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The capital increase has alleviated Fosun UnitedHealth’s urgent needs, but the key to the company’s long-term development lies in the competitiveness of its business.

Text/Daily Financial Report Cheng Yi

Recently, the State Council issued the "Opinions on Promoting the High-quality Development of Service Consumption", which made many arrangements for the development of commercial health insurance, further opening up space for the transformation and development of health insurance. Although the "2023 Commercial Health Insurance Operation Data Analysis Report" shows that the overall growth of professional health insurance companies is better than that of non-health insurance companies, as the industry changes into the deep waters, the performance of many professional health insurance companies is difficult to be optimistic.

Not long ago, the second quarter solvency report released by Fosun United Health Insurance Co., Ltd. (hereinafter referred to as "Fosun United Health"), one of the "seven professional health insurance companies", showed that in the first half of 2024, the company achieved insurance business income of 2.778 billion yuan and a loss of 14.96 million yuan. In 2023, Fosun United Health's net profit only declined, but it can still maintain profitability. If the company's performance does not improve in the second half of the year, Fosun United Health may face an annual loss.

At the same time, Fosun United Health's solvency has been in trouble. Previously, Fosun United Health's solvency-related indicators continued to decline, and it applied for a transition period. This year, it received capital increase from new shareholders. At the end of the second quarter of 2024, Fosun United Health's core and comprehensive solvency adequacy ratios both increased to 102.92% and 171.76%, respectively.

Fosun United Health suffered losses and received another million-dollar fine

So far, 62 non-listed life insurance companies have released their second quarter solvency reports. In the first half of this year, the premium income of 62 non-listed life insurance companies was 741.451 billion yuan, and the net profit was 9.116 billion yuan, of which 31 companies were profitable, 30 companies were loss-making, and 1 company did not disclose its net profit data.

Among them, Fosun United Health achieved insurance business income of 2.778 billion yuan and a loss of 14.96 million yuan in the first half of 2024. The Daily Financial Report noted that Fosun United Health's actual profit in the second quarter of this year reached 75.96 million yuan, but the company had already lost 91 million yuan in the first quarter.

As one of the "seven professional health insurance companies", Fosun United Health was established in January 2017 to provide professional health protection and health management services. Since its establishment, Fosun United Health's premium income has continued to grow, from 59 million yuan in 2017 to 4.125 billion yuan in 2023.

However, in the first four years after its establishment, Fosun United Health continued to lose money, with a cumulative net loss of 245 million yuan. It was not until 2021 that Fosun United Health turned losses into profits and achieved a net profit of 20 million yuan. In 2022, Fosun United Health achieved a net profit of 62.8 million yuan, the highest annual level in its history. In 2023, although Fosun United Health's net profit was positive, it showed a sharp decline year-on-year, and only achieved a net profit of 23 million yuan.

While facing challenges in performance, Fosun United Health was also fined for violations. In July this year, Fosun United Health headquarters was fined 380,000 yuan, branches were fined 1.2 million yuan, and the company was fined a total of 1.58 million yuan for entrusting individuals without legal qualifications to engage in insurance sales activities, false financial and business data, failure to use registered insurance clauses in accordance with regulations, and false intermediary business to siphon fees. The 12 relevant persons in charge were warned and fined a total of 190,000 yuan.

Subsequently, Fosun United Health announced that the penalty was imposed based on the problems found in the on-site inspection by the original CIRC in 2020. Since the on-site inspection in 2020, the company has attached great importance to it, and has conscientiously and comprehensively implemented rectification in accordance with various inspection requirements, and the main problem points have been rectified.

Solvency is in danger, and capital increase is needed to alleviate the urgent need

It is worth noting that Fosun United Health's solvency pressure is increasing. Starting from 2022, Fosun United Health's solvency has taken a sharp turn for the worse. Specifically, from 2021 to 2023, the company's core solvency ratio was 143%, 57%, and 56%; the comprehensive solvency ratio was 156%, 114%, and 111%, all hovering on the edge of the "passing line". Moreover, starting from 2023, Fosun United Health's comprehensive risk rating dropped from BB in the third quarter of that year to B in the fourth quarter, and continued to remain at B.

The "Room II Phase II" rules will be implemented in 2022, and Fosun United Health has applied for a transitional policy based on this to ensure that its solvency is sufficient and meets regulatory requirements.

In fact, Fosun United Health Insurance had planned to increase capital in 2018, 2019, 2021 and 2023, but all four plans failed. It could only obtain 650 million yuan in cash from shareholders through donations to supplement its capital strength.

It was not until 2024, the last year of the three-year transition period for the second phase of the Generation II Solvency 2 project, that the company's capital increase was finally approved by regulators, marking the success of its first round of capital increase.

In May this year, the Financial Regulatory Bureau officially approved the qualifications of Shanghai Fosun Pharmaceutical (Group) Co., Ltd. and Guangzhou Nansha Kejin Holding Group Co., Ltd. as new shareholders. The two companies each subscribed for 97.22 million shares, with a shareholding ratio of 14%, and the registered capital also increased from 500 million yuan to 694 million yuan.

With the capital increase in place, Fosun United Health's solvency has temporarily overcome the difficulties. At the end of the second quarter of 2024, Fosun United Health's core and comprehensive solvency ratios both increased to 102.92% and 171.76%, respectively. However, in the future, Fosun United Health's solvency ratio still faces the risk of decline.

Fosun Group's insurance sector is "slimming down", and it is not easy for Fosun Health to increase capital

In this capital increase, Fosun Pharma participated in the capital increase as a new shareholder, holding 14% of Fosun United Health's equity. In addition, Shanghai Fosun Industrial Investment Co., Ltd. (hereinafter referred to as "Fosun Industry") also holds 14.4% of Fosun United Health's equity. Fosun Pharma and Fosun Industry are both subsidiaries of Fosun International, so Fosun United Health is also affiliated with Fosun International.

In the current environment of deepening industry transformation and declining investment returns of insurance companies, Fosun United Health is undoubtedly lucky to get "blood transfusion". After all, there are still many small and medium-sized insurance companies that are difficult to provide long-term and stable capital returns, resulting in the lack of willingness of existing shareholders to increase capital and insufficient attractiveness to potential investors.

However, the Daily Financial Report noted that Fosun International has been "slimming down" its insurance sector in recent years. In 2022, it sold 100% of AmeriTrust's shares for US$740 million; transferred all Taikang Insurance Group shares held by its subsidiary Yuyuan Group to Taikang Insurance Group; and its four subsidiaries transferred 26% of Yongan Property & Casualty Insurance's shares to a company under the Shaanxi State-owned Assets Supervision and Administration Commission. Fosun International's shareholding ratio was reduced from 40.68% to 14.69%.

In April this year, in order to focus on its core business and recover funds, Fosun International announced that it would sell no more than 15.4013 million shares of Ageas SA/NV to BNP Paribas Cardif, with a total price of approximately 626 million euros to 670 million euros, equivalent to approximately 4.8 billion to 5.1 billion yuan.

The capital increase has alleviated the urgent need of Fosun United Health, but the key to the company's long-term development lies in the competitiveness of its business. Insurance companies should improve their endogenous capital capabilities by optimizing their business and asset structure. However, in the current context of pressure on the asset side and deepening transformation on the liability side, it is not easy for many small and medium-sized insurance companies that are struggling to make profits to increase their endogenous capital.

Meicai.com Statement: This article is based on public information. The information or opinions expressed do not constitute investment advice to anyone and are for reference only. The picture material comes from the Internet. Please delete if it infringes.

2024

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