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Law firm Norton Rose reports China's insurance market to be worth an estimated $1.2 trillion in written premiums. Western insurers and reinsurers are naturally keen for a piece of the action. Four local insurance giants, however, are defending their territory against the foreign intruders, which comprise 20 life insurance joint ventures, 14 nonlife insurance branches and three foreign reinsurers.

China pledged four years ago to open its doors fully to foreign insurers following its accession to the World Trade Organization. The country since then said foreign companies would be permitted to set up branches or joint ventures in the country and have a stake of up to 51 percent in any such venture. However, as Norton Rose observes, the doors should be regarded more as left ajar--not flung open.

The new rules go some way to responding to complaints about the tangled regulatory requirements encountered by foreign insurers attempting to enter the Chinese market, a lack of transparency in granting licenses, a limited choice of business vehicles and varying capitalization requirements.

Liberalization has already enabled Western insurers such as American International Group Inc. and Germany's Allianz to move into the domestic trade credit insurance market.

Munich Re became the first foreign reinsurer to win a nationwide branch license in 2003. It opened its first office in Beijing that October--although its first involvement in the country dates back 50 years when it provided reinsurance for Chinese primary insurers.

The company, which is also based in Shanghai and Hong Kong, has predicted China will move into the league of top ten global insurance markets by the end of the decade. Swiss Re followed it a couple months later when it also established a Beijing operation.

More recently, Lloyd's of London scored a coup in November when it won permission to develop an onshore presence for reinsurance in China over the coming months.

Meanwhile, major Chinese companies have set up their own insurance units, although broking and risk management group Aon reports that often the risk models they employ suffer from a lack of transparency.

What's the downside for companies planning either to set up a Chinese operation or beef up their existing presence? Plenty it seems.

For one thing, they still face a formidable opponent in the People's Insurance Company of China, which has a 55 percent market share of nonlife business, while state-owned China Reinsurance Company is only slowly relinquishing its monopoly of the reinsurance market.

In addition, China's status as a rapidly emerging economic powerhouse must be coupled with a pinch of realism. China's economic growth may be forecasted at 9 percent for 2006, but as Aon points out, per capita income is less than 15 percent that of the United States. That puts the country only modestly ahead of Albania.

Its inefficiency as an energy user makes it the world's second-biggest oil consumer. Its financial system is untested, and last summer's revaluation of the yuan have created further uncertainty. In addition, its ability to pour high volumes of cheaply made manufactured goods into world markets promises further trade showdowns to match last summer's "bra wars" spat.

February 1, 2006

Copyright 2006© LRP Publications