Foreign insurers embrace China as ownership and operating barriers go on fast-track easing

Enoch Yiu

Foreign insurance companies are expected to expand further into mainland Chinese market as the country removes a cap on foreign ownership and other regulatory hurdles, analysts said.

The China Banking and Insurance Regulatory Commission will allow foreign investors to raise their stakes in local life insurers to 100 per cent from January 1, widening the access one year ahead of the initial target. The limit was raised to 51 per cent in mid-2018 from 50 per cent.

The People's Bank of China separately announced in July that it would scrap a rule requiring insurance companies to have at least 30 years of operations before they can apply to enter the mainland market, a boost for key players seeking a foothold in what analysts forecast will be the world’s biggest insurance market by 2030.

The move comes amid sweeping liberalisation in the financial industry in the past few years, where the government has also eased ownership barriers in stockbroking and banking sectors. There were 28 foreign life insurers with varying degrees of partnerships with local investors in China at the end of 2018, according to government data.

“The removal of the ownership limit will give foreign investors the chance to buy out their local shareholders, which will give the foreign companies greater or full flexibility in determining and implementing their strategies,” according to Fitch Ratings. “This should reduce internal conflicts as well as the cost of internal communication.”

China to surpass US as world’s biggest insurance market by mid-2030s, says analyst

While the easier rules should encourage more foreign insurers to step up their investment in the onshore market, they are unlikely to pose a big threat to local players, Fitch added. Foreign insurers controlled only about 8 per cent of premium in the life insurance business in 2018, Fitch said.

“Major local peers will continue to have a competitive edge due to their better brand recognition and well-established distribution networks,” Fitch said. “It will take time for foreign-owned life insurers to build up their business profiles and distribution capabilities to compete effectively with the major local players.”

Statistics from local regulators show that foreign-owned insurance joint ventures have expanded their branch network over the past year to capture more premiums from a large pool of consumers. Twelve joint-venture life insurers were approved to establish provincial branches this year, adding to seven in 2018.

Chinese insurance titan Ping An to take on internet giants as it evolves into a tech powerhouse

On the general insurance side, Beijing has already allowed two European insurance groups to fully own their business in China.

The CBIRC last month approved German insurer Allianz as the first foreign insurer to set up a new wholly owned holding company in China called as Allianz (China) Insurance Holding Company, which was set up in Shanghai.

Office workers walk past buildings in Beijing's central business district. China is set to surpass the US as the biggest insurance market by 2030s, according to Zurich Re. Photo: AFP
Office workers walk past buildings in Beijing's central business district. China is set to surpass the US as the biggest insurance market by 2030s, according to Zurich Re. Photo: AFP

China’s listed insurance firms could benefit as government crackdown on risky products hits rivals

“Allianz is extremely optimistic on China and we are committed to accelerating our growth plans in this strategic market,” Sergio Balbinot, chairman of Allianz (China), said in a statement on the setting up of its holding company. “With the new holding structure in place, we are able to better serve an expanding middle class.”

French group AXA this month completed its 4.6 billion yuan (US$657 million) acquisition of the remaining 50 per cent stake in its joint venture unit AXA Tianping Property & Casualty Insurance Co. from its mainland domestic shareholders. The deal makes AXA the largest foreign-owned general insurer in China.

Hong Kong-China ‘insurance connect’ plan on hold as trade war, protests hit business environment

Mainland insurance premium reached 3.45 trillion yuan in the first nine months this year, a 2.6 per cent increase year on year, according to CBIRC data. The number of insurance policies grew 54.5 per cent to 33.13 billion, it said.

Bernhard Kotanko, a senior partner of McKinsey & Co, said foreign insurers now command less than 10 per cent of market share in mainland life and general insurance markets. Their low penetration rate may be due to the lack of large-scale distribution channels, he said.

Still, China is such a big market that even a toehold in the market represents a significant business for a start, he added. A further opening up of the onshore market from January 1 is should result in a bigger presence in no time, Kotanko said.

More from South China Morning Post:

This article Foreign insurers embrace China as ownership and operating barriers go on fast-track easing first appeared on South China Morning Post

For the latest news from the South China Morning Post download our mobile app. Copyright 2019.