Insurers seek alliances to stimulate rural business growth

By Hu Yuanyuan (China Daily)
Updated: 2009-09-10 08:50

Closer ties between banks and insurers, especially regarding equity investment, have never before seemed so attractive given that the leading companies in these two sectors are competing for the same customers and networks.

China Life, the country's largest insurer, is considering becoming the pre-IPO investor of Agricultural Bank of China (ABC).

"We're definitely interested in any influential, branded financial institutions with sound results," China Life Chairman Yang Chao said. "Such equity investment is in line with our strategy to maintain strong core business while developing diversified financial units properly."

China Life has enjoyed close cooperation with ABC and has recently renewed a strategic cooperation deal for a broader partnership.

The company's equity investment in the bank will give the insurer guaranteed access to ABC's more than 24,000 branches across China. China Life's 50 percent premium growth last year was driven by sales at the bank, one of the insurer's three-biggest partners.

"Such an equity investment will help strengthen the ties with ABC, which has a broad network in rural China," said Wang Xiaogang, an analyst with Orient Securities.

He added that China Life's rural businesses, which are mostly higher-margin regular-premium products, are very profitable, partly because of a lack of competition. More than half of ABC's outlets are in rural areas.

Similarly, Ping An Insurance (Group), the nation's second-largest insurer, in June announced a plan to increase its stake in Shenzhen Development Bank to nearly 30 percent from the under 5 percent it holds now through a 22 billion yuan deal.

Though the deal hasn't received the nod from the regulators so far, Ping An's commitment to transform itself into a financial holding company is self-evident.

The top management of Ping An said the company would like to be a financial supermarket offering the entire range of financial services such as money changing, insurance, securities and fund management, under one roof.

"The acquisition will help us provide one-stop services to our customers through a single account," Louis Cheung, president of Ping An, said.

To prevent cross-sector risks, China requires banking, insurance and securities units to operate under three independent supervisory bodies.

However, to achieve better synergies across different sectors such as a wider network, bigger customer base and more sales channels, financial firms are increasingly bolstering their cross-sector business by stake investments.

A number of banks have submitted applications to acquire stakes in insurance firms after regulators allowed such types of investment.

"This is a choice of the market, driven by customers' needs to get diversified financial services in an easy way and financial institutions' needs to cut costs and improve operational efficiency," said Zhao Xijun, professor of finance at Renmin University of China.

What the regulator should do is to monitor these changes and improve the risk management scheme accordingly, Zhao said.

"Whether the regulatory framework will change or not in the future, our strategy is intended to better meet our customers' demands," Ping An's Cheung said.