not currently able to offer us a pathway to a strategic shareholding in CPPI. The partnership vision, which we had developed together with CPIC and CPPI over a three year period, would have allowed IAG to transfer its underwriting, risk and claims management expertise to CPPI. However, shorter-term considerations by CPIC around its proposed IPO, and particularly US private equity participation in that IPO, now appear to dominate CPIC’s strategy.”

He nonetheless reiterated IAG’s commitment to the Chinese market, indicating: “We remain committed to the Chinese general insurance market and continue to pursue various opportunities with the goal of creating shareholder value through participating in this market as a long term strategic investor.”

The Group has been involved in the Chinese general insurance market since 1999 through its investment in China Automobile Association (CAA), a road service operation which also distributes insurance products for the top three national insurers. IAG has also worked with CIRC on regulatory developments.