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Belt and Road Weekly

Foreign insurance giants speed up deployment in China

November 28, 2019


Abstract : Development of foreign insurers in China has significantly accelerated, and both premium income and market share have visibly increased, which will bring more resources to China, and push Chinese insurance companie to improve their capabilities, thus further stimulating China's insurance industry.

BEIJING -- Development of foreign insurers in China has significantly accelerated, and both premium income and market share have visibly increased. Industry insiders believe that the trend will not only bring more resources such as technologies and talents to China, but also greater competitive pressure on Chinese insurance companies, which will push the latter to improve their capabilities, thus further stimulating China's insurance industry.

Foreign insurers more present in Chinese market

One of the latest deals of foreign insurers in China was on November 25, with the U.S.-based commercial insurance company Chubb Limited (NYSE: CB) signing a contract to purchase an added-stake of 15.3 percent in Huatai Insurance Group Co., Ltd. Upon completion of the deal, Chubb will have a total of 46.2 percent stake in Huatai Insurance Group. In fact, the China Banking and Insurance Regulatory Commission (CBIRC) has just approved other unrelated share purchases on November 20 that increased Chubb's stake in Huatai to 30.9 percent. If the future acquisition of 7.1 percent of the shares can be successfully completed, Chubb's stake will exceed 50 percent, reaching 53.3 percent.

Besides Chubb Limited, several foreign insurance giants have increased their presence in China this year, such as Germany’s ERGO Group, Allianz SE, and French insurer AXA.

For example, Allianz (China) Insurance Holding Company Limited has gained permission from Chinese market regulator CBIRC to open officially in mid-November, becoming China's first-ever wholly-owned insurance holding company by a foreign insurer. Recently, Allianz Group has been preparing to accept the transfer of 108 million shares by Taikang Insurance Group, changing its shareholding ratio to 3.9662 percent.

According to statistics, a total of eleven foreign insurance companies have been approved for capital increase this year, with a cumulative amount of 4.666 billion yuan. At the same time, twenty provincial branches of fifteen foreign-funded insurance companies were approved for establishment or opening in China, far exceeding the scale of that in previous years.

It is clear that the optimism of foreign insurance companies about the Chinese market has been transformed into actual investment actions. Moreover, these institutions are also confident about their long-term development prospects in China, as shown in the executives' comments about their layout in China.

CEO of Chubb Limited Evan G. Greenberg said that the goal of the company is to own a majority stake in Huatai Insurance Group, and the purchase of an additional 15.3 percent stake is seen as an important milestone. He also expressed that Chubb is optimistic about the huge potential of the Chinese insurance market in the long run.

Sergio Balbinot, Chairman of Allianz (China) Insurance Holding Company Limited, stressed that China is a strategic market for Allianz, and they are committed to accelerating their growth in China.

Xavier Veyry, CEO of AXA China, stated that AXA China still has a strong desire for expansion plans in the future, including acquisitions, and is also actively applying for some approvals from Chinese regulators.

The acceleration of foreign investment in China has benefited from China's further opening up of the insurance industry. In May and July this year, relevant government departments successively introduced new policies to ease the entry requirements for foreign companies, including foreign insurers, and in October, the State Council revised the administrative regulations of foreign insurance companies to further reduce access restrictions.

Huge market space to tap

In fact, China's insurance industry has carried out opening-up trials starting from 1992, when AIA Group Limited set up a branch in Shanghai and introduced the agent system to China. By the end of 2018, there were 28 foreign life insurance companies and 22 foreign property insurance companies in China, with market shares of 11.15 percent and 1.94 percent, respectively, and together taking up 2.19 percent of the whole insurance market.

With foreign insurance companies putting more efforts in increasing capital and accelerating the establishment of branches in China, their development has been notably paced up. Public data shows that from 2016 to 2018, the premiums of foreign insurance companies increased by 35.33 percent, 35.67 percent, and 10.01 percent year on year. In the first half of this year, the original premium income of foreign insurance companies was 172.122 billion yuan, a year-on-year increase of 44.79 percent, the highest since 2015, and their market share also surged to 6.74 percent.

Despite the rapid development of China's insurance industry in recent years, both the insurance density and depth have lagged behind international standards. The recent report on financial stability released by People's Bank of China (PBOC) pointed out that by the end of 2018, China's insurance density and insurance depth were 2,724 yuan and 4.22 percent, respectively, an increase of 93 yuan and a decrease of 0.2 percentage points compared with the previous year. There is still a large gap between the world averages, which are 682 U.S. dollars and 6.09 percent. This status quo also means that China's insurance industry still has a lot of room for development, which is one of the reasons why foreign insurance companies are enthusiastic to explore the Chinese market.

Meanwhile, challenges still present in front of the development of China's insurance sector. The report on financial stability said that the property and casualty insurance industry is facing a slowdown in the growth rate of premiums, especially reflected by the decline in the growth and operating profit of auto insurance business, the difficulties of transformation an lack of new growth points of life insurance, as well as the low profit-gaining capability of small insurance companies.

On the context where opportunities and challenges coexist, the expansion of foreign insurance giants in China will help enlarge and strengthen the whole insurance industry by bringing more competition and cooperation to the market.

Zhou Jin, partner at PwC Consulting, said that foreign financial institutions have advanced experience in business concept, refined management, product design, marketing and risk control, so they are able to introduce international talents and experience to the domestic market, and consumers will have more choices. At the same time, the resulting market competition is also an incentive for domestic financial institutions, which is conducive to improving their own operating capabilities. For foreign institutions, China has a huge incremental market, which encourages them to further increase investment in China, making China's financial system more diversified and internationalized. (Edited by Li Wenxin, [email protected])

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Keyword: insurance-companies foreign capital

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