China's "insurtech" star over-stresses the tech
By Alec Macfarlane
(The author is a Reuters Breakingviews columnist.)
HONG KONG, Sept 12 (Reuters Breakingviews) - China's "insurtech" star is overemphasising the tech part of that combination. Zhong An was founded by the chairmen of internet heavyweights Alibaba and Tencent, Jack Ma and Pony Ma, and their counterpart at Ping An,, the insurer, Ma Mingzhe. A mooted valuation of up to $12.9 billion for this financial technology-meets-insurance business owes more to the first two Mas than to the third.
On UBS estimates, Zhong An could be worth 41.3 to 50.2 times earnings for 2019. That is a sizeable uplift even to Tencent, say, which trades at 27 times that year's forecast earnings, according to Eikon.
Meanwhile, Credit Suisse analysts arrive at a valuation of up to $12.7 billion. This is derived partly by applying, generously, an internet-style earnings multiple to Zhong An's underwriting profits, and adding in book value. The researchers then ascribe up to $5.4 billion more, based on future cash flows, to its technology business, which helps other financial institutions use the cloud and big data.
These values are pretty punchy. To be sure, Zhong An has a lot going for it. It is growing fast, has lower costs than traditional rivals, and can use data from its backers to price risk more accurately. Across Asia, rising incomes and patchy insurance coverage make for an attractive market.
But banking on rapid growth assumes Zhong An's competitors cannot mount much of a fightback - and that Zhong An can keep hold of the roughly 200 partners that provide most of its premiums.
Zhong An hardly has a monopoly on innovation, either. Ping An itself, for example, has an app that calculates the cost of a car accident within seconds using artificial intelligence, and has invested in cutting edge facial-recognition. For a fraction of the price - 10 times expected earnings for 2019, Eikon shows- Ping An offers investors a far cheaper way to play the same theme.
- Zhong An Online Property and Casualty Insurance, China's first internet-only insurer, began pre-marketing its $1 to $1.5 billionHong Kong initial public offering on Sept. 11, Thomson Reuters publication IFR reported.
- Pre-deal reports from Credit Suisse and UBS, two banks working on the offering, value Zhong An at $11.1 billion to $12.7 billion and HK$72.7 billion to HK$101 billion ($9.3 billion to $12.9 billion), respectively, IFR said.
- Zhong An raised 5.8 billion yuan, then equivalent to $931 million, in a pre-IPO financing round in June 2015, according to a stock exchange filing. The pre-IPO investors were told Zhong An was valued at 50 billion yuan in that round, after various adjustments, IFR said, citing people familiar with the situation.