Could China open up further to overseas insurance investors?

The Chinese insurance sector is set for more acquisitions following a liberalisation of the market, according to Clyde & Co Shanghai partner Carrie Yang.

The China Insurance Regulatory Commission (CIRC) liberalisation allows insurers, including foreign insurers based in China, to buy shares in more than one rival that writes business in the same section of the market.

Speaking to StrategicRISK, Yang said: “I think following the new acquisition rules, we anticipate that there will be more acquisitions in the market.”

Clyde & Co Shanghai partner Michael Cripps said that CIRC’s rule changes were designed to reverse its previous policy of restricting acquisitions to prevent competition becoming too aggressive.

He said: “Historically, CIRC’s policy-driven involvement around competition has been centred on preventing investors, domestic or foreign, from taking too many equity positions in competing insurers within the market in China, on the basis that that sort of arrangement, had it been allowed, might cause pricing pressure and other problems coming from competition that was too severe.

“So what CIRC has done is acknowledge that there now is a proper competition watchdog in China, the NDRC, for this type of purpose, and that they are the body properly responsible for competition in all sectors, including insurance.”

Cripps said that foreign insurers had several ways to take part in the Chinese property & casualty market.

He said: “One is via direct investment. Two is via the Lloyd’s China platform. Three is via fronting, or more sophisticated commercial arrangements.”

Lloyd’s China makes it easy and quick for Lloyd’s syndicates to access the Chinese market, Yang added. Lloyd’s China takes a regulatory burden away from syndicates by classing them as the market’s internal underwriting division, making access simpler.

“So we could see this platform more and more seen by those Lloyd’s players as a viable approach to access the Chinese market,” Yang said.

But the future for foreign players in Chinese insurance is unclear. Yang said that the country has a trend towards further economic liberalisation, partly shown by the setting up of special economic zones.

“So we see a number of these special zones set up across China, and they all have their special qualities regarding the further opening up or liberalisation of the insurance market,” she explained.

But this is balanced out by increasing regulation of the market, Yang added: “So on one hand we see the further liberalisation of the market, but on the other hand we see, from a regulatory perspective, CIRC has kept creating new regulations and imposing new regulations on the market.”