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Christine Chan

The reshaping of the industry will trigger strong demand for capital and expertise

China's newly reformed insurance companies are positioning themselves for a slice of a burgeoning industry in anticipation of deregulation and profound social change forcing individuals to manage their financial futures.

China Insurance Regulatory Commission (CIRC) chief Wu Dingfu is clear on the industry's future after the recently concluded third plenum of the 16th Communist Party Congress: he wants to see rapid growth.

That message has already been heard by mainlanders as Beijing tears down its 'cradle-to-grave' welfare system.

The reshaping of the industry - the 11th-largest insurance market in the world but with the fastest growth alongside that of Vietnam - will  trigger a large dose of capital injection and foreign expertise.

Foreign players are lining up for a slice of a market almost entirely in domestic hands. American International Group (AIG), the world's largest insurer, is the latest foreign player to take the plunge with a 9.9 per cent stake in China's largest property insurer PICC Property & Casualty, ahead of its Hong Kong listing to tap up to HK$5.4 billion. It is  AIG's first equity investment in a mainland insurer in 11 years  in China.

In October last year, HSBC  purchased  a 10 per cent stake in Ping An Insurance.

AIG and HSBC's entry will focus international attention on the mainland insurance industry, already endowed with the world's most attractive headline growth numbers.

Insurance premiums grew 44.7 per cent last year, up from 32.18 per cent in 2001, as more mainlanders took out insurance coverage for their lives and premises. Life premiums expanded at a breakneck 59.8 per cent last year, while property premiums increased at a steadier pace of 14 per cent.

In a landmark development last week, five Asian-based corporate investors - including Hong Kong's Sun Hung Kai Properties group -  became the founding shareholders of a mainland property insurance start-up.

The group took a combined 10 per cent stake in China Continent Property Insurance after a restructuring of state-run China Reinsurance,  which saw it split into three new companies.

On the flip side, domestic mainland insurers are also trying to crack into a sector long dominated by state-run insurance giants China Life Insurance and People's Insurance Co of China (PICC).

Recently, New China Life Insurance and Taikang Life Insurance registered rapid premium growth and expanded market share, albeit just 3 and 5 per cent respectively, of the nation's life premium pool, which totalled 227.4 billion yuan (HK$213.34 billion) last year.

This is no mean feat, given that they account for only a fraction of the resources and network of their bigger peers. China Life and Ping An collectively hold more than 80 per cent of the domestic life insurance market and the pace of their growth is impressive.

Last year, Taikang's premium income quadrupled in size, while New China Life's soared 247.3 per cent, seeing them break into the ranks of medium-size home-grown insurers.

Taikang and New China Life are among six domestic life insurers seeking clearance from the insurance regulator for domestic public listings. The move is to help domestic insurers boost their capital strength and help fund expansion in a fiercely competitive industry. Foreign investors can invest in these future A-share offers under the qualified foreign institutional investor  scheme.

'We definitely feel the heat from the smaller insurers, but at the same time, we are also expanding rapidly,' said an executive with one of the mainland's bigger insurers.

The big three - China Life, PICC and Ping An - are lining up for multi-billion-dollar overseas listings.

Not to be outdone,  China Life and PICC have pioneered the diversification of alternative distribution channels such as bancassurance to leverage on the mainland's extensive banking networks. Now, almost all insurance players are partnering with banks in selling insurance policies.

These are market-driven industry trends, but the CIRC has made no bones about  specialisation and its desire to allow the faster spread of product variety.

At a recent insurance meeting, senior CIRC officials encouraged the development of specialised health insurers 'when the condition is ripe'.

Foreign capital and technology are welcome in the health sector, where actuaries need  more training while risk management practices  are apparently non-existent.

AIG group management division Far East director Jim Peiffer said a growing number of employers and employees were seeking health insurance protection from private insurers, thanks to Beijing embracing market policies and the robust growth in private business.

Last week, China Resources Insurance Brokers opened for business in Shenzhen, another sign of industry specialisation in the fledgling insurance broking market. The first full licence issued to a foreign company was granted only this year, to Aon Corp, the world's No2 insurance broker.



Foreign insurers poised for China plays