MEAG goes to China

The China Insurance Regulatory Commission (CIRC) has approved the acquisition of a 19% stake in PICC Asset Management Company (PAMC) by MEAG, the asset management unit of the Munich Re and ERGO Insurance Group. MEAG’s financial investment amounts to approximately € 25 million. This strategic partnership enables MEAG to participate in one of the fastest growing and most promising markets worldwide. Dr. Thomas Kabisch, CEO of MEAG, emphasised: “This is a win-win situation for both partners, since we will jointly develop services from which we can profit together.”

Both enterprises intend to grow their business with private and institutional investors. Subject to approval by the CIRC, 25% of PAMC's assets under management is anticipated to originate from private and institutional investors by 2010. “The expected liberalisation of the market for financial services will enable MEAG to explore the Chinese market with additional services, which are already familiar to us,” underlined Dr. Robert Helm, Managing Director, Institutional Clients Securities. The aggregate volume of private savings balances alone – valued at US$ 1,740 billion at the end of 2005 – provides an indication of the growth potential in China. Furthermore, China’s One Child policy has increased the importance of retirement provisions, which will continue to boost the volume of assets looking for attractive investment opportunities.

MEAG is in an excellent starting position to manage PAMC’s funds, which are to be invested in Europe and the US. As Helm indicated, “the quota for foreign investments of Chinese insurance companies was boosted to 15% only recently.” In addition, MEAG is aiming for the status of a Qualified Foreign Institutional Investor (QFII). The Munich Re Group as well as MEAG’s institutional clients would profit from this status since MEAG could then directly invest in 'A Shares’ – issues listed at the Shanghai or Shenzhen Stock Exchanges, which are exclusively reserved for domestic investors, and for those holding a specific licence. Currently, around 50 financial services providers globally have been assigned QFII status. Commenting on the opportunities for European investors in China, Helm explained that “investors profit from the advantages of diversification. The performance of the Chinese capital markets is negatively correlated with those of the G7 countries.”

MEAG’s 19% acquisition of PAMC is the first noteworthy participation of a foreign financial institution in a Chinese asset management firm to date. Moreover, MEAG is one of the first foreign asset managers to acquire a stake in an Insurance Asset Management Company (IAMC). Helm affirmed: “We have an edge over our competitors: rather than having to start with nothing, we already have access to existing assets under management. We are thus well-positioned for developing business with investors in China, as well as for distributing attractive Chinese investment products in Europe.”

Win-win situation

“MEAG and PAMC are ideal partners thanks to their similar structure and strategic direction,” Dr. Helm continued. Both MEAG and PAMC largely manage funds on behalf of their shareholders. Both are asset managers for insurance companies covering various segments. MEAG manages funds for reinsurance and primary insurance entities of the Munich Re Group, including those underwriting life, health, property, casualty, and legal expense policies. PAMC manages funds from PICC Holding, PICC Property & Casualty, PICC Life as well as PICC Health. With a track record of three years’ operational experience in the emerging Chinese market, and € 3.8 billion in assets under management, PAMC is the fifth-largest asset manager in China at present. It is estimated that by 2010, PAMC should have in excess of € 10 billion under management. “We envisage a double-digit return on investment by 2010. Overall, we intend to triple assets under management – and related revenues – until 2010, and to quintuple the total return on investment within this time span,” Helm commented.

The partners have additionally agreed upon a know-how transfer, which is set to include the secondment of MEAG employees to Shanghai, as well as the training of PAMC employees at MEAG's Munich headquarters and Hong Kong branch. Specific areas where PAMC is looking to benefit from MEAG’s expertise cover the entire value creation chain in asset management for insurance companies: comprising investment advice, strategic asset allocation, asset liability management, research, portfolio management, risk controlling and reporting, and also including advice on tax, regulatory and accounting issues. “PAMC’s decision in choosing us as a partner was influenced by our leading position in asset management for insurance companies,” concluded Dr. Thomas Kabisch.

Munich, 12 December 2006

Contact:
Dr. Josef Wild
Phone: +49 89 2489–2072
Fax: +49 89 2489–2075
E-mail: JWild@meag.com