Allianz’s China licence landmark

November 15 2019 by Nick Ferguson

China’s insurance regulator has formally approved Allianz’s licence to establish the first fully foreign-owned insurance holding company, almost exactly a year after it granted initial approval.

The awarding of the licence is not a surprise, but it is another small milestone in the opening of the Chinese insurance market and comes just one month after China’s cabinet lowered some of the last remaining barriers to the sector.

Allianz described the news as a “great step towards the liberalisation of the Chinese financial market”.

The approval comes after months of preparatory work by Allianz to meet the necessary regulatory requirements and the German insurer will now register with the Shanghai Market Administration and Registration Bureau, after which it plans to make further announcements about how it will take advantage of the new licence.

“China is a strategically important market for Allianz in the region and today’s announcement underlines that commitment,” said Solmaz Altin, who has been named as chief executive of the new holding company, in addition to his current role as regional chief executive for Allianz in Asia.

“Allianz aims to play a larger role in China’s insurance sector and grow with the market. We will continue to work under the guidance of the regulator to deepen our participation in a more open financial market to support the country’s economic growth.”

Allianz also announced that management board member Sergio Balbinot will become chairman of the new entity.

“The regulatory approval for the holding company is an important landmark for our business and puts us in priority position to maximise on the opening up of the Chinese economy,” said Balbinot.

Progress
This latest step comes at a time when China has been under the spotlight for its protectionist trade policies, but the liberalisation in the insurance sector this year has been relatively swift — at least in comparison to the achingly slow pace of previous Chinese reforms.

October’s revisions removed the previous requirement for foreign-invested insurers to have been in business for more than 30 years and to have established a representative office in China for more than two years. They also allowed foreign insurance groups, whether or not they directly write insurance business, to set up foreign-funded insurance companies in China.

“This means that in addition to applying for insurance licences and taking equity stakes in Chinese insurers, overseas financial institutions have one more opportunity to enter the Chinese insurance market by investing in foreign insurers onshore,” said Milliman in a note to clients this week.

Earlier this year, the China Banking and Insurance Regulatory Commission and China Financial Stability and Development Committee each announced a raft of new measures aimed at further opening the financial sector.

Reforms
Having previously said that 100% foreign ownership of life insurers would come into effect in 2021, the timetable was accelerated to 2020. The business scope of foreign insurance brokers was then put on a level playing field with Chinese brokers. Foreign brokers no longer need to have been in operation for at least 30 years and have total assets of at least US$200 million.

Insurance asset managers no longer need to be 75%-owned by domestic insurers and foreign investors are now allowed to hold more than 25% of the shares. Offshore asset managers can now set up wealth management companies controlled by a foreign party (albeit in a joint venture with a subsidiary of a Chinese bank or insurance company). Foreign financial institutions can set up and become shareholders of pension management companies.

Together, these represent a significant opening of China’s insurance sector, though the dominance of domestic players is so entrenched that any new entrants will face an uphill struggle in winning market share. Chinese insurers control more than 93% of the domestic life insurance sector and a whopping 98% of the non-life sector — and that doesn’t even include the Chinese share of foreign-invested insurers.

Prudential, Generali, Cigna and MetLife are the biggest foreign life players after Axa and AIA (which already have a Chinese presence through an acquisition and a legacy licence, respectively) while the biggest non-life joint ventures include Liberty Mutual, AIG, Samsung and Tokio Marine.

It remains to be seen which firms will follow in Allianz’s footsteps — and whether US players will be welcomed amid the trade tensions initiated by their government.

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