State-owned China Reinsurance Group is to receive a US$4 billion bailout from the government in preparation for seeking a foreign strategic investor and eventually a public share sale.
Central Huijin Investment, the central bank arm that manages the state's holdings in financial companies, would inject the money after the State Council approved the overhaul last month, the China Insurance Regulatory Commission said.
China Re has a registered capital of 3.9 billion yuan and is wholly owned by the Ministry of Finance.
After the cash injection, the company will be 92 per cent owned by Huijin, which is likely to be restructured in the near future to become more of an independent state holding company.
The ministry will keep the remaining 8 per cent.
Press reports said China International Capital Corp and Citic Securities had been retained as advisers on the restructuring process, which will involve selling a strategic stake to an international investor with reinsurance experience and the listing of shares, most likely in Hong Kong and Shanghai.
China Re is the only domestic reinsurance company and is considered highly dysfunctional after years of protection as a monopoly.
Until 2002, Chinese insurers were required by law to allocate 20 per cent of all property and casualty insurance business and about 10 per cent of all life insurance business to China Re.
But in 2003 the government began phasing out the business guarantees and these were fully abolished last year.
'China Re is really in bad shape and you'd be better off buying Agricultural Bank of China,' said one analyst, referring to the troubled state lender which had only recently won approval to begin the reform process already undergone by its peers.
Without the business quota, China Re has seen its margins slip and its business risks increase.
China Re, with about 20 billion yuan of insurance underwriting capability, is just 2 per cent of the size of international competitor Munich Re and 2.5 per cent of the size of Swiss Re.
Both foreign rivals can now operate in the mainland.