Hong Kong life insurers welcome China's 'big bang' on the insurance asset management sector
Life insurance companies in Hong Kong are hopeful that China’s new regulations aimed at opening up the insurance asset management sector will pave the way for them to expand their business footprint and investment capabilities in the country.
The new regulations, which will come into effect on September 1, were announced by the China Banking and Insurance Regulatory Commission (CBIRC) earlier this month after public consultation launched in December 2021.
The regulator amended previous interim provisions on insurance asset management companies (IAMC), which was last updated in 2012 thus formalising the new regulations.
The new rules will officially remove the 25% foreign ownership cap for insurance asset management firms in a bid to attract outstanding international insurers and asset managers to participate in the development of China's insurance asset management industry, CBIRC said.
It also expands the sources of funds they can manage to national, occupational, and personal pension and annuity assets, mutual funds, and wealth management products for the third party.
Previously, insurance asset managers’ assets mostly came from their parent insurance companies.
The new rules also specify they should focus on long-term investments and value investments, allowing them to differentiate themselves from their peers in other sectors, such as mutual fund and private equity fund managers.
“This is welcoming news,” the Hong Kong Federation of Insurers (HKFI), which consists of major local and multinational insurance companies operating in the city, said.
“The new regulation paves the way for Hong Kong insurers, who need to have a licence in China, to set up wholly owned insurance asset management entities in the mainland,” a federation spokesperson told AsianInvestor.
Foreign insurers can scale up investment capabilities at a faster pace and offer better insurance investment solutions to mid- and small-size or regional onshore insurers with niche distribution capabilities, the HKFI said.
The regulations can also facilitate importing overseas personal pension investment solution “know-how” to help with growth of the China market, said HKFI.
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Since 2003, China has established 33 insurance asset management companies. As of now, they manage more than RMB20 trillion ($2.9 trillion) in total assets through the issuance of insurance asset management products and entrusted management of funds.
Previously, China reviewed foreign insurers’ applications for their ownership of asset management firms over 25% case by case.
For example, Prudential gained the wholly foreign-owned enterprise (WFOE) licence of its asset management arm in China, the Eastspring Shanghai, through China Securities Regulatory Commission (CSRC). Under this WFOE, Eastspring is already able to manage third-party assets.
In 2020, its Citic-Prudential Life Insurance joint venture (JV) in China also gained approval from CBIRC to launch its insurance asset management business, the Citic-Prudential Asset Management.
Going forward, the new CBIRC regulation leaves room for Prudential to increase the current 50-50 ownership of its asset management JV.
“We've made no secret of our appetite to be able to own a little bit more of that [Citic-Prudential JV],” said Mark FitzPatrick, Prudential’s group chief executive officer, during a media briefing earlier this month.
But he noted that the Citic Group also likes the business.
“Therefore, at this stage, there's nothing new to say and we continue to spend all our time and energy growing that great business,” FitzPatrick said.
As the new regulation broadens the types of assets insurance asset management companies can manage, Prudential’s chief executive for insurance Lilian Ng, said among all the new asset types they can manage, what the firm is “really excited about” is the green light for their JV to manage pension assets.
Since China officially launched the much-awaited private pension scheme, or third pillar, in April this year, foreign life insurers are hoping to play a bigger role in the trillion-dollar market.
“This is a good opportunity for Prudential to work with the third party as our customer to run assets for them,” she told AsianInvestor.
However, Rick Huang, EY Greater China insurance sector leader, believes it will take time for the sector to open up in practice.
“There is momentum for foreign insurers to set foot in this [insurance asset management] area, but they are still prudent to expand in China,” Huang said.
After the cap for foreign ownership in China’s life insurance sector was removed in 2020, for example, only three life insurance companies turned wholly foreign-owned – AIA, Allianz, and HSBC Life. Most foreign life insurance companies are still in a joint venture format, Huang noted.
For business expansion in China, the insurance asset management sector needs to attract high-quality talents from the market and build their investment research and active investment management competency, he said.
Another challenge is the competition with commercial banks’ wealth management units, mutual funds, securities companies, for example.
“Compared with the insurance asset managers, commercial banks’ wealth management units may be better at credit risk management, while mutual funds and securities companies may be stronger at equity investments,” he added.