Standard Life Aberdeen has become the first foreign insurer allowed to tap the pensions market in China, although it could be at least a year before it begins operations.

Establishing a new front in Beijing's multi-faceted campaign to further open up Chinese financial markets to foreign players, Heng An Standard Life (HASL), a joint venture equally owned by Standard Life Aberdeen and Tianjin Teda International, obtained official approval on Tuesday to set up a pensions insurance subsidiary in China.

Becoming the first foreign-invested joint-venture company to get the green light in this way from the China Banking and Insurance Regulatory Commission (CBIRC) reflected well on HASL’s pensions expertise in the local market, Gerry Grimstone, chairman of HASL, said in a statement.

HASL's initial focus will be on the so-called second and third pillars of China's pension system. Once it has built up enough experience and specialist staff, HASL will eventually look to expand the business into the first pillar, a company spokeswoman told AsianInvestor. 

China divides its retirement system into three pillars. The first one consists of state-run social security. A less developed second pillar is mainly made up of corporate annuity schemes, while a nascent third pillar comprises private savings and voluntary individual contributions.

The state-run pension is run by the National Council for the Social Security Fund, which sometimes issues mandates to external fund managers to help manage assets. The spokeswomen for HASL did not make clear what role its pension insurance unit could potentially play in this pillar.

Meanwhile, regulatory hurdles remain. 

HASL now has one year to set up the pensions insurance company, after which the regulator will review the work undertaken and then issue the business license required to enable operations to begin, the company spokeswoman said. 

After that, it will have to obtain an annuities license from the Ministry of Human Resources and Social Security (MoHRSS) before being able to manage assets in enterprise annuity and occupational annuity schemes. It will then need to get fresh permission from the CBIRC to develop group and personal pension protection products, she said. 

The spokeswoman added that it was too early to give a firm indication of when the new pensions unit would be launched.

COMPETITIVE LANDSCAPE

The license for HASL is definitely a positive move; there are plenty of opportunities for the pension market in China as its population is ageing rapidly, Janet Li, wealth business leader for Asia at consultancy Mercer, told AsianInvestor.

Janet Li, Mercer

But a foreign player’s foray into the domestic market will not be easy, she added: “Local [ones] would always have a better pulse on local demand and also has the brand name.”

Standard Life Aberdeen, an Edinburgh-headquartered firm, has global expertise and experience in providing long-term savings and investments offerings. Coupled with HASL’s strong local market knowledge and network in China, the new unit will be well positioned in China’s competitive pensions market, said the company spokeswoman when AsianInvestor questioned what it offered that was different to local players.

In China, pension insurance companies provide a range of financial solutions dedicated to retirement needs, including investment management and pension scheme designs.

There are now at least seven pension insurance companies in China and all of them are owned by sizeable insurers (such as China Life, Ping An and China Pacific Insurance Company). They are mainly engaged in managing the assets from corporate annuity plans. Together with three insurance asset management arms, they managed Rmb1.6 trillion ($239 billion) of pension assets as of end-2018, according to CBIRC.

CBIRC has separately also rolled out several sets of rules on tax-deferred annuity products for the mass market in mid-2018. Since then, 20 life insurers and pension insurance units, including HASL, are reported to have obtained regulatory approval to launch such products.

OPENING UP

China first announced the relaxation of ownership limits for foreign firms in the wake of US president Donald Trump’s visit to China in November 2017.

Since then, there have been a number of firsts in the Chinese insurance sector.

In November 2018, Germany's Allianz won approval to set up the first wholly foreign-owned insurance holding company in China, meaning that it can now hold majority stakes in two or more insurance companies.

Shortly after that, French insurer Axa obtained approval to become the first foreign insurer to fully own an insurance company and subsequently became sole owner of its joint venture, Tianping Property and Casualty Insurance.

Meanwhile, Hong Kong-based FWD confirmed to AsianInvestor in May last year that it submitted a licence to CBIRC to set up a wholly-owned life insurance unit in China, while Canada’s Manulife has told AsianInvestor that it may seek to establish a wholly owned unit there.

The country is likely to open up further to foreign players as the issue of easier market access was again stressed by Premier Li Keqiang and other officials at the National People’s Congress held in Beijing this month.