Some recent events indicate that the Chinese insurance market is becoming more open to foreign insurers. U.S. and Chinese regulators recently concluded an agreement to begin sharing information; AIG opened an office in the capital, Beijing, the first foreign company to do so; ACE Ltd. and China’s Huatai Insurance Co. recently concluded a strategic business partnership, and New York welcomed a visit by Tang Yunxiang, president of the People’s Insurance Company of China (PICC).
His arrival in the Big Apple, where he opened the company’s first ever office in the U.S., was warmly welcomed by representatives from about 150 U.S. insurance firms. PICC sells three-quarters of all the property insurance in China, and is expected to be privatized within the next two or three years, albeit on a reduced scale, with the Chinese government maintaining majority control. Still many of those who turned out to welcome Mr. Yunxiang were no doubt thinking what a nice partner PICC would make.
The closer ties led representatives of the National Association of Insurance Commissioners (NAIC) and a delegation from the China Insurance Regulatory Commission (CIRC) to conclude a memorandum of understanding (MOU) in Kansas City, Mo., on May 20. The two authorities agreed “to work together, exchanging information on insurance regulatory issues and educational initiatives of mutual interest to the two countries.”
The NAIC indicated that under the agreement’s terms the next step is to “establish an Insurance Working Group” which will improve relations bet-ween insurance regulators in the U.S. and China and will “focus on specific regulatory issues of mutual interest.”
Two days later AIG ann-ounced that its “100 percent owned” Chinese life insurance subsidiary, American International Assurance Company, Ltd. (AIA) had received authorization to open the Beijing office. On June 6, AIG’s CEO, Maurice “Hank” Greenberg attended the opening ceremony. At the following news conference, he indicated that the company expects to see its revenues from insurance premiums in the People’s Republic grow between 20 and 25 percent this year, over the $200 million in premium it recorded in 2001.
AIG’s history—it was founded in Shanghai in 1919—certainly appears to be working in its favor. It was the first foreign insurer to return to the Chinese market under the reform regime of Deng Xiao Ping, and is the only one that controls 100 percent of its Chinese subsidiaries.
AIG’s head of communications, Joe Norton, confirmed that the company already has, or is in the process of formalizing licenses for eight cities—Shanghai, Guangzhou, Shenzen and Foshan, which offer both life and p/c coverage, and Beijing, Suzhou, Dongguan and Jiangmen, which offer only life products. They operate through two subsidiary companies, AIA and American International Underwriters Insurance Co. (AIUIC) for p/c.
The subsidiary ownership question held up China’s accession to the World Trade organization for some months, as European negotiators sought changes to eliminate what they felt was an unfair trade advantage. AIG agreed to limit, but not eliminate, the number of wholly owned subsidiaries it operates in China, but the scope of this accord is quite vague.
According to several news reports, a CIRC official, who refused to be named or quoted directly, told reporters at a news conference on June 11 that AIG wouldn’t receive any more licenses for subsidiaries that weren’t at least 50 percent owned by a Chinese partner. But, as AIG has continued to receive licenses without this requirement, it might still benefit from its “grandfather clause” in its agreements with the Chinese.
ACE’s deal with Huatai might give AIG some competition. Founded in 1996, Huatai had total assets of around $600 million at the end of last year and total premium income of $77 million. It writes both personal and commercial lines, oil and gas, marine hull and cargo and aviation from eight branches
in Shanghai, Beijing, Guangzhou and other cities. It’s been given approval by the CIRC to open 18 more branches and 22 “sub-branches.”
The deal is structured as a partnership arrangement. ACE will acquire 22 percent of Huatai’s outstanding shares for approximately $150 million. The investment will give ACE an immediate entry into China’s growing p/c market, avoiding the necessity of applying for and waiting to receive licenses from the CIRC. “The partnership will allow both companies to develop jointly new products and services for delivery nationally in China, and establish a framework for expansion into other key financial services areas,” said the announcement.
Topics USA Legislation China Property Casualty AIG
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