Insurers make a beeline for mainland market
“Ev e n s o , t h e p r o s p e c t s of entering the mainland market are definitely good for overseas insurers, as an enormous population still lacks insurance protection,” he said.
According to official statistics, the Chinese mainland is one of the largest insurance markets in the world, with its current “protection gap” at an estimated $18 trillion and which may exceed $46 trillion by 2020.
The CIRC has also lowered the maximum shareholding in insurers to 33 percent from 51 percent since January this year, which means overseas insurers would have to find two partners instead of one before they can start operating.
“With the new regulations coming into effect, the number of players in the market will be reduced,” said Eunice Tan, director of financial services ratings at S&P Global Ratings.
She noted that many Hong Kong-related insurance companies have already entered the mainland marke t but, globally, overseas companies h av e m i x e d v i e w s o n t h e mainland thrust.
“Of course, the opportunities in China are very large, but Sino-foreign joint ventures only account for a small part of the insurance market, with premiums growing in singular digits each year, which means foreign players in China don’t find it very profitable,” Tan said, stressing that mainland customers prefer to buy local brands they are familiar with, such as China Life.
Thus, she said, the market for joint ventures is not growing as fast as that of local companies.
However, from the mainland’s point of view, she said joint ventures are good for the country as experienced overseas partners can bring its advanced risk management and asset management strategies in joint ventures with their mainland counterparts.
Ho n g K o n g ’s i n s u r a n c e sector has been calling for deeper i ntegration with mainland for a long time. The good news is the Office of the Commissioner of Insurance in Hong Kong and the CIRC signed the Equivalence A s s e s s m e n t Fr a m e w o r k Agreement on Solvency Regulatory Regime in Beijing in May to conduct equivalence assessment on the insurance solvency regulatory regimes of the mainland and Hong Kong. The CIRC will introduce preferential policies on the Hong Kong insurance sector based on the equivalence assessment.
Under the Closer Economic Partnership Arrangement (CEPA) between Hong Kong a n d t h e m a i n l a n d , Ho n g Kong insurance companies are allowed to enter the mainland market through strategic mergers with a mainland company, subject to various conditions, such as the group holding total assets exceeding $5 billion; more than 30 years’ establishment experience attributable to one of the Hong Kong companies in the group; and one of the SAR enterprises having a representative office on the mainland for more than two years.
To date, several insurance pioneer companies have been licensed to do business on the mainland. Torontob a s e d Ma n u l i f e F i n a n c i a l Corporation teamed up with Sinochem Finance Co Ltd 20 years ago to form ManulifeS i n o c h e m L i f e In s u r a n c e ; while Hong Kong-based Convoy was the first to obtain the mainland’s National Insurance Agent License in 2013.
Three years later, Prudential partnered with CITIC to form the CITIC-Prudential L i f e In s u r a n c e C o m p a n y, strengthening its footprint across the country.
He Xiaofeng, head of the C I R C ’s d e v e l o p m e n t a n d reform department, warned earlier this year the regulator needs to prevent the resurgence of overheating problems in the insurance sector.
“We’re worried that once the market opens up, everyone will apply for a license. But, cultivating talent cannot catch up with the speedy develop- ment. This kind of expansion is worthless,” he said.
The CIRC is being guided by three overriding principles in granting licenses.
Preference is given to institutions that operate in line with ke y national policies, such as the Belt and Road Initiative and free trade zones; those with a regional balance that will get due consideration, with favor given to companies supporting the development of the middle and western parts of the country; and companies focusing on professional innovation and development which will be issued with licenses that are in short supply, such as for setting up captive insurance and reinsurance companies, as well as asset management business.