My Age of Investment

   Chapter 1256 Insurance Float

   "Negotiations with a potential heavyweight buyer broke down, the future of AIA was in a fog, and the parent company AIG's debt repayment plan was aborted",

  《Envision Capital Wants to Give Up the Acquisition of AIA? The spokesman, Mr. Abel, declined to comment.”

   "AIG's new CEO Mr. Li Di: AIG is promoting the debt reduction plan in an orderly manner, but will never sell any of the company's assets cheaply",

  …

  The news about the sale of AIA has been reported by major media for half a month.

   The plot is complicated and confusing, and the reversal of the appearance of two ends in three days makes the outside audience almost numb.

   Just when everyone was about to lose interest in this matter, the official announcement was finally ushered in.

  Envision Capital and AIG Group also announced that Envision Financial Holding Group, a subsidiary of Envision Capital, acquired 100% of the shares of AIA Group for a transaction consideration of US$30 billion.

   For this transaction price, the outside world has not expressed any objection. Although it is not high, it is not a cheap sale of assets.

  CFIUS, the Committee on Foreign Investment in the United States, rarely came out to make things difficult, but gave the green light and released the entire transaction all the way.

   This is because the federal government is now the largest shareholder of AIG Group, holding a 79.9% stake in the company, as well as holding a large amount of debt.

   Now the government is eager to get rid of the hot potato as soon as possible.

  AIG pays off its debts as soon as possible and resumes normal operations, which is what everyone is happy to see.

  …………

  …………

   Inside 40 Wall Street Building.

   Chen Hong, who just rushed from Hong Kong today, looked at Xia Jingxing in disbelief, "Have AIA been settled so quickly?"

   "Fast? I think it's a bit slow." Xia Jingxing shook his head and laughed.

   "I thought it would take months or even a year to negotiate this kind of large-scale deal, but I didn't expect you to get it done in half a month."

  Chen Hongchao spread his hands to Xia Jingxing who was sitting across from him. He now felt that he was getting farther and farther away from Xia Jingxing. The other party spent 30 billion US dollars silently. This incident has caused a great sensation in the country!

   What ICBC and China Life could not do or dare not do, Envision Capital did it.

   Coupled with the previous short-selling of the Li Huangtai family and short-selling of the public, there is no doubt that Envision Capital has grown into a world-class financial giant that countless financial practitioners look up to!

  Xia Jingxing smiled without explaining much.

   In this acquisition, Blankfein and Goldman Sachs made great efforts.

   Therefore, Vision Capital paid the other party up to $300 million in acquisition advisory fees.

   And that's not even the full reward!

   Vision Capital has promised some future benefits, which will be delivered to Goldman Sachs one by one in the future.

  Why not pay Goldman Sachs the full amount in one lump sum?

   is mainly a bit unreasonable, and it is easy to appear tricky.

   For example, a $30 billion acquisition case paid Goldman Sachs as much as $1 billion or $2 billion. Even a fool can see that there is a PY transaction.

  Chen Hong suddenly asked: "Spending 30 billion US dollars to buy an insurance company with some traditional business is not in line with your identity?"

  Xia Jingxing didn't hide it either, saying what Blankfein once said: "In the hands of me and Buffett, the meaning of insurance companies is different from that of ordinary people."

   Chen Hong suddenly realized: "Are you eyeing the float of the insurance company?"

  Xia Jingxing smiled. As we all know, when the insured purchases insurance, he pays the premium in advance, and then starts to receive the insurance money after the accident or the insurance expires.

Then, for insurance companies, if they can collect such a large amount of money every year, every quarter, or even every month, it is naturally impossible to let it be idle. Except for a certain percentage of the recent claims or payment amount, the rest of the funds are It can be freely used, and this part of the funds is called insurance float.

   Domestic investment restrictions on insurance float are quite strict.

   Like Boss Yao holding a sign for Vanke, he used its insurance funds.

   It will be around 2020 when the country will take a big step to loosen the restrictions on insurance capital and allow a high proportion of insurance capital to allocate high-risk assets such as VC and PE.

   Prior to this, the domestic insurance law placed great restrictions on the use of float funds. For example, it clearly stipulated that the upper limit for insurance companies to invest in stocks and stock funds was 10% of the total assets at the end of the previous year.

   This 10% is still the limit released by the China Insurance Regulatory Commission in 2008 in response to calls from the industry.

   Earlier, the capital limit of insurance capital entering the market was 5%, and it was also restricted from investing in stocks that rose more than 100% in the past 12 months...

   In other words, stocks that are too volatile cannot be bought.

   In addition, there is also an upper limit on the proportion of insurance funds held in a single stock, and full warehouse studs are not allowed.

   This is because the regulators take into account that if there are no restrictions, insurance companies will operate all kinds of riots. If they lose all the floating funds, they will only close the door, which is prone to social conflicts.

   Generally speaking, at this time, more domestic insurance funds choose to allocate low-risk fixed-income products, such as bonds, large-denomination certificates of deposit, and so on.

   While the foreign financial industry is relatively developed, there are not so many restrictions on insurance funds.

   Buffett’s password for getting rich is insurance float. Berkshire Hathaway can get zero or even negative interest rate funds from policyholders by selling insurance, and then use these low-cost funds to invest in the stock market.

  Charlie Munger once summed up Berkshire's business model this way: We are like hedgehogs, only one trick is to find float that costs less than 3%, and then invest it in companies that generate 13% returns.

   In fact, Berkshire Hathaway's cost of absorbing capital has remained below -2% for a long time after decades of operation.

   This means that all customers hand over funds to Buffett for free use, and they also pay him a custody fee of more than 2%.

   Low-cost unlimited financing in one hand, and value investment in the other hand, this is the true face of Buffett’s investment empire.

   And those who speculate in online loans and stocks are inherently lost at the starting line.

   Insurance companies have two profit models, one is underwriting profit and the other is investment income.

   In addition, for general non-financial insurance, its investment income does not need to be distributed to LPs like private equity funds, and all investment income belongs to all shareholders of the insurance company.

  Chen Hong said with emotion: "You have made a good move. AIA's main premium income comes from markets in Asian countries other than the mainland.

  I have seen relevant data. AIA’s mainland premium income last year was less than 8 billion yuan, which is far from comparable to China Life’s nearly 300 billion yuan in premium income and 130 billion yuan in Ping An.

   However, the entire Asian market is added together, and AIA's annual premium income is nearly 5 billion US dollars.

   With such a large sum of money in your hands, I believe that in a few years, you will be able to earn back the $30 billion that you bought from the company. "

  Xia Jingxing said with a smile: "It's not that easy. I mainly value insurance companies as stable assets with less volatility, so they are suitable for long-term holding."

   Chen Hong didn't believe Xia Jingxing's words, he felt that he was eyeing the low-cost financing channel of insurance companies and wanted to be the next Xiafeit.

   "I heard that Berkshire Hathaway has as much as $670 billion in float?"

"right!"

  Xia Jingxing nodded lightly, in another ten years, this number will double again.

With more than 100 billion US dollars in hand, even if Buffett does nothing every year, the underwriting profit alone will be 12 billion US dollars.

   In fact, Berkshire's main profit comes from investment income.

   Without Buffett, Berkshire would be an ordinary insurance company.

   But in the hands of Buffett, it is a real money printing machine.

   (end of this chapter)