Beijing - South Africa's largest health insurer, Discovery Holdings [JSE:DSY], plans to pay about R218m for a 20% stake in a joint venture with Ping An Insurance.
Discovery initially said it would take a 25% stake in venture, but had to cut its target because of Chinese regulatory
limits. The deal still requires regulatory approval.
Health insurance coverage is low in China, which has been stepping up efforts to expand its social safety net.
Discovery estimates that 55% of healthcare spending in China is private spending, and only 7% of that is insured, creating an attractive opportunity for health insurers to expand, said Discovery CEO Adrian Gore.
"There's a massive kind of gap that needs to be covered over time," Gore said.
"When you put all these factors together it is a very, very large emerging market, and for us that makes it very appealing."
The joint venture will launch a Discovery product in China next year. The South African insurer would also send executives to China to manage product development and risk control, said Ping An Health chairperson Lu Min, adding that Discovery's Vitality product would be adapted to the Chinese market.
Premiums at Ping An Health expanded at an annual rate of 490% over the past three years on the back of China's growing public and private spending on medical insurance, said Ren Huichuan, chairperson and CEO of Ping An Property and Casualty Insurance Co of China Ltd.
Ping An founded its health business in 2005, with a registered capital of about 500 million yuan.
Discovery has already invested in the UK and United States.
Ping An's choice
Parent Ping An Group is China's second-biggest insurer and has been in focus recently as talk swirled over whether Chinese firms might buy into AIA, the Asian life insurance business of American International Group Ltd.
Ren declined to comment on whether Ping An had any interest.
He said the firm's focus was on the domestic market, where it preferred to invest more in infrastructure projects, which usually offer stable returns.
"We are more familiar with this market and it has a lot of investment opportunities," he said.
According to the latest guidelines, Chinese insurers can now invest up to 10% of their assets in the infrastructure sector and a maximum of 15% in overseas markets.
Bailed-out insurer AIG is planning to list AIA later this year in Hong Kong, and could raise about $15bn, sources have previously told Reuters.
A consortium of leading Chinese companies, including China Life and Industrial and Commercial Bank of China Ltd, plans to bid for a 30% stake in AIA, a Chinese paper reported last week.