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Prudential Unveils Chinese JV

After tiptoeing around the Middle Kingdom, U.S. insurer finally hooks up with Fosun to battle AIA and Ping An for business.

After more than a decade of looking at China’s insurance market, Newark, New Jersey–based Prudential Financial is finally expanding into its core competence in the Chinese market with the opening of an insurance joint venture.

Prudential opened a representative office in Beijing more than a decade ago, then established an asset management joint venture with China Everbright Holdings in 2004. Last year it set up a private equity fund with Shanghai-based Fosun Group that will manage up to $600 million in assets, of which 83 percent comes from Prudential.

Liking what they see in Fosun, Prudential Financial is setting up an insurance joint venture with the Shanghai-based privately owned conglomerate that is controlled by four founding partners.

“It was a conscious choice on our part to move slowly and a step at a time, to understand the market,” Mark Grier, vice chairman of Prudential Financial, told Institutional Investor during an announcement of the joint venture in Shanghai on November 29. Grier says that was in keeping with its previous moves. Now, he says, “we have a partner that is very motivated, that brings distribution, client relations that will be very important to our success in China.”

The 50-50 joint venture, which has 500 million yuan in registered capital ($80 million), will focus on a wide range of insurance products, including life, accident protection and medical insurance, says Kenny Wu, general manager of Pramerica Fosun Life Insurance Co., the joint venture company.

Though Prudential focuses on traditional life products in the U.S. for retail, corporate and institutional clients, including annuities, pensions and mutual funds, its operations in Asia have diversified into a broad range of other products, says Scot Hoffman, Prudential’s vice president of global communications.

China has more than 100 insurance companies, of which roughly 40 percent are partially foreign funded. Chief among them is leading foreign insurer American International Assurance Co., the former Asian subsidiary of American International Group that has more than one million policies in force.

Chinese companies dominate the market, however: China Life Insurance Co. has about a 50 percent share of the life insurance market, while Ping An Life Insurance Co. and Ping An Property Insurance Co. share 16 percent and 12 percent of corresponding insurance markets, respectively, ranking second and third.

Though Pramerica Fosun is new to the market, executives are confident they can quickly make profitable inroads. “Many customers' needs are not satisfied in China,” Wu asserts. Says Grier, “We believe we come in with better assets than most of our competitors."

Wang Qunbing, executive director of joint venture partner Fosun Group and chairman of the joint venture, isn’t bothered at all that the two partners are entering an insurance market that is dominated by a few Chinese players.

“We have resources and have clients all over China,” Wang says in describing Fosun, which produced $9 billion in revenues and $540 million in net profit in 2011. It operates in a wide range of industries, including pharmaceuticals, real estate, steel, retail and mining. Those businesses give Fosun access to what Wang describes as “a large client base of chief executives” across the nation. He also notes that “we have close ties with banks and securities houses.” That adds up to “a distribution channel among high-end retail clients,” he adds. “We have every confidence we can help Prudential build a distribution network.”

Though it is forming an insurance JV for the first time, Prudential is no beginner when it comes to China’s insurance market. In 2005, it coinvested a total of $410 million with Carlyle Group into China Pacific Insurance (Group) Co., the nation’s third-largest insurer. Together, the two at one time held 25 percent of the company, though it has since been sold down. Hoffman says Prudential’s stake in China Pacific is now negligible.

Prudential’s $1 trillion in assets under management already makes it one of the largest American insurers, and it has operations in Europe, Asia and Latin America as well as the U.S. Chief among its Asian markets is Japan, where the company has operated for almost 30 years and continuously produces profitability despite a slow-growth environment.

Grier says its success in Japan has prepared it well for the global slowdown, which even China is experiencing.

“We continue to do very well even in very slow markets,” he says. “Japan is a good example.”

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