Wednesday, December 13, 2017

Moody’s welcomes China’s removal of foreign ownership cap

China’s lifting of the foreign ownership limit on life insurers is credit positive for both foreign and domestic life insurers, according to Moody’s.

The Ministry of Finance (MoF) plans to raise the cap to 51% from 50% in three years and to remove the limit entirely in five years. The move essentially allows foreign insurers to have majority-owned and wholly owned subsidiaries in China.

It will also benefit domestic life insurers as it encourages product diversity, which Moody’s says will address the current industry’s over-reliance of short-term spread-dependent products.

According to vice-finance minister Zhu Guangyao, the decision is part of China’s plan to open its financial sector.

“We expect the increased foreign-insurer participation will promote the development of more sophisticated products with higher margins and more recurring premiums such as pensions, retirement planning and healthcare insurance, areas underserved by domestic insurers,” said Moody’s.

“Additionally, the new regime will provide foreign insurers opportunities to leverage the expertise they have gained in developed markets.”

Moody’s expects that even pure domestic insurers, with non-domestic partnerships, will benefit from further growth in the industry’s diversity and product scope.

“The current regulatory focus on underwriting discipline likely will limit the negative effect of price competition,” the rating agency said.

 

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