If you don’t succeed at first, second or third? FWD takes a fourth try at Hong Kong IPO

The insurance company has traveled a rocky path to its planned Hong Kong listing despite its association with a local business luminary and some big-name investors

Key Takeaways:

• FWD Group has revived its plan for a Hong Kong IPO, reporting its first profit last year since adopting new accounting standards, reversing a major loss in 2023
• The company, associated with local business luminary Richard Li, saw new policy premiums from Mainland Chinese customers grow by 6.3 times over the past three years

By Lee Shih Ta

Having a local celebrity tycoon and major institutional investors as your backers may be good for business, but it may be less helpful at getting your stock onto a major bourse.

That’s the lesson learned these last few years by FWD Group Holdings Ltd., an up-and-coming new Asian insurance company that counts big-name institutional investors like Apollo Capital and the Canadian Pension Fund, as well as Richard Li, son of Hong Kong’s richest man Li Ka-shing, as its backers. Despite that, the company has struck out three times at trying to list in Hong Kong. Now, it’s hoping the fourth time is finally the charm with its latest IPO application submitted last week.

The company may be hoping for better luck this time with some fresh investment bankers. Its latest listing application shows that powerhouses Morgan Stanley and Goldman Sachs are co-sponsoring its new attempt, replacing the previous duo of CMB International and JPMorgan.

FWD was founded in 2013, formed through the consolidation of insurance assets previously owned by PCCW, Hong Kong’s former telephone monopoly, whose parent company, Pacific Century Group, acquired Dutch firm ING Group’s insurance business in Hong Kong, Macao and Thailand for $2.14 billion in 2012. Pacific Century Group is privately owned by Richard Li.

Based in Hong Kong, FWD has expanded its footprint from its three original markets to 10 over the last decade by obtaining new licenses or buying other local insurance companies. Its current markets include Japan, Indonesia, the Philippines, Thailand, Singapore, Cambodia, Malaysia and Vietnam.

As it expanded its footprint, the company climbed the insurance rankings for Southeast Asia from 14th place in 2015 to the fifth in 2023 in terms of annualized first-year premiums for new policies. It was also the fastest-growing pan-Asian life insurance company over that time. It had more than 2,900 insurance brokers and independent financial consultants by the end of last year, and its distribution channels, including through partner banks, gave it a consolidated base of over 280 million clients.

Product-wise, the company offers five key product types: participating life insurance; non-participating life insurance; critical illness, term life, medical and riders; unit-linked insurance; and group insurance and others. The two types of life insurance were its biggest breadwinners last year, collectively accounting for nearly two-thirds of its revenue.

While its expansion has been relatively smooth, the same is hardly true for its road to a public listing.

It began that journey in September 2021 with a plan to raise around $3 billion through a U.S. IPO, only to retreat in December that year as U.S.-listed Chinese stocks came under fire due to growing tensions between the Chinese and U.S. securities regulator. From there, the company shifted gears and applied to list in Hong Kong three times in March and September of 2022 and in February 2023. All three attempts ended in failure, probably due to its continuing losses.

Eking out a profit

The company’s revenue has generally trended upward, growing from $2.41 billion in 2022 to $2.76 billion in 2023, before flattening out last year at $2.72 billion. Its bottom line has fluctuated over that time, with its loss more than doubling from $320 million in 2022 to $733 million in 2023, before it recorded a modest $24 million profit last year. The company ascribed the previous losses to severely depressed book values of its acquired insurance businesses, the result of falling global asset prices.

It’s worth noting that the company adopted new accounting standards IFRS 17 and IFRS 9 in 2023. IFRS 17 uses the concept of contractual service margin to replace the traditional recognition method for insurance premium revenue, which leads to the revenues being amortized over longer periods. Meanwhile, under IFRS 9, the fair value of financial assets is reflected in profits and losses, causing investment losses incurred at times of market volatility to be directly accounted for in the P&L statement, which erodes a company’s bottom line. 

Under the new accounting standards, the company’s net investment return was positive in 2022 and 2024, at $48 million and $241 million, respectively, and negative in 2023, with a loss of $632 million. Such performance from an insurance company that prides itself on its prudent investing looks underwhelming, to say the least, even if the big 2023 investment loss was mainly the result of external factors.

Fast-growing China business

On a more positive note, FWD reported positive operating cash flow for the first time last year, partly due to $600 million in dividend payments it received from some of its regional business operations. In addition, its unused committed credit lines have increased to $1.4 billion and it obtained access to $1 billion in funds through early refinancing and syndicated loans, further boosting its financial flexibility.

Meanwhile, its core insurance business has expanded rapidly in Hong Kong and Macao, recording 56% year-on-year growth in annualized premium equivalent (APE) last year, reaching $800 million. A third of that came from Mainland Chinese tourists traveling to Hong Kong and Macao. Between 2022 and 2024, APE contributed by Mainland customers increased from $42 million to $264 million, up by more than a factor of six.

Insurance stocks tend to be undervalued in Hong Kong, but more recently they seem to be riding the tailwind from a broader uptick for China stocks this year. AIA Group (1299.HK) is up 17% year-to-date and Prudential (2378.HK) has jumped 44.5%. That appears to show investors are showing renewed interest in insurance tickers with regional exposure.

Despite its past listing failures, FWD Group has a relatively good story to tell, as one of Richard Li’s key investment arms in the fintech arena. Whether it can get investors to open up their wallets and buy its shares ultimately comes down to two key factors: will it be able to grab more market share and will it be able to keep turning profits.

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