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Foreign institutions bet on China's
insurance
BEIJING -
Continued optimization of the ownership of China's
insurers has brought with it critical reforms, as
well as blazed a trail for progressive local
insurers, according to the China Insurance
Regulatory Commission (CIRC), the industry
watchdog. While the growing investment of foreign
strategic investors in Chinese insurers has
brought such urgently needed skills as know-how
and managerial expertise, listing on international
capital markets has proven effective in improving
governance and rectifying deep-rooted mindsets.
With the further liberalization of the
domestic insurance industry in recent years,
foreign financial institutions have been
increasing their equity stakes in a number of
major local insurers. After being the target of
the industry's first foreign equity investments in
1993 from Morgan Stanley and Goldman Sachs, Ping
An Insurance (Group) Company of China has boosted
the amount of the company in foreign hands to
23.74%. New China Life Insurance, Taikang Life
Insurance and Huatai Insurance - the leading
players in the local market - have also welcomed
foreign investment, which now stands at 24.9%, 25%
and 22.13% in their companies, respectively. China
Pacific Property Insurance has reportedly reached
an agreement with US-investor Carlyle Group for a
nearly 25% stake sale, but the deal is awaiting
regulatory approval.
"By buying equity
stakes, overseas strategic investors have helped
accelerate reforms at Chinese insurance
companies," Yuan Li, director of the CIRC's
development and reform department, recently told
China Daily. "They increased the Chinese insurers'
capital strength, and helped improve their
corporate governance. Overseas investors have
brought advanced know-how and managerial
experience and set good examples in operating
prudently and providing quality services, which
has helped raise the level of the Chinese
insurance industry. Such equity ties have also
helped domestic insurance companies learn
international rules and shorten the gap with
international insurers."
Most of China's
insurers are less than 20 years old. They have
traditionally been hampered with such problems as
weak corporate governance, inadequate capital,
irrational underwriting methodologies and tight
investment restrictions, which are being
alleviated by taking foreign equity investment on
board. Wang Zimu, chairman of Huatai Insurance,
said the arrival of foreign shareholder had helped
improve corporate governance, strengthened risk
control, brought insurance know-how, increased
underwriting capacity and enhanced employee
training. The insurer sold a 22.13% stake to US
insurer ACE Limited in 2002.
Besides
bringing in strategic investors, Chinese insurers
have also been seeking overseas listings, a trend
regulators expect to also help improve the
insurers' corporate governance and capital
strength. Three Chinese insurers have become
public firms. The PICC Property and Casualty Co
Ltd, China's largest property insurer, became the
first listed Chinese insurer at the end of 2003
with an initial public offering in Hong Kong.
China Life Insurance Co Ltd, the nation's largest
life insurer, soon followed suit with a dual
listing in Hong Kong and New York. And Ping An
Insurance (Group) Company of China listed in Hong
Kong last June.
New China Life Insurance
Co, the nation's fourth-biggest insurer, plans to
raise $800 million in an initial public offering
overseas, scrapping plans for a Shanghai share
sale, its president, Guan Guoliang, said on
Monday. Bloomberg quoted Guan saying the company
had shelved plans for a domestic currency A-share
listing in China after the Shanghai Composite
Index slumped by a third in the past year.
"After the overseas listings, huge changes
have taken place in the companies," Yuan said.
"Their operational ideologies have changed
noticeably, and have enjoyed improved vitality and
competitiveness," he said. "Restraints and
scrutiny from the international capital market
have greatly influenced the companies' behavior.
The idea of profitable growth has taken root in
those companies, while compliance with regulatory
rules and rational competition is being
increasingly accepted within the industry."
There is still a high degree of
concentration in China's life and property
insurance markets, according to the CIRC. CIRC
statistics show that all life insurers in China
received premiums totaling 319.359 billion yuan
(US$38.6 billion) in 2004, of which 310.925
billion yuan derived from Chinese capital insurers
and 8.434 billion yuan from foreign capital
insurers. In the life insurance market, the big
three insurers - China Life, Pingan Life and
Pacific Life - had a combined market share of
74.86%.
Meanwhile, property insurers
posted total premiums of 112.455 billion yuan,
including 111.095 billion yuan from Chinese
capital insurers and 1.36 billion yuan from
foreign capital insurers. In the property
insurance market, three insurers - PICC Property,
Pacific Property and Pingan Property - jointly
took a 79.87% market share. The market share of
foreign capital insurers is still small in both
life and property insurance markets, at 2.64% and
1.21% respectively, but their premiums have
increased rapidly.
According to CIRC
statistics, China's insurance industry posted
premiums totaling 431.813 billion yuan for the
year of 2004, an increase of 11.28% over the
figure for 2003, while the insurance indemnities
paid in the year amounted to 100.44 billion yuan,
up 19.4%. The CIRC holds that fast growth of
automobile consumption and fixed asset investment
in 2004 stimulated the growth of property
insurance. The annual premium from property
insurance hit 108.99 billion yuan, surging 25.4%
year-on-year.
Growth of personal insurance
slowed down in 2004, owing to voluntary business
adjustment of insurance companies and the
influence of an interest rate rise. For the whole
year, the premiums amounted to 322.825 billion
yuan, up 7.22%. By the end of 2004, all insurers
in China had gross assets of 1,185.36 billion
yuan, an increase of 273.07 billion yuan over the
beginning of the year. Their operating capital
amounted to 1,124.98 billion yuan by the end of
2004, an increase of 287.13 billion yuan over the
beginning of the year. Eight Chinese companies and
four foreign insurers entered the market in the
year.
(Asia
Pulse/XIC) |
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