Total assets of China's insurance industry to top $120 billion in 2005
As of 2003, more than 10 billion yuan ($1.25 billion) of private capital is ready to flow into the insurance industry as a result of recent liberalizing policies, says an insurance expert.
At a national conference on the insurance industry held in February, Wu Dingfu, Vice Chairman of the China Insurance Regulatory Commission (CIRC), stated that his commission supports insurance companies to increase capital through all legal channels. This expands options for insurance enterprises seeking capital sources, including an increased flow of private capital.
The CIRC recently strengthened its supervision and management over the solvency of insurance enterprises, which is directly determined by the scale of their assets. Private capital is an important force to boost this solvency.
Dalian Shide Group Co. Ltd., engaged in building material production in northeast China's Liaoning Province, took the opportunity of the capital enlargement of the China Pacific Insurance (Group) Co. Ltd. (CPIC) to purchase 10 percent of its share in 2003, becoming one of the CPIC’s largest shareholders. CPIC Board Chairman Wang Guoliang affirmed the capital enlargement has greatly improved its solvency.
Under the current policy, private capital has three ways to enter the insurance sector: When insurance companies need to enlarge their capital; when private enterprises transfer stock ownership from state-owned shareholders; or when private-run insurance companies are established.
Easing Restrictions on Capital Sources
According to Wu, the CIRC will amend the regulations on purchasing the shares of insurance companies to attract private capital. Development of China's insurance sector appears to be speeding up as a result of the entry of private capital.
The founders of the Minsheng Life Insurance Co. Ltd. (Minsheng) have deep feelings on policy changes, having experienced eight hard years getting started in a restrictive environment. They applied to establish the company, funded mainly through private investment, to regulatory departments in December 1994. But the CIRC did not approve the application until October 2000. According to regulations at that time, they had to establish an insurance joint venture with a foreign counterpart and endure a one-year “preparation period” before being authorized to start business. It took time to find foreign companies with whom they could cooperate.
In September 2002, the CIRC submitted a report to the State Council proposing to abolish the barrier that domestic private insurance companies need a foreign partner to do business. It petitioned for three deregulations: Allowing private insurance companies to establish joint ventures with foreign ones that meet China's access qualifications but are yet to enter China; allowing foreign insurance companies to buy shares from domestic ones; and allowing private enterprises to start business independently under the condition that they find a joint venture partner eventually. The State Council replied to the CIRC that month, agreeing to foreign insurance enterprises purchasing the shares of Chinese insurance companies.
Following the policy adjustment, Minsheng quickly started business in June 2003 after absorbing 5 percent of shares from a Singaporean shareholding company. Of its more than 20 shareholders, over 90 percent are private enterprises. Private capital accounts for more than 80 percent of Minsheng's total registered capital, which exceeds 800 million yuan ($100 million).
Experts say the major attraction of private capital is the large potential of China's insurance market. China's insurance premium revenue has maintained an annual growth of 30-50 percent in the past few years. The combined assets of China's insurance industry last year reached 912.3 billion yuan ($114.04 billion) against 649.4 billion yuan ($78.43 billion) in 2002. According to Chen Yulu, Dean of the School of Finance of Renmin University of China, the combined business, newly added premium and the aggregate premium of China's insurance industry are to grow even faster. Their total assets are expected to exceed 1 trillion yuan next year ($120.77 billion).
Currently, the annual premium revenue of insurance companies with a large portion of private capital, including Ping An Insurance Co., New China Life Insurance and Sinosafe Insurance, accounts for 23.4 percent of the national total.
Minsheng can be an exemplar in China. President Wang Yaohua stated that its four branches in Beijing, Nanjing, Hangzhou and Shijiazhuang together collected 345 million yuan ($41.67 million) of premium within three months of operation in 2003, just over the board director's goal.
“It was really hard work for a newly established enterprise to achieve under increasingly keen market competition,” he added.
“With a large proportion of private capital, we stick to our business scheme of low cost, low risk, high speed and high efficiency and have been successful,” Wang said.
Privatizing to Success
Up to now, Minsheng has introduced more than 30 insurance products on the market, which registered high sales volumes in Beijing and Nanjing. According to a related department's survey, Minsheng's high proportion of private capital is the main attraction for customers buying Minsheng life insurance.
Compared with some state-owned life insurance companies, Minsheng's life insurance policies cover more diseases with a lower premium, have a longer insurance period and promise higher returns. Customers have choice among various insurance packages and can enjoy a preferential premium when they buy more policies or renew plans. Meanwhile, Minsheng also covers transportation, including private cars, the first of its kind in China. Medical and accident insurances are also attractive. Minsheng is just like any other private enterprise, namely, it devises products geared toward a dynamic market, abiding by consumer demand.
Minsheng is devising its first complete annual business plan, striving to increase its premium revenue by 200 percent this year. By the end of February, premium revenue of its four branches had reached 200 million yuan ($24.15 million).
As for Minsheng's future development plan, the enterprise wants to consolidate its distribution network and establish 20 branches nationwide within five to seven years. It aims to occupy more than 2 percent of the country's life insurance market within five years. Also, its premium revenue is expected to reach that of China's top life insurance companies within eight to 10 years so that it will become a successful listed company. Its long-term goal is to become a modern international finance service group offering a range of products.
Wang Yiming, President of Minsheng, agreed that the Central Government's deregulation of the private sector and the CIRC support granted to Minsheng are supplying Minsheng excellent opportunities.
Like Minsheng, other sources of private capital are flowing into the insurance sector through various channels. The Shanghai-based Sino Life Insurance Co. Ltd., with mostly private capital, started business on November 18 last year. Before that, two mostly privately funded Beijing-based investment enterprises bought shares from Ping An Insurance. Meanwhile, 59 percent of state-controlled shares of the Sinosafe Insurance were made private, increasing the proportion of its private capital to 83 percent. It became China's first property insurance company funded mostly by private capital.
State-owned companies have dominated China's insurance industry for a long time, controlling most of the insurance market. The top three property insurance companies take up 94.8 percent of the market share, and the top three life insurance companies control 91.1 percent of that market. State monopolies are still intact in some markets. This indicates that state-owned insurance companies still have a huge role in China's insurance market, with a relatively tight monopoly compared with other sectors.
Juxtaposed to the keen competition of foreign-funded and joint stock insurance companies, state-owned insurance enterprises have a backward and rigid system, which severely restrains its impetus to develop. The newly established private insurance companies are a positive force in China's insurance industry, showing rapid development, superior property rights system and flexible operational system. Diversified forms of ownership, including private capital participation, will make the insurance sector more efficient, competitive and innovative.
(Beijing Review May 27, 2004)
