Recently, market news has reported significant personnel changes within a domestic insurance company under Fosun Group, with a change in the top leadership position.
Lai Jun, the former chairman of Fosun-Prudential Life Insurance, has been reassigned to the position of vice chairman, while the chairman role has been taken over by Zeng Mingguang, the former chairman of Fosun United Health Insurance, a sister company.
Speaking of which, both companies could be described as "troubled siblings." In the first half of the year, they both experienced "increased revenue without increased profits," indicating a deficiency in their internal profitability; their solvency was also under strain. Under the contraction of Fosun International's insurance map, their predicament became more apparent.
A change in one part affects the whole system.
Fosun International (0656. HK) has established four core business segments: "Health," "Happiness," "Wealth," and "Intelligence." Under the "Wealth" segment, there are four major insurance companies, namely Fosun Portugal Insurance Company, Fosun-Prudential Life Insurance, Fosun United Health Insurance, and Dingrui Reinsurance.
As key players in Fosun Group's strategic layout in the domestic insurance market, every move made by Fosun-Prudential Life Insurance and Fosun United Health Insurance is closely watched by the market.
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Fosun-Prudential Life Insurance is a Sino-foreign joint venture insurance company, established in 2012, with shareholders Fosun and Prudential Financial Group, each holding a 50% stake. Unlike the former, Fosun United Health Insurance has a more local pedigree and was established more than four years later than the former.
According to market news, this personnel reshuffling is primarily due to the board renewal of Fosun-Prudential Life Insurance.
The current chairman, Lai Jun, is nearing the end of his term, and Fosun Group has initiated a round of internal personnel adjustments. Lai Jun has been repositioned from chairman to vice chairman of Fosun-Prudential Life Insurance, and the new chairman, Zeng Mingguang, is the former chairman of the sister company, Fosun United Health Insurance.Lai Jun, with a background from the foreign shareholder Prudential, has extensive experience in the insurance industry. He is currently the President of Prudential Financial Group in China. Since November 2021, he has served as the Chairman of Fosun Prudential Life Insurance, with his term nearing its end after nearly three years. Prior to this, he held key positions at China Merchants-Cigna Life Insurance, China United Life Insurance, Huatai Insurance Group, and Ping An Insurance Group.
The proposed successor, Zeng Mingguang, has served in the personal insurance department of China Continent Property & Casualty Insurance and has long been associated with the Fosun insurance sector. He was the Executive President of Fosun Group's health insurance business division and served as the President at the inception of Fosun United Health Insurance. In August 2023, Zeng Mingguang was officially appointed as the Chairman of Fosun United Health Insurance, but he resigned on September 24, with his tenure as Chairman lasting just over a year.
In fact, the stability of a company's operations is inseparable from the stability of its senior management. Looking back at Fosun Prudential Life Insurance since its establishment in 2012, there has been frequent turnover in the senior management. Including the proposed appointment of Zeng Mingguang, there have been changes in the Chairman position five times. There have been six individuals who have served as General Manager or acted in that capacity.
After the former General Manager of Fosun Prudential Life Insurance, Chen Guoping, resigned for personal reasons, the position has been vacant for over a year. During this period, the Executive Deputy General Manager, Tian Hongzhen, has served as the interim head. Tian Hongzhen is a veteran in the insurance industry, having worked at Taikang Life, Minsheng Life, and Fude Life Insurance, among others. He also served as a director and deputy director of the Actuarial Department of the China Insurance Regulatory Commission's Life Insurance Supervision Department.
Now, with the General Manager position at Fosun Prudential Life Insurance still unfilled and the change in the top leadership, this implies that the company's strategic direction may undergo a shift.
A single move affects the whole body.
It has been learned from the market that after Zeng Mingguang's resignation, the Chairman of Fosun United Health Insurance will be succeeded by Peng Yulong, the current Chairman of the Supervisory Board of Fosun Prudential Life Insurance. Sun Hao, the Managing Director of Prudential Global Investment Management, will fill the position of Chairman of the Supervisory Board of Fosun Prudential Life Insurance.
