Doubts cast on free-trade zone's business potential

Mainland insurers are expected to open branches in the Shanghai free-trade zone, although analysts remain cautious about the benefits.

They say business volume written by the branches is likely to be insignificant, although the opportunities on offer will help property and casualty insurers diversify away from the less lucrative motor vehicle insurance business.

Foreign trade and cargo passing through the trade zone was expected to increase as shipping companies would enjoy favourable treatment and preferential tax rates, said Sally Yim, a senior credit officer at rating agency Moody's Investors Service.

"We see big opportunities in marine or cargo insurance and liability insurance," Yim said.

China Pacific Property Insurance (CPPIC), a unit of China Pacific Insurance (CPIC), the mainland's third-largest insurer, has set up a branch in the free-trade zone, and Shanghai-based Dazhong Insurance has won approval for one.

Yim said the cargo and liability insurance business would help diversify insurers' product portfolios from vehicle insurance, which accounts for more than 70 per cent of their premium income. The business was barely profitable, with a combined ratio of 99.8 per cent for CPPIC, she said.

A combined ratio of less than 100 per cent indicates an underwriting profit, while anything over 100 indicates a loss.