Like China’s Financial-Services Opening? Love Insurance: Gadfly

Foreign insurers, especially AIA Group Ltd., can break out the champagne: China’s opening of its financial markets is great news.The day after U.S. President Donald Trump left Beijing with billions of dollars of deals with President Xi Jinping, the government announced a clutch of headline-grabbing measures to give foreigners more control of Chinese financial ventures. Too late, for the most part, because domestic competitors are now too big to beat.
The steps, including foreign control (but not full ownership) of Chinese banks, securities firms and asset-management companies leave wiggle room for outsiders in areas like distressed investing or advising on acquisitions.
But these won’t move the needle much. The insurance opening will. China has proposed an actual date for full liberalization: The government plans to raise the ceiling on foreign insurers’ ownership of joint ventures to 51 percent in three years, from 50 percent now, and remove it entirely in five years.
This matters, because China is one of the world’s fastest-growing insurance markets. The life business is dominated by China Life Insurance Co. and foreign firms have just 6.7 percent of the market, according to Bloomberg Intelligence analyst Steven Lam. Their share of general insurance is even smaller, at about 2 percent.

Of the foreign players, France’s Axa SA, which has a joint venture with China’s biggest lender, Industrial & Commercial Bank of China Ltd., has had an unsurprising edge. It has a 1.6 percent share of China’s life insurance market, according to Bernstein Research, followed by Hong Kong-listed AIA Group Ltd.
AIA is the only foreign insurer allowed to operate without a partner, thanks to roots in China stretching back to 1919 under the auspices of its former parent, American International Group Inc. But that privilege came with geographic restrictions — AIA’s licenses apply to five regions, though they do happen to be the richest, where more than 35 percent of policies are written, according to Linda Sun-Mattison of Bernstein Research. The five are Beijing, Shanghai, Shenzhen and the provinces of Jiangsu and Guangdong.
The prize for AIA would be operating
Nationwide
Giving AIA the option in five years to operate a wholly owned subsidiary, or ally with a local player in a venture it controls in three years, will allow the insurer to shake off those curbs and expand nationwide. The country already is AIA’s fastest-growing major market. 
Unlike the now disgraced Anbang Insurance Group Co., AIA sells mainly protection policies, not the high-risk investment plans masquerading as insurance that Beijing has restricted. So approval to expand nationwide when the time is right should be forthcoming — it may even be encouraged by the China Insurance Regulatory Commission.
Whether AIA’s competitors like Axa find a sticking point in persuading partners to relinquish control remains to be seen. But there’s one safe bet: As the industry opens, there will be many winners.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.
To contact the author of this story: Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net.
To contact the editor responsible for this story: Paul Sillitoe at psillitoe@bloomberg.net.
©2017 Bloomberg L.P.

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