Peng Yulong previously worked at Guotai Junan Securities Research Institute, engaged in insurance industry research. He joined Fosun in November 2013 and currently serves as the Senior Assistant to the President of Shanghai Fosun High-Tech (Group) Co., Ltd., President of Fosun Financial Services Group, and Co-President of Fosun's insurance sector.
If Peng Yulong is successfully appointed as the Chairman of Fosun United Health Insurance, he will work alongside Lai Xiaohui, who was promoted from Vice President to President in the second half of 2023.
Fosun International's insurance sector is shrinking.Behind the reshuffling of insurance executives in Fosun's insurance sector, concerns arise regarding the operational status of Fosun International.
Over the past five years, Fosun International's profitability has been unstable, with significant fluctuations in performance. The net profits attributable to the parent company were 14.801 billion yuan, 8.000 billion yuan, 10.085 billion yuan, -0.832 billion yuan, and 1.379 billion yuan, respectively. Particularly after the loss in 2022, the profitability has significantly diminished compared to previous years.
During this period, except for the substantial loss of 4.880 billion yuan in net profit attributable to the parent company in 2022, from 2019 to 2021, the affluent sector contributed the highest proportion to the net profit attributable to the parent company among all business sectors of the group, exceeding 50%. In 2023, it was surpassed by the health and smart manufacturing sectors, with the proportion plummeting to only 17.19%.
The company's affluent sector includes two parts: insurance and asset management. In fact, for a long time, the asset management business has been the major contributor to the net profit of the affluent sector. In 2023, the insurance business contributed more than the asset management, with a net profit attributable to the parent company of 790 million yuan, accounting for half of Fosun International's profits. At that time, the asset management business suffered a net loss of 553 million yuan attributable to the parent company.
In the first half of 2024, Fosun International's net profit attributable to the parent company continued to decline, only reaching 720 million yuan, a year-on-year decrease of 47.06% compared to 2023. Particularly, the affluent sector was dragged down by the asset management business, with a net profit attributable to the parent company plummeting by more than 80% year-on-year, to just 27 million yuan.
Among them, the insurance business benefited from a one-time disposal profit from non-core assets, with a year-on-year increase of 56.46% in net profit attributable to the parent company, reaching 1.175 billion yuan. The asset management business, on the other hand, saw a year-on-year decline of 110.26%, with a loss of 1.148 billion yuan.
It is worth noting that since the cliff-like decline in performance in 2022, possibly based on the need to improve performance and recover funds, Fosun International has carried out a strategic contraction mainly targeting the insurance sector.
In 2022, it sold 100% of AmeriTrust's equity for $740 million; transferred all the shares of Taikang Insurance Group held by Yuyuan Shares to Taikang Insurance Group, with a transfer price of 1.157 billion yuan; and four subsidiaries transferred 26% of the shares they held in Yong'an Property Insurance to a company under the Shaanxi State-owned Assets Supervision and Administration Commission, reducing the shareholding ratio from 40.68% to 14.69%.
In April 2024, to focus on core businesses and alleviate debt pressure, Fosun International stated its intention to sell up to 15.4013 million shares of the Belgian insurance company Ageas SA/NV (Fujin) to BNP Paribas Cardif, recovering more than 600 million euros in funds. After the transaction, Fosun International's shareholding in Ageas will not exceed 1.9525 million shares.
On September 27, Guo Guangchang, the founder of Fosun International, reduced his holdings by 5.34 million shares of New China Life H shares, with the shareholding ratio dropping from 6.23% to 5.71%, and this transaction approximately realized 113 million Hong Kong dollars.Pressure on Domestic Insurance Business Multiplies
When it comes to the operation of Fosun's insurance business, there is significant internal differentiation, particularly in terms of regional disparities.
In the first half of 2024, the profit from Fosun International's insurance business mainly came from the overseas segment. During this period, Fosun Portugal Insurance and Dingrui Reinsurance achieved net profits of €104 million and $124 million, respectively.
In contrast, the two life insurance companies held by Fosun International in China each face their own challenges.
In the first half of 2024, Fosun United Health Insurance experienced "increased revenue but not profit." The insurance business revenue reached 2.778 billion yuan, a 20% increase year-on-year; however, the net profit loss was 15 million yuan, compared to a profit of 33 million yuan in 2023, indicating a shift from profit to loss.
