International Business and Trade Regulation Client Advisory

March 2006

China’s Insurance Market Opens to Foreign Business

The insurance market in China is growing rapidly, and with it has emerged a series of regulations gradually lifting market barriers for international insurance companies. In this article, we will explore the industry landscape and potential opportunities for American insurers.

Economic Growth: China registered 8% or 9% economic growth rate per annum. This growth can be seen in new infrastructure in China’s major cities and millions of new cars owned by common Chinese people. Those privately owned assets will require non-life insurance. As China’s economy is shifting to market economy, enterprise annuity and health insurance will form a key part of China’s social security system. On savings side, most Chinese put their savings in bank deposits with short-term interest payment of less than 2% annually. An increasing number of Chinese people are looking at life insurance as safe investment.

Government Goals: Chinese government considers the development in life and health insurance industry crucial to the overall economic development and social stability. Through developing life and health insurance industry, Chinese government wants to reach 3 goals: provide for the retirement needs of its aging population; continue restructuring state-owned enterprises; and enhance capital and asset management expertise.

Life and Health Insurance Market: An aging population and social security reform are the key long-term drivers of the life and health insurance industry in China. As consumers put pension savings and coverage for illness as their top concerns, life and health insurance market in China has expanded substantially in recent years. Since 1996, premium income in China scored average 40% growth per year. The growth momentum is expected to continue over the next five years. The dominant insurers in China are China Life, Ping An, and China Pacific.

Although health insurance had been exclusive domain of the life insurers, specialist health insurers also came into being in recent years. China Insurance Regulatory Commission (CIRC) approved four new start-up specialist health insurer in 2005. Currently over 40 companies sell life insurance in China . Many of them also offer health insurance products. The health insurance products currently available include medical expenses, critical illness, and accident. Those insurers who offer health insurance usually offer enterprise annuity contract as a bundled product.

On December 11, 2004, the China Insurance Regulatory Commission (CIRC) announced that foreign-invested life insurance companies are permitted to engage in health insurance, group insurance, and pension fund management business. All geographical restrictions were removed on the same date. Starting from 2005, for the first time, American insurer could apply for licenses to sell group products anywhere in China.

Entry Modes: To enter China market, American insurers can choose from representative offices, joint ventures, and wholly foreign-owned insurance companies. Almost all of the American insurers enter China’s insurance market in two main ways: by operating a joint venture with a domestic company, or through a strategic stake in a domestic insurer. For instance, ACE has a strategic partnership with China’s Huatai Insurance Co., in which it is the single largest shareholder.

Application Requirements: On May 13, 2004, the CIRC issued the Implementing Rules on the Regulations for the Administration of Foreign Invested Insurance Companies (“Implementing Rules”) allowing foreign insurance companies to set up joint ventures with ownership ratio capped at 50%.  According to the “Implementing Rules”,   the prudential requirements imposed by CIRC on a foreign applicant at a minimum include:

  1. the foreign applicant must have a reasonable legal person governance structure;
  2. the foreign applicant must have a stable risk control system;
  3. the foreign applicant must have a sound internal control system;
  4. the foreign applicant must have an effective management information system; and
  5. the foreign applicant must have good operating conditions and no record of violations of laws and regulations.

Please contact attorney Greg Mitchell gmitchell@fbtlaw.com, 859.244.7548 and trade specialist Dillon Shi dshi@fbtlaw.com, 859.244.7554 in our International Services Group to discuss your business’ needs in China.

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