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Breakingviews - Insurance giants may get another chance in China
September 8, 2017 / 2:15 AM / 13 days ago

Breakingviews - Insurance giants may get another chance in China

China Life Insurance's flag flutters alongside China's national flag at China Life Tower in Beijing, China, March 22, 2016. REUTERS/Kim Kyung-Hoon

WASHINGTON (Reuters Breakingviews) - Global insurers may get another bite at the Chinese cherry. After meeting with representatives from several foreign operators, Chen Wenhui, vice chairman of the China Insurance Regulatory Commission, pledged to further open the market. Executives have heard such promises before, but a recent shakeup of the industry and its regulator by Beijing could provide real opportunity.

Multinational insurers have struggled in China. Equity caps restrict ownership in several business lines and the notoriously conservative industry watchdog often protects local champions. The regulator’s unease with foreign firms, combined with wide discretion over approvals and licensing, is often cited as a reason only the biggest global insurers continue to operate in the market, including Chubb, MetLife and Manulife.

That dynamic may change, reflecting concerns the domestic insurance industry needs more discipline. New rules on equity investments, along with trading and fundraising bans for some firms, have crimped the likes of Anbang, Foresea Life (a unit of Baoneng), Evergrande Life and others reliant on universal life insurance, which combines short-term investments and life insurance. Two prolific insurance bosses, Wu Xiaohui of Anbang and Yao Zhenhua of Foresea, have been detained and barred from the industry, respectively.

China’s insurance watchdog has been upended too. An anti-corruption probe brought down its former chairman in April and has left the organization keen to avoid any whiff of collusion with the enterprises it oversees. That’s why the regulator is reluctant to approve all but the most mundane deals, regardless of whether they meet stated requirements.

Though China may be difficult to navigate, there are good financial reasons international players want to stick around and expand in the Middle Kingdom. The insurance penetration rate, or gross written premiums as a share of GDP, was just 2.4 percent in China at the end of 2016. That compares to 15 percent in Hong Kong and 16 percent in Taiwan, according to research by Allianz.

In a sense, multinationals can position themselves as the anti-Anbangs: providing solid brands with superior actuarial know-how, sound investment practices and a long-term focus. Chen’s meeting this week with the leaders of foreign insurers was held under the “return insurance to its roots” banner. While the goal may be to exert better practices by domestic insurers, it’s an opportunity international players should keenly exploit. 

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