Research On The Performance Of Share Acquisition Of China Life Insurance Companies

For the past few years, numbers of merges and acquisitions involving insurance corporations are increasing, however, there is not much theoretical research on merges and acquisitions in the insurance industry. This paper analyses the performance and efficiency effects of mergers and acquisitions on the life insurance industry using data envelopment analysis (DEA) and principal component analysis (PCA), and thus come to some meaningful conclusions.DEA model results indicate that the performance of 3 sample companies out of total 6 has been improved after being acquired; PCA model results indicate that the performance of 4 sample companies out of total 6 get promotion after being acquired. Overall, the performance and efficiency of life insurance companies has been promoted after being acquired.According to empirical results, the main reason contributing to the improvement of performance is that the company has a high growth in premium while achieving successful cost control. On the one hand, the company usually gets the capital injection and other resources from the new shareholder after having accomplished share acquisition. Promoted in a variety of factors, production has been greatly improved, such as premium income. On the other hand, after new shareholder having come into the company, the company will realize synergy effects in management resource, especially in sales resource. For example, after a bank acquiring an insurance company, it will bring convenience to the insurance company through the channel of banks, and then the acquired company may get lots of distribution channels in a short time. Therefore, the companies are able to have a high growth of premium income while incurring relatively sales expenses. The 4 sample companies whose performance is improved, all of them achieve highly growth of premium income and avoid increasing the comprehensive costs rate at the same time. To put it simply, due to the increase of incomes and the decrease of costs, the company improves its performance.The results indicate that the performance reduction of another 2 sample companies is primarily associated with the high growth of comprehensive costs rate. On the one hand, after the company having taken advantage of the distribution channel brought by the new shareholder, the periods of peak premium growth are unsustainable. On the other hand, the overgrowth of the numbers of branch offices will bring excessive increase in sales expense, that will improve comprehensive rate. To put it simply, due to the weak premium growth and the increase of costs, the performance of the company decline. It is worth remembering that although the massive expansion of acquired company will suffer an under-performance in a short time, the long-term performance cannot yet be judged. The performance of acquired company may get improvement when the company has accomplished network construction. Therefore, the performance and efficiency effects of mergers and acquisitions on the life insurance industry is worthy of further research.