Insurers make a beeline for mainland market

Joint ventures, easing of curbs woo experienced overseas players

Hong Kong and overseas companies have upped the stakes in the race for a slice of the Chinese mainland's robust life insurance market, while mainland clients continue flocking to Hong Kong to snap up insurance policies.

Industry experts still see great potential for overseas insurers on the mainland despite the tightening of licensing regulations by the country's insurance watchdog.

FWD Hong Kong - the insurance arm of Pacific Century Group chaired by Hong Kong tycoon Li Ka-shing's younger son Richard Li Tzar-kai - has applied to the China Insurance Regulatory Commission (CIRC) for a life insurance license and is keeping its fingers crossed that the nod would be forthcoming.

The company believes its plan to tap the mainland market conforms with the State Council's blueprint for promoting the development of diversified health insurance and innovative endowment, and aims to start operating there by specializing in online health insurance products and services.

"The mainland authorities have come up with a list of requirements that we need to fulfill. One of the key conditions is having a representative office up and running there for two years prior to winning a license. That's a reason why we didn't apply for the license earlier. As a young company, we need to wait for some time until our Shanghai office can satisfy such a requirement," David Wong Tai-wai, chief executive officer of FWD Life Insurance, told China Daily.

But, how long it would take is still up in the air, he admitted.

"As far as we know, there're more than 200 companies queuing up for licenses, but no one knows how long it will take before approval can be obtained. We hope to get the license within two years," Wong said.

The CIRC issued new rules earlier this year to regulate the operations of insurance companies on the mainland, with a higher market entry threshold for Hong Kong's small- and medium-sized insurance companies.

Hong Kong insurance sector lawmaker Chan Kin-por said the higher market entry rules will make it more difficult for small- and medium-sized enterprises to open up on the mainland, and only big multinational companies can have access to the mainland market.

"Even so, the prospects 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 market but, globally, overseas companies have mixed views on the 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.

Hong Kong's insurance sector has been calling for deeper integration 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 Assessment Framework 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 and the mainland, Hong 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. Toronto-based Manulife Financial Corporation teamed up with Sinochem Finance Co Ltd 20 years ago to form Manulife-Sinochem Life Insurance; 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 Life Insurance Company, strengthening its footprint across the country.

He Xiaofeng, head of the CIRC's development and 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 development. 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 key 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.

cherrylin@chinadailyhk.com