"In light of recent market speculation and shareholder feedback, Insurance Australia Group Limited (IAG) today clarified its position in relation to the investigation of opportunities to participate on a national scale in China.
After completing significant work on assessing the opportunities available, IAG has determined not to pursue further investment in China."
That was all Insurance Australia Group Ltd (ASX: IAG) had to say on the topic of its planned foray into the Chinese insurance market, which I covered in this article two weeks ago. With no further explanation provided, investors can only conclude that management decided that China was not a good opportunity for the company at present.
It's a possibility that IAG's significant investors – of which Warren Buffett is one – counselled against the expansion. Alternatively, management may have decided that some of the risks such as a stock market meltdown or holding a minority stake were not appropriate to take on right now.
Given the upcoming retirement and replacement of Managing Director/CEO Mike Wilkins (announced last week), this may also reflect a change of strategy from incoming CEO and company insider Peter Harmer.
Mr Wilkins was quoted in the ASX release as saying: "While we believe in the fundamentals of China, our future focus will be on pursuing growth opportunities in our other Asian markets and our core businesses in Australia and New Zealand."
Until further explanation is provided, shareholders will have to trust that this is the right decision.
