Prem Enters The Middle Kingdom

News broke yesterday that Fairfax Financial Holdings (FFH) is making a move into China by purchasing a 15% stake in Alltrust Insurance Co. of China for about US $66 million.

From a story in today's Globe and Mail:

The Chinese market is coveted by many insurers, both those that specialize in life insurance as well as property and casualty insurance, because of its growth potential. Last month, Finance Minister Jim Flaherty led to China a delegation of representatives from Canadian financial institutions, including the chief executive officers of the country's largest life insurers, Manulife Financial Corp. and Sun Life Financial Inc. Sun Life restructured its Chinese operations in July, choosing to hold a smaller stake in a larger Chinese company as it seeks expansion in that country.

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Yesterday's deal is a significant investment for Toronto-based Fairfax, and follows a pattern of entering various foreign markets by way of a joint venture.

For example, Fairfax has a joint venture in India, ICICI Lombard General Insurance, which in many ways provides a blueprint for how it will operate in China. "Much like in India and other developing countries around the world, we see tremendous long-term potential for the growth of insurance in China as penetration rates are currently still very low," Mr. Rivett said.

Prem Watsa said Alltrust has had profitable growth since its inception, and is among the leading private insurers in China.

Fairfax is a good-sized holding in my portfolio. But as I repeatedly remind readers, I have sold enough shares over time so that all my original capital is out. It remains a free ride for me.