Canada’s Manulife may seek to establish a wholly-owned life insurance unit in China, following initial steps by rival firms Allianz and FWD to do so as the country liberalises its insurance industry.
A host of foreign institutions, including asset and wealth managers, are already making plans to boost their presence in China after domestic authorities announced a relaxation in ownership rules in November last year and provided more details late last month.
Anil Wadhwani, Manulife’s Asia chief executive, told AsianInvestor that the insurer is open to the idea of setting up a wholly-owned insurance company in China, while stressing that it is delighted with the relationships with its current partners.
“While we are primarily focused on maintaining our strong, organic growth, we would review the right opportunities as they arise and as reforms continue to unfold,” said Wadhwani (pictured left). “We’ve seen the pace of reform accelerate in China over the last few years and we are very encouraged by this.”
Manulife has two joint ventures (JVs) in China—Manulife-Sinochem Life Insurance and Manulife Teda Fund Management—and is working on expanding its retirement savings business there through a distribution tie-up agreed with Agricultural Bank of China late last year. It is also seeking a partner with which to set up an onshore pensions JV.
Manulife was also the first financial institution to receive an investment company wholly foreign-owned enterprise licence in March 2017, paving the way for the company to provide global public market and private asset solutions.
APPLICATIONS UNDER WAY
To this end, an FWD Group spokesman said the Hong Kong-based firm had applied to the China Banking and Insurance Regulatory Commission (CBIRC) for a licence.
FWD had opened a representative office in Shanghai in 2014, saying at the time that the move would pave the way to establish a life insurance company in China.
Meanwhile, Allianz is in talks with the Chinese authorities “to advance its growth agenda in the market, including plans to set up a holding company in Shanghai”, said a spokesman for the German insurer. The firm already has a JV with local firm Citic Trust—Allianz China Life, which was set up in 1999.
Keith Pogson, senior partner of financial services for Asia Pacific at consultancy EY, told AsianInvestor: “A controlled subsidiary is always better than a shared joint venture. You get more reward for your efforts and are more comfortable deploying your own proprietary technology.”
“Given this [setting up a local unit with full ownership] is much more possible than before, as China opens up the financial services arena, I think we will see more players who have dreams to be bigger in the China market going down this route,” he said.
However, foreign insurers operating in China will need to compete with local players to source quality onshore long-term assets to match their liabilities while minimising currency risk, as underwriting insurance business in China means their liabilities are mostly denominated in renminbi.
That could be a challenge, as most big domestic insurers, including China Life and Ping An, are looking to lengthen their portfolio duration after new asset-and-liability management rules were introduced in March.
Total investable wealth of high-net-worth individuals is expected to more than double from Rmb51 trillion ($8 trillion) in 2016 to to Rmb110 trillion by 2022, according to an Oliver Wyman report published in March.
RISING FOREIGN INFLUX
While some market observers had argued that Beijing’s easing of ownership caps in respect of onshore asset managers would not necessarily spark a rush of acquisitions by foreign firms, a growing number are now making plans to enter the market or beef up their local presence.
For instance, JP Morgan said on May 14 that its asset and wealth management business intended to increase its stake in its mainland JV, China International Fund Management to a majority interest, while its corporate and investment bank had applied to the China Securities Regulatory Commission (CSRC) to set up a majority-owned securities company.
Moreover, Nomura said last week that it had applied to the CSRC on May 8 to establish a securities JV that will initially focus on providing wealth management services to mass-affluent individuals in China.
The Japanese bank added that it planned to develop its product distribution channels and expand into wholesale and other business segments, with the ultimate goal of establishing a fully-fledged brokerage. It declined to comment further on the new unit.
ICBC Axa Life, a JV between French insurer Axa and Chinese bank ICBC, won approval on May 2 to set up a Shanghai-based asset management arm. The unit will need to be ready in six months, according to the CBIRC. Axa did not respond to a emailed query about its hiring plans.
And late last month the CBIRC approved consultancy Willis Towers Watson to be the first fully licensed foreign broker to conduct insurance business in China.
China first announced the relaxation of ownership limits for foreign firms in the wake of US president Donald Trump’s visit in November last year. And on April 27 the CBIRC announced more detailed rules on the opening up of the financial sector (see box below).
KEY POINTS IN CHINA’S NEW FOREIGN OWNERSHIP RULES
1. Relaxing of ownership cap:
-- Foreign life insurers can now own up to 51% of a joint venture, but there will be no such limitation after three years.
-- Banks and asset management companies can set up wholly-owned entities in the country.
-- Trusts, financial leasing companies, consumer finance firms and other financial institutions are encouraged to bring in foreign professional investors.
2. Foreign banks can have subsidiaries and branches in the country.
3. Foreign banks can start renminbi business without having to wait for one year after entering the onshore market.
4. Foreign firms can participate in insurance brokerage.