PICC break-up enhances chances of competition

PUBLISHED : Monday, 28 September, 1998, 12:00am
UPDATED : Monday, 28 September, 1998, 12:00am

As the disbandment of the People's Insurance Co of China (PICC) approaches, market participants foresee no structural changes to their operations but generally believe the move will lead to fairer competition and further liberalisation of the industry.

'That's a major step to take towards further opening up of the mainland's insurance sector,' an official with a foreign insurer said. 'Stripping out the regulatory function from PICC will remove market participants' lingering concerns about unfairness.' In a sweeping overhaul, Beijing would set up a new national regulator, the China Insurance Supervision Committee, while PICC - the mainland's insurance monolith - would see its main branch of businesses hived off as separate entities.

The move is aimed at helping the mainland's industry align with international practices by separating life and general insurance operations while complying with the Insurance Law, announced in October 1995.

It also formed part of Beijing's attempt to separate government functions from businesses.

PICC, with a market share estimated at about 80 per cent, is awaiting a State Council decree to carry out the restructuring, but observers said the exercise could take place after October 1 - the original schedule - due to the complex nature of breaking up the group.

In addition to the spin-off of property, life and re-insurance divisions, it is understood that PICC's policy-insurance operations in the agriculture and export-credit sectors would also be spun off.

Industry sources said PICC's overseas subsidiaries could ultimately be controlled by its property arm as part of the restructuring.

It remains unclear about the reorganisation of PICC's domestic investment and trade subsidiaries.

PICC staff privately agree with the market's view that the disbandment was conducive to the long-term development of the sector.

An official of a domestic insurer said PICC would remain a competitive player following the restructuring.

'PICC has strong and solid fundamentals, with a proven track record for specialised insurance, and a well-connected network. Its competitive edge will remain,' the official said.

But he also noted that PICC would no longer enjoy state support as it did previously, which would force it to improve its operations and operate commercially to stay competitive.

PICC, alongside Shanghai-based China Pacific Insurance and Shenzhen-based Ping An Insurance of China, held more than 90 per cent of the mainland market last year.

A domestic insurer stressed the importance of the spilt between life and non-life insurance operations.

'Because of the different nature of life and property insurance, a mainland insurer with both licences tends to use premium income from its life insurance division to cover working-capital needs of its property insurance division,' the insurer said.

'The money could otherwise be invested by the life insurance division in return for higher investment yields.

'The split of operations would mean property insurers have to make decisions based on their own capabilities instead of relying on support from sister life insurance companies.' On the other hand, life insurance companies would be pressured to look for investment opportunities with better returns instead of letting the money be lent to its sister property insurance firm.