• Wed
  • Sep 24, 2014
  • Updated: 6:07am
BusinessChina Business
INSURANCE

Foreign insurers eye Chinese market, mull acquisitions to expand presence

Nine companies have approval to write compulsory third-party car liability insurance, but dominance of local players may limit profitability

PUBLISHED : Wednesday, 28 August, 2013, 12:00am
UPDATED : Wednesday, 28 August, 2013, 4:17am

Foreign insurers are preparing to make the most of the opening of the mainland's car insurance market, and they are mulling acquisitions. But experts say the road to a major presence in the market will be bumpy because of the dominance of big players.

"We have received more inquires [about the mainland's motor insurance market] from foreign insurance companies since last year," said Walkman Lee, head of the insurance sector at accounting and advisory firm KPMG China.

Companies that have shown growing interest included insurers from Europe, the United States and Asia, he added. Foreign insurers have been allowed to write compulsory third-party liability insurance for motor vehicles in the mainland since May last year.

Nine foreign insurers had obtained approval from the China Insurance Regulatory Commission to write such insurance as of June. Seven of them have started operations, according to a KPMG survey of 40 domestic and foreign insurers.

Lee said the acquisition of mainland firms would allow foreign insurers to expand.

"Buying stakes in smaller regional players will help foreign insurers deepen their footprint in major cities including motor insurance markets such as Shanghai and Guangzhou," he said.

The valuations of property and casualty insurers in China was reasonable now because of a slowdown in premium growth, Lee said.

French insurer AXA, Europe's second-largest insurance company, agreed to buy a 50 per cent stake in Shanghai-based motor insurance company Tianping Auto Insurance for 3.9 billion yuan (HK$4.9 billion) in April. Tianping has more than 5,000 employees in 62 offices.

Mike Bishop, chief executive of AXA Asia, said in an e-mail interview in June that the Tianping deal would provide AXA with a direct distribution capability and a geographical footprint in the fast-growing property and casualty insurance market.

Bishop is upbeat about the outlook for the mainland market over the next few decades.

"We will continue to examine attractive acquisition opportunities as they arise from time to time," he said.

Motor insurance attracts foreign insurers because it accounted for 70 per cent of the non-life insurance market, said Wang Guojun, an insurance professor of the University of International Business and Economics.

"Tapping into the motor insurance market will allow foreign insurers to expand their customer base and benefit their other insurance businesses. Even if motor insurance is a loss-making business, it is still an area in which they are keen to boost their presence," Wang said.

The KPMG survey said in the first half of 2013 the combined ratio of the mainland's non-life insurers rose to 96.8 per cent from 94.3 per cent in the same period last year. A ratio below 100 per cent means an insurer is receiving more in premiums than it is paying out in claims.

Increasing claim costs and losses in the third-party insurance business were the main reasons for the non-life insurance industry's declining profitability.

The profitability squeeze has not deterred foreign insurers from boosting their presence in the mainland's motor insurance market but the dominance of local players limits their expansion, Lee said.

The mainland's four largest insurers had a market share of 69.8 per cent in the non-life insurance market, higher than in developed economies.

Wang Xujin, an insurance professor at the Beijing Technology and Business University, said the large domestic insurers had good networks and were not interested in teaming up with foreign players selling similar products.

Wang Guojun said merger and acquisitions would not be a good choice for domestic insurers because of conflict in operations between domestic and foreign insurers.

He said that foreign insurers should consider teaming up with foreign carmakers and dealerships to target the high-end market.

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