China Pacific fires CIO; chairman leads pay reduction

Philip Young, a Taiwan-native CIO at China Pacific Insurance, has been removed from his role following a unanimous vote by the company's board, the latest board meeting records reveal. With Young's departure, the company will scrap the CIO role entirely. There will be no replacement for the position.

Young has been CIO of China Pacific since 2006 and, on his watch, China Pacific's investment portfolio grew to Rmb287.89 billion ($42.2 billion) from about $21.42 billion at the end of 2006. According to the company's annual report for 2008, Young received a package of Rmb162.8 million ($23.86 million) for delivering a yield of 2.9% for the year.  

Concurrent with Young's departure, China Pacific CFO Wu Dachuan has been promoted to a CFO role at the insurer's parent company. The company's investment team will also be restructured to handle asset liability management. Instead of reporting to a CIO, the new team will report directly to the management.

Further to the restructuring, the board has expanded the authority of the company's general manager over decisions on asset allocation, investment decisions, outsourcing arrangements and the ability to give out financial guarantees. The role has been held by Huo Lianhong since October 2000. Huo is also currently an executive director of the group and a chairman of China Pacific's asset management subsidiary.

Huo, together with company chairman Gao Guofu, have announced plans to take a voluntary pay-cut of about 40%, in a measure to save costs for the insurer during a particularly tough operating year. In 2008, China Pacific saw its net profit drop by 70% after a sudden spike in claim rates in natural disasters and a substantial position in equity losses.

Before joining Pacific, Young had held the CIO role at Ping An between 2003 and 2006. He was handpicked and poached from rival firm Ping An Insurance by the US buyout firm Carlyle Group, which had bought a 24.98% stake in China Pacific through a landmark private equity deal at the time. (It has since reduced the stake down to 3.66% and transferred 13.66% to a separate entity called Parallel Investors.)

Before arriving in China, Young had been a Hong Kong CIO and board director at Aetna International, CIO at ING Insurance, Tokyo CIO at MassMutual, CIO for Asia ex-Japan at Nomura Asset Management, CIO at Bank of America Trust, as well as a CFO with Taiwan International Investment Trust. Young earned his BBA in International Business & Economics from the National Taiwan University. He has a MBA from University of Chicago Graduate School of Business.

Young's departure from China Pacific marks the second official removal of a CIO in China's insurance industry. China Life recently announced similar plans to restructure its investment teams to promote a more holistic asset liability management function that stresses overall balances. These measures are seen as responses to calls by the China Insurance Regulatory Commission to pay attention on ALM mismatches, a serious problem plaguing the entire industry.

At Ping An, no official announcement was made about CIO John Pearce's departure earlier this year, although it is understood that the job is now performed by deputy CIO Timothy Chan.

In 2008, China Pacific reduced its exposure to the equity markets by 18.1%, to just 4.7% by the end of the year. Allocations to fixed income have been boosted by 21.5%, to 86.9% of the overall portfolio. Shortly before Yang's exit, he commented on the substantial mispricing available in the fixed income market this year, particular in the areas of infrastructure and non-guaranteed debts.

Separately, as a result of China's economic stimulus measures, China Pacific has been able to gain preferential access and a lead arranger role to the country's newly planned infrastructure projects. These include a Rmb2.7 billion of debt financing invested in a hydroelectric facility planned in Wujiang, as well as a Rmb4 billion equity investment in the Beijing-Shanghai high speed railway.

[Editor's note: China Pacific has released an update to its board meeting minutes. Young has just been appointed CIO of the company's the asset management subsidiary and its assets will be trasferred to that unit.]