Also-rans – 51pc ownership stake unlikely to turn foreign insurance joint ventures into major players

Relaxation of 50 per cent cap after three years will not challenge domestic majors

PUBLISHED : Friday, 10 November, 2017, 8:49pm
UPDATED : Friday, 10 November, 2017, 9:04pm

A change of 1 per cent in stake holding can fundamentally modify the corporate governance of joint venture life insurers in China and attract more foreign investors, but it is unlikely to make them major players in the country’s vast insurance industry, according to industry watchers.

After three years, foreign players will be able to hold a 51 per cent stake in such joint ventures, currently capped at 50 per cent, Zhu Guangyao, the vice finance minister, said in Beijing on Friday. After five years, the cap will be scrapped.

AIA, Allianz and Manulife are the only companies currently exempt from the 50 per cent cap – AIA has a 100 per cent owned subsidiary and the other two have a 51 per cent stake in their joint ventures.

“For joint venture life insurers, there is a prevailing headache that derives from the 50:50 stake holding structure, as no party has the decisive say, leading to unnecessary infighting, waste of resources and which hinders the implementation of strategy and operation of a joint venture life insurer,” said Wesley Cui, general manager, China insurance consulting at consultancy Willis Towers Watson.

“It [a majority stake and full control] could attract new foreign investors to China’s rapidly growing life insurance sector,” said Cui, who added that a number of foreign insurers were eager to have further exposure to the Chinese market.

Insurance premiums in China grew by 28 per cent last year, their fastest pace since 2008, according to official data, with the country contributing to about half of all premium growth globally, figures from Allianz show.

It will push the industry to cut down on sector cannibalism and attract more speciality but small players, Cui said.

Others, however, believe it could be too late for foreign players to make a big impact.

At present, there are 28 life insurance joint ventures in China, accounting for 7 per cent of the market share as far as premium is concerned.

“Foreign insurers are too small in the country and it’s unlikely for them to really challenge big Chinese rivals like China Life,” said Hong Jinping, an insurance analyst at Huachuang Securities. “What’s more, full foreign ownership after five years means they missed a golden window to fully unlock the potential of the Chinese market.”

Life insurance premiums surged by 24 per cent on year in the first three quarters of this year, down 20 percentage points from a year ago, according to official data.

Announced a day after US President Donald Trump wrapped up his first state visit to China, the relaxation, part of across-the-board financial sector liberalisation, comes as an obvious gesture of China’s willingness to grant foreign investors more access to its financial sector, and is consistent with China’s financial reform blueprint, economists said.