March 21, 2023

This is a time of opportunity for Chinese insurers such as Sunshine Insurance Group. A record coronavirus outbreak is straining unprepared hospitals. That could delay Beijing’s plans for universal health insurance. More Chinese people will go private instead.

Sunshine plans to raise up to $950mn in a Hong Kong listing. It is revealing that a business unrelated to the bulletproof investor proposition of electric cars is braving public markets. Private healthcare insurance can boast its own secular growth story.

There are three main negatives. First, social health insurance plans already cover the entire population. Beijing has its sights set on introducing comprehensive universal insurance by 2030. Second, companies bear hefty real estate sector risks. Sunshine is the seventh largest local property and casualty insurer. Third, the industry is highly competitive. Ping An, People’s Insurance and China Life dominate.

However, public health insurance payouts covered less than a tenth of total healthcare expenditure before the pandemic. Patients have to make steep out-of-pocket payments. Health service cuts have reduced treatment availability. High-end private healthcare has expanded accordingly.

Social security pension plans cover less than half of the country’s requirements. That leaves ample room for private insurance. Profitability is healthy. Operating margins are 12 per cent at Ping An. Demand for short-term health cover and Life Insurance is rising. Premium income increased to more than $635bn last year. It has more than doubled over five years.

Sunshine’s premium income growth has been impressive over the past three years, with Life Insurance especially strong. This accounts for more than two-thirds of its total revenue. Based on an industry multiple of 6 times expected earnings, Sunshine’s value would be over $3bn.

Demand has been weak for Hong Kong listings. That should temper Sunshine’s price expectations, creating a potential entry point for long-term investors when shares start trading next Friday.

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