In­dus­trial firms see in­sur­ance pre­mi­ums as cheap cap­i­tal flows

China Daily (USA) - - BUSINESS - By LI XIANG lix­i­ang@chi­nadaily.com.cn

Chi­nese listed com­pa­nies are chas­ing in­sur­ance li­censes, hop­ing to gain low-cost cap­i­tal amid the eco­nomic slow­down.

At least 51 com­pa­nies listed in Shang­hai and Shen­zhen mar­kets have filed such ap­pli­ca­tions to is­sue in­sur­ance as of Sept 27, ac­cord­ing to Chi­nese me­dia es­ti­mates based on their pub­lic fil­ings to the stock ex­changes.

Soft­ware and telecom­mu­ni­ca­tions firms and real es­tate com­pa­nies are among the most ac­tive play­ers ven­tur­ing into the in­sur­ance sec­tor, ac­cord­ing to pub­lic in­for­ma­tion.

The most re­cent case is the joint in­vest­ment of 1.05 bil­lion yuan ($157 mil­lion) to set up an in­sur­ance firm by on­line travel ser­vice provider Tem­pus Global Busi­ness Ser­vice Co Ltd, Chi­nese fash­ion brand Sept­wolves Co Ltd, and ASD Cor­po­ra­tion, a cook­ware and kitchen elec­tric ap­pli­ance pro­ducer. The three Shen­zhen-listed com­pa­nies will jointly own 35 per­cent share of the in­sur­ance firm.

In­dus­try ex­perts said the trend of in­dus­trial cap­i­tal en­ter­ing the in­sur­ance sec­tor high­lighted the com­pa­nies’ de­sire to gain lower-cost cap­i­tal through the in­sur­ance busi­ness, which could help them weather the eco­nomic slow­down.

“Gain­ing large and sta­ble cash flows through in­sur­ance pre­mium rev­enue is very at­trac­tive for in­dus­trial com­pa­nies. By­set­tin­gu­pan in­sur­ance firm, they could also gain ac­cess to busi­ness op­por­tu­ni­ties in the fi­nan­cial in­dus­try,” said Wang Guo­jun, an in­sur­ance pro­fes­sor at the Uni­ver­sity of In­ter­na­tional Busi­ness and Eco­nomics in Bei­jing.

The trend also un­der­scored the pol­i­cy­mak­ers’ in­ten­tion to ex­pand China’s in­sur­ance mar­ket by al­low­ing more play­ers to en­ter the in­dus­try, Wang said, adding that the reg­u­la­tor may ac­cel­er­ate the ap­proval process for set­ting up in­sur­ance firms in the com­ing years.

The Chi­nese in­sur­ance reg­u­la­tor has ap­proved 15 ap­pli­ca­tions for in­sur­ance li­cense so far this year, al­ready sur­pass­ing the to­tal num­ber of 11 ap­provals last year.

Ac­quir­ing an in­sur­ance li­cense is also a key step for in­dus­trial com­pa­nies to build a fi­nan­cial plat­form to sup­port their busi­ness, said an­a­lysts at Essence Se­cu­ri­ties Co in a re­search note.

But, some ex­perts warned that op­er­at­ing an in­sur­ance firm re­quires so­phis­ti­cated man­age­ment and risk con­trols skills and the abil­ity to se­cure sus­tain­able cap­i­tal in­flows, so com­pa­nies lack­ing that ca­pa­bil­ity could cre­ate risks for them­selves and their clients.

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