China’s largest owned conglomerate, Fosun International Ltd. in an effort to increase its footprint in global insurance sector has offered $1.8 Billion to buy 80% of the non-owned stake of U.S. insurance company Ironshore Inc. (IRSH, Financial).
Insurance impression of Fosun
Owned by Guo Guangchang, Fosun was founded in 1992 and runs three businesses in insurance sector namely Pramerica-Fosun life insurance, Yong’an Insurance and Peak Reinsurance. The company has been long strategizing its expansion plans in insurance sector and has even taken steps in the past to for the same. In August 2014, Fosun had bought 20% stake in the casualty and property insurer Ironshore for $464 million. Post the merger; Ironshore will be combined with Mettlesome Investment 2 of Fosun, which will work towards strengthening its insurance business. The merger will allow Fosun to have access to Lloyd’s with Pembroke and the Bermuda operation specializing in property risks including wind and Earthquake covers. The merger will also make the expansion process faster and with ease for Fosun.
In the years 2014 and 2015 so far, the company managed to crack deals worth $6 billion, which excludes the current deal with Ironshore. As per Moody’s Investors Service, debt has been the major fund raiser for these deals making the company’s gross debt surge by around 40%. However, the Investors service still believes that Fosun will continue to make such investments further on as well as the former’s review on latter’s senior unsecured debt rating one last month along with sizeable cash and liquid assets allows for it. The deal with Ironshore is awaiting regulatory approval and if no decorum can be bought among the two before March 31, 2016, both the parties can call off the deal.
Talking of other major deals by the company, Fosun had somewhat forcefully acquired or rather taken over, French resorts operator Club Mediterranee.
Why insurance?
Fosun is positive about its decision to focus on insurance sector. The company not only believes in the deal decreasing currency risks, but also will help in global expansion of its insurance unit and its assets allocation and cooperation. The insurance business has fetched major gains for the company in the recent past. In 2014, the company had also undertaken the insurance unit of Portuguese state bank Caixa Geral de Depositos for 1 billion euros or $1.1 billion. The company is clearly quite upbeat about its decision and has made some of the most aggressive acquisitions and adding on to its range of global assets. There might be a hidden lesson as well in choosing insurance as a seek out for Guo being a follower of Warren Buffet and adopting his business approach of making insurance and reinsurance a major player in his business. Fosun Portugal in particular had made 80% of its acquisitions in insurance sector in 2014 including big names like Fidelidade Group, Multicare and Cares. The company is banking on the formula of using the premium float earned to invest in further acquisitions and expansion. The U.S. in particular has been on Fosun’s cards considering the low interest rate prevalent in the U.S. and European markets.
Ironshore, on the other hand, has shown weaker signs in the industry with net profit falling 13.3% to $84.5 million excluding tax as compared to last year. The company stated total assets of $6.7 billion in December 2014.
Future of the deal
Fosun is also involved in other business like steel, property, pharmaceuticals and mining. Guo following his previous experiences is all eyes on US market calling it “vibrant” and hints out at “many deals” in the pipeline even with higher pricing. In an effort to expand and make insurance its core business, the company had also announced in December to enter a tie-up with Meadowbrook Insurance Group Inc. (MIG, Financial) for $433 million. The company is also said to be planning to invest around $2.4 billion in total five acquisitions in Asia, Europe and the U.S. this year.
