Discovery in Chinese acquisition

2 December 2009

South African healthcare insurer Discovery has announced its intention to expand into China with the acquisition of a 24.99% stake in Ping An Health Insurance.

While China’s private health insurance market is still nascent, there is strong growth potential – in 2007, gross written premiums were approximately 19-billion Yuan (R21-billion), while McKinsey & Company estimates that in 2008, private healthcare premiums reached approximately 55-billion Yuan (R59-billion).

The Chinese company is owned by Ping An Insurance, the second largest insurer in China with a market capitalisation of 292-billion Yuan (about R319-billion).

“Ping An is an excellent partner,” Discovery CEO Adrian Gore said in a statement this week. “The group is a leader in the Chinese insurance market, providing immediate scale, brand and distribution capability in this rapidly growing market.”

Social health insurance limitations

While large portions of the Chinese population are covered by the Social Health Insurance (SHI) system, this has strict coverage caps and co-payments, and there is inadequate access to top-tier hospitals and healthcare facilities.

According to Discovery, this inadequate cover, coupled with increasing consumer awareness about the need for preventive healthcare, has created demand for private medical insurance.

The growing disposable income amongst the 25-40 million middle-class households means many consumers can afford top-up cover, while there is also increasing demand for cover for private healthcare facilities, diagnostics and branded drugs that fall outside the limited SHI schedule of benefits.

According to Discovery, the Chinese government recognises the limitations of the SHI, and through their reform process, is encouraging private healthcare insurance providers to play an active role in developing a multi-level health insurance system.

Ping An Health currently holds one of a limited number of health insurance licences issued by the Chinese Insurance Regulatory Commission.

Middle and upper class customers

“Ping An Group currently has a 30% share of the ‘riders’ or ‘supplementary’ private health insurance market,” said Gore. “In 2005, Ping An grasped the enormous growth opportunity and potential of the comprehensive health insurance market, and Ping An Health was established in Shanghai.”

Ping An Health’s products and services are primarily aimed at middle and upper income customers, and it has branches in Shanghai, Beijing and Guangzhou. It has recorded significant growth over the last three years with sales increasing more than 400% over the period.

“Ping An Health is a fast-growing, well capitalised business,” said Gore. “We are confident that it will be able to maintain its growth trajectory as the Chinese health insurance market develops and it is able to leverage off Ping An group’s comprehensive distribution network and scale in the Chinese market.”

The conclusion of the transaction is subject to definitive agreement between the parties, following which it would be subject to the requisite regulatory approvals and other conditions precedent.

SAinfo reporter