Private-owned global investment and asset management conglomerate, Fosun International Limited’s adoption of Warren Buffett’s reinsurance and investment model is proving to be a success, as the China-based organisation eyes further acquisitions.
The Shanghai firm has been taking big steps towards its goal of becoming an “insurance-oriented investment group” since its 80% acquisition of Fosun Insurance Portugal last year, which consisted of Portugal’s largest insurer Fidelidade Group, Multicare and Cares.
By utilising its insurance and reinsurance operations Fosun hopes to use the premium float earned to invest in and acquire further companies, the same investment and expansion model used by Warren Buffett’s Berkshire Hathaway.
“Insurance is the most important business segment for us, the build-out of insurance gives us a cheap and sustainable source of funding,” explained Fosun’s Chief Executive Officer (CEO), Liang Xinjun in a recent interview with The Wall Street Journal (WSJ).
Adding; “The persistent low interest rate environment in the U.S. and Europe has made the acquisition targets there look more attractive.”
According to the WSJ, since 2010 the firm has spent over $6 billion acquiring foreign assets, and is currently in talks to spend a further $2.4 billion on five insurers in Asia, Europe and the U.S., sometime during 2015.
While the names of the companies concerned were not mentioned, Fosun had even been rumoured as favourite to purchase Bermuda property catastrophe specialist reinsurer Montpelier Re although that has only today been revealed as Endurance after it announced it would be acquiring the firm, and Israeli insurance company, Phoenix Holdings Ltd.
Its investment and development model, which as mentioned previously replicates Warren Buffett’s work with Berkshire Hathaway, appears to be working well.
In 2014 net profits from the Group’s insurance operations, which includes a stake in U.S. insurer Ironshore, its Portuguese insurance acquisitions and others, increased by nearly double, totalling $177.1 million and accounting for 17% of the firm’s total net profit.
Last year, operating revenue derived from its insurance business increased by a staggering 2,742.3% year-on-year, making up 12.7% of Fosun’s total revenue, and again showing just how important its insurance operations are to its business model.
In a recent press release discussing its 2014 financial results and the implementation of the Buffett model, Fosun said; “Insurance has become the most important segment for Fosun and has exerted a fundamental impact on the overall business operation and profit generation for the Group.”
The increasingly diverse companies that Fosun has acquired and future, imminent takeovers of others, assuming all goes to plan, will certainly position the Group as a leading global investment conglomerate.
It’s “insurance + investment” twin-driver core strategy is enabling rapid growth and swelling profits, which the company wants to use to expand its global reach and investment opportunities.
While the possible takeover of Bermudian reinsurer Montpelier Re would provide Fosun with greater access to the U.S. property catastrophe reinsurance market, it’s also thought to be looking at investments in European real estate.
So it’s clear that Fosun have no plans to sit back and relax on the deals it has already completed, but is eager to continue down its path of rapid expansion and development.
It’s interesting that as hedge fund reinsurers have sought to emulate Warren Buffett, the tie to a single hedge fund manager means that they cannot follow the same expansive and acquisitive strategy that has enabled Buffett to grow its premium float so rapidly and considerably.
Fosun is one of the few companies that is truly emulating the Warren Buffett model, alongside perhaps Prem Watsa’s Fairfax Financial.