In a sign of the rising competition in China's life insurance market, ING has set up a branch office in Beijing. Despite speculation that the high capital requirements might put insurers off, ING Group chairman Michel Tilmant insisted that ING Group was focused on expanding its China operations.

A spokesman added later that company was keen on setting up a further two branches in Qingdao and Shenyang next year.

Indeed, under current regulations all insurers must commit a minimum of Rmb 200 million (US$24 million) of paid-in capital for the establishment of a single branch. A national license, of which ING Group unusually has two in China, permits a main branch office and three subsidiary offices, but requires paid-in capital of Rmb 500 million (US$60 million). Once a firm has a national license and has established a main branch and three subsidiary offices, an additional RMB50 million of paid-in capital is required for additional branches.

The Beijing joint venture is 50-50 split between ING and Beijing Capital Group, a large-scale, state-owned investment company that was reorganized in December 1995. The company is active in urban infrastructure, real estate and financial services and has said that it will seek an overseas listing during the second half of 2005.

According to an ING Group spokesman management control is evenly split 50-50, with an equal balance of the key posts going to both sides. The company is so far active only in individual life insurance, but will be offering group life insurance products from next year.

In a perhaps unintentionally candid response to a question about the profile of the JV's future customers, deputy general manager Feng Chunqin of Capital Group drew attention to his group's employees as well as those of the company's partners in Beijing.

ING will presumably not be content to serve this captive segment of the Beijing populace, given the capital is estimated to represent a market of almost $3 billion in annual premiums.

ING's life insurance market grew 25-30% last year in Dalian and Shanghai, although that is down from the 40% growth the market experienced in the previous year. Projections for 2005 growth are down again, to 25%.

Given the competitiveness of the sector, the venture hopes to build up a market share in Beijing of 5% in the next six years.

The JV will initially employ up to 300 tied-sales agents and offer a mix of traditional life and personal life accident policies to customers. The JV also hopes to make its mark in the bancassurance market.

ING's licensing situation is unusual since it has two life insurance licenses in China. One was inherited when the company took over Aetna in Shanghai, while the second one was applied for using the usual channels for the city of Dalian. (At the time of the application Beijing was not open to foreign insurers). This will permit the company to develop 'in stereo' quipped a spokesman.

The separate Shanghai joint venture, Pacific Antai Life Insurance Company, also recently branched out into Guangzhou.

Unlike the banking sector, there is no timetable for going it alone in China, and so for the foreseeable future, insurance companies will continue to crack the China market in tandem with local partners. That, for the time being, limits the concern of what to do with the joint venture once companies have permission to operate without a local partner.

One concern for insurance companies is the parlous state of the local equity market, which recently hit five-year lows. According to Barry Cai, general manager of the JV, only 8% of the company's assets have been invested in the local stock market, with the balance invested in low-yielding government bonds and the tiny universe of corporate bonds. However, with a rise in interest rates on the cards, the bond portfolio could start to look more attractive, he points out.

Asia Pacific provides 13% of ING Group's profits. That makes China a key market, although as it is in the investment phase, it does not contribute to profitability, the bulk of which comes from Korea and Japan.