Alongside the shift to a loss, the risk of Fosun United Health Insurance's solvency not meeting the regulatory standards has increased. With the implementation of the "Second Generation Solvency II" rules in 2022, although the company has applied for a transitional policy, its solvency is still approaching the regulatory "red line." From 2022 to 2023, the company's core solvency ratio was only 57% and 56%, respectively.
In the first half of 2024, Fosun United Health Insurance received a total capital increase of 498 million yuan from two shareholders, Shanghai Fosun Pharmaceutical and Guangzhou Nansha Kejin Holdings, which temporarily eased the strained solvency. However, looking ahead, the downward pressure remains significant and continues to be a bottleneck in its development.
Previously, an analysis of the operation of Fosun United Health Insurance has been conducted, so I will not elaborate further. The focus will be on Fosun Prudential Life Insurance.
In fact, when compared, Fosun United Health Insurance's profitability is even better than that of its sister insurance company, Fosun Prudential Life Insurance, which suggests that the latter is in an even more difficult situation.
Fosun United Health Insurance achieved a positive net profit in its fifth year of establishment and has been profitable for three consecutive years from 2021 to 2023, albeit with a relatively small profit margin, at 20 million yuan, 63 million yuan, and 23 million yuan, respectively. On the other hand, Fosun Prudential Life Insurance, which was established earlier, has broken the industry rule of "seven years of break-even and eight years of profit" for life insurance companies, and has been in a loss-making quagmire for 12 consecutive years since its establishment, still mired in losses to this day.In the first half of 2024, Fosun Prudential Life Insurance achieved insurance business revenue of 5.324 billion yuan, a year-on-year increase of 131.98%; net profit loss was 161 million yuan, compared to a loss of 0.05 million yuan in the same period of 2023, indicating a widening loss margin.
Typically, the long-term losses of an insurance company are not unrelated to its investment capabilities, solvency, and the management level of senior executives.
In the first half of 2024, Fosun Prudential Life Insurance's annual cumulative investment return rate was 1.53%, a decline of 0.61 percentage points compared to the same period in 2023; the annual cumulative comprehensive investment return rate was 4.81%, a year-on-year increase of 1.05 percentage points. However, compared to the company's average investment return rate of 3.93% and comprehensive investment return rate of 5.21% over the past three years, there is a significant gap, making the investment pressure in the second half of the year self-evident.
Solvency, as the lifeline of an insurance company, has temporarily stabilized for Fosun Prudential Life Insurance after multiple rounds of capital injections by both Chinese and foreign shareholders. As of the end of the first half of 2024, Fosun Prudential Life Insurance's core solvency adequacy ratio was 159.87%, and the comprehensive solvency adequacy ratio was 207.45%, respectively increasing by 4.31 percentage points and 5.21 percentage points compared to the end of the first quarter. Moreover, the company's two solvency indicators are higher than the core solvency adequacy ratio of 115.7% and the comprehensive solvency adequacy ratio of 185.9% for life insurance companies.
However, looking at the long term, the outlook is not optimistic. Generally speaking, insurance companies that suffer long-term losses have insufficient "self-blood-making" functions, and the expansion of business scale consumes a lot of capital, usually leading to a decline in solvency. Fosun Prudential Life Insurance has clearly stated that it predicts the company's core and comprehensive solvency ratios for the third quarter of 2024 to be 141.75% and 188.13%, respectively, showing a significant decline from the end of the second quarter.
Under the continuous contraction of Fosun International's insurance sector, whether it can continue to inject capital remains unknown.
It is worth noting that Fosun Prudential Life Insurance still needs to strengthen its internal control management.
On the eve of March 15, 2023, the regulatory website disclosed that Fosun Prudential Life Insurance was ordered to rectify, warned, and fined 2.62 million yuan by the regulatory authorities for 10 violations, including not using the filed insurance rate as stipulated.
Seven people involved were warned and fined a total of 590,000 yuan. Among them was Chen Guoping, the then general manager of the company, who was directly responsible for the company's insurance funds not operating independently and was warned and fined 100,000 yuan.