Foreign insurance players look set to gradually build a sizeable market share in China, raising competition for local players in both insurance itself and insurance asset management. But while foreign players are eager to acquire whole ownership or establishing new unit, both goals face obstacles.
Foreign insurers only held a 2.5% stake of China’s life insurance assets as of 2019, according to a 2020 report by credit rating agency S&P (it has not published similar statistics yet for last year. But this is set to grow as more foreign players get permission to expand in the country’s growing industry, courtesy of companies being granted licences to do so.
The China Banking Insurance Regulatory Commission (CBIRC) officially revised rules on foreign insurers participation in China in mid-March, allowing foreign entities to own more than half of the shares in life insurance joint ventures. The removal of 51% cap was initially raised in late 2019 and has since then attracted foreign player interest.
Germany-based life insurer Allianz was been the latest to take advantage. Last month, Allianz (China) Insurance Holding (Allianz China) acquired the 49% stake of its joint venture with Citic Trust that it did not already own, making the China unit a wholly-owned subsidiary. Established in 1999, the JV runs life insurance business in China. This had followed Allianz obtaining regulatory approval in January to set up China’s first wholly foreign-owned insurance asset management company.
Allianz declined to provide more details on its China business expansion plan to AsianInvestor, saying it is still in early stages in above business.
Rival AIA also in June last year first received approval from CBIRC to convert its Shanghai branch into a wholly owned subsidiary of AIA, making the life insurance business wholly-owned. And French insurer Axa completed the acquisition of its local property and casualty insurer JV, shortly after the rules were changed in late 2019.
They are unlikely to be the only ones. A February report from credit rating agency S&P predicts that other offshore operators will be increasingly interested in buying out the remaining shareholdings from their local partners, to take full control of their China entities.
Two other foreign insurers in China are likely candidates. Chubb, another property and casualty insurer, is keen to get final approval to take over its local alliance with Huatai Insurance, while UK financial group HSBC is awaiting regulator confirmation to acquire the other 50% of its life insurer JV with the National Trust. In addition, there are a further four insurance asset management joint-ventures in the country.
Eunice Tan, Asia Pacific insurance lead at S&P Global Ratings, told AsianInvestor foreign players who buy out JVs or enter China's insurance market for the first time are likely to prioritise insurance, most likely into niche markets in the country.
“Most of the foreign life insurers in China will generally first focus on their core business (insurance) and establish their insurance asset management unit as the next step,” Tan said. “The latter will require scale and a strong team to support.”
She believes foreign insurers can find profitable niche markets in China where they can grow their initial presence, but did not provide any estimates as to their potential growth.
While these international life insurers will offer local players more competition, this may not ultimately be a bad thing for them, said Rick Wei, head of Asia insurance strategy at JP Morgan Asset Management.
He told AsianInvestor that Chinese top-tier players are learning from foreign players’ superior knowledge and services in areas including value-oriented growth, risk management, asset-liability management and product innovation.
That doesn’t mean everything is plain sailing for foreign insurers, particularly when it comes to joint-ventures between foreign life insurers and domestic players. Tan noted that many of these JVs are developing in diversified ways, and that disagreements can happen.
“There are also cases where JVs don’t work out. We have seen in recent examples that one of the partners tried to buy out their JV partner,” she said. “The success depends on commercial strategy alignment.” She did not provide specific examples.
Aspiring foreign insurers will often have to consider potential new security requirements .The CBIRC added new national security reviews to the rules on foreign ownership in life insurance into its latest official document on March 19, even as it removed the ownership cap on foreign ownership.
Experts do not believe this should prove a major impediment for companies committed to growing in the country. “I think this is just a politically correct thing, which won’t bring significant influence on foreign players’ expansion plan,” said Liu Shichen, head of research of Shanghai-based consultancy Z-Ben Advisors.
However, with tensions between China and the US in particular continuing to roll on, there is no guarantee such rules will not ever be used to limit insurers from markets that China's authorities disapprove of.