At the first meeting between Chinese President Xi Jinping and US President Donald Trump at a summit held on April 6 and 7 2017, the two leaders set the tone for future cooperation on a wide range of issues, not least market access between the two countries. According to Chinese and US officials, better access for US financial sector investments into China was mooted for inclusion as part of a 100-day plan to improve trade ties. This could have notable implications for the Chinese insurance industry and make inward investment by US financial houses an increasingly advantageous proposition.
During Barack Obama's administration, several rounds of talks on a bilateral trade agreement took place, during which the raising of investment ceilings was mooted, but never implemented. At present, foreign investors cannot hold a majority stake in life insurers in China. Some of the large insurers in China – such as China Life Insurance Company, People's Insurance Company of China (PICC Property and Casualty Company Limited) and Ping An – are of a considerable size and have made a range of landmark acquisitions since China first acceded to the World Trade Organisation, and the market continues to grow at an unprecedented rate.
To put this growth into perspective, in 2016 premium volume stood at more than Rmb3.1 trillion, with an annual 5-year growth rate of 16.8%. Levels of insurance penetration (3.59% of gross domestic product at the end of 2015) and insurance density ($271.77 per capita at the end of 2015) are projected to reach 5% and Rmb3,500 per capita by 2020, respectively. At present, the Chinese insurance market is the second largest behind that of the United States, having recently overtaken Japan's. This growth looks set to continue, due to:
- an increasingly demanding middle class seeking more diverse and sophisticated insurance products;
- a splintered market comprising a sizeable proportion of smaller private players; and
- ongoing industry reforms aligning China's risk management and consumer protection standards with international standards.
US investors that prepare for this outcome – as postulated in the bilateral trade agreement talks under Obama and potentially now Trump – will be better positioned to capitalise. As it stands, foreign-invested capital is restricted to 50% of a life insurer's total capital (no such restriction exists for non-life insurers). Investors in foreign-funded insurers are also required to have $5 billion in assets and more than 30 years' experience managing insurers. This is now the case for all foreign investors. Since only the controlling entity of investing groups must comply, various foreign-fund managers and private equity groups enjoying such an affiliation are already invested in the Chinese insurance industry to some extent and have shared in its success. For some, other industry sectors (eg, brokerage and agency), along with domestic-funded insurers (where the total foreign equity held is less than 25%), non-life insurers and stock exchange-listed Chinese insurers, among others, may present a more viable proposition.
For further information on this topic please contact Hao Zhan, Wang Xuelei, Pan Xiang or Sharif Hendry at AnJie Law Firm by telephone (+86 10 8567 5988) or email ([email protected], [email protected], [email protected] or [email protected]). The AnJie Law Firm website can be accessed at www.anjielaw.com.