Ｔｈｉｎｋ　Ｃｏｏｐｅｒａｔｉｏｎ，Ｎｏｔ　Ｃｏｍｐｅｔｉｔｉｏｎ|Not me

　　China"s insurance industry is now open to foreigners, and that’s a good thing for all players
　　
　　Maybe no other foreign chief executive officer is more familiar with China than Maurice R. Greenberg. In 1975, as Chairman of the Board of American International Group Inc. (AIG), Greenberg paid his first visit to China. During the following 30 years, he has been to China several times every year. You can never ignore a country with such a size, Greenberg said, believing that China will be a significant leader in the world.
　　
　　After his first China tour, Greenberg broke into the China market step by step by cooperating with the People’s Insurance Co. of China (PICC). In 1992, AIG got the first approval granted to establish a foreign company in China. Greenberg applied to rent Building No.17 of Zhongshan Dongyilu on the Bund in Shanghai for 30 years, where American International Assurance Co. Ltd. (AIA), a wholly owned subsidiary of AIG, first began operations in 1931. In 1996, the building was named “AIA Building,” with three big Chinese characters meaning “back to hometown” inside the building. AIA, which began operating again in 1992 under AIG, became the first and only foreign-funded insurance company in China until now.
　　Greenberg made the right decision since AIG soon achieved substantial profits in China. AIA has become the strongest foreign-funded insurance company in the country, with eight branches and sub-branches in China. By the end of 2005, AIA had generated more than 1 billion yuan in China, ranking first among foreign-funded insurance companies in China.
　　As for the end of the transitional period after China’s accession to the World Trade Organization(WTO), Greenberg believes that greater market access will bring fiercer competition. Future competitors come from not only the insurance industry, but also other financial sectors such as banks.
　　
　　More cooperation than competition
　　
　　“Chinese insurance companies’ and foreign-funded insurance companies’ advantages are complementary, laying a foundation for later cooperation between the two sides,” said Xu Shuijun, General Manager of the AIA Beijing branch. According to him, on the open market after China’s accession to the WTO, cooperation between Chinese and foreign-funded insurance companies should trump competition as the common mission of Chinese and foreign insurance companies is to make a bigger insurance industry market.
　　The insurance industry is the most open sector among China’s financial services, but competition is not as fierce as expected. On the contrary, insurance companies from home and abroad are advancing side by side through cooperating with and learning from each other. Statistics from the China Insurance Regulatory Commission (CIRC) show that during the past five years, Chinese insurance industry revenues have been growing at an annual rate of more than 30 percent. In 2001, industry turnover stood at 210 billion yuan, but in the first four months of this year, the turnover already totaled the same amount.
　　“The Chinese insurance industry has not been developed as long as other financial service sectors, hence it has more potential,” Xu said. “It is far easier to exploit new market fields and co-develop the insurance market than to rub off market share from competitors.” Xu’s opinion reflects that of many industry insiders.
　　
　　In 1992, the AIA Shanghai branch trained the first group of insurance agents in China. This sales pattern was soon adopted by domestic insurance companies that exploited a pattern more suitable for China: developing their businesses by using the extensive social connections of insurance agents. Even now, domestic-funded insurance companies still have better marketing services and social connections than their foreign counterparts. In 2005, Chinese insurance companies occupied 93.1 percent of the insurance market-much more than foreign-funded ones did.
　　However, foreign-funded insurance companies have their own strengths. Most of them focus on the weak areas of Chinese insurance companies, paying attention to product innovation and more balanced product structure. In fields like liability insurance, project insurance and credit insurance, foreign-funded insurance companies hold absolute advantages. In recent years, they have been growing at high speed. According to Ba Shusong, Deputy Director of the Financial Institute of the Development Research Center of the State Council, in 2005, premiums of domestic-funded insurance companies grew 8.52 percent year on year, while those of foreign-funded insurance companies soared 248.45 percent over a year earlier. Further, among the 82 insurance companies on the Chinese market by the end of 2005, there were 41 foreign-funded ones with nearly 400 branches and sub-branches.
　　In Xu’s opinion, after the insurance market gradually opened up, the Chinese insurance industry introduced advanced foreign training mechanisms of actuaries and some professional examinations and qualification certifications, making the Chinese insurance market closer to that of international practice.
　　
　　New financing channels
　　
　　After AIA started its business in Shanghai in 1992, Morgan Stanley and Goldman Sachs purchased shares of Ping An Insurance Co. in 1994, making them the first foreign capital entering China’s insurance market by buying shares.
　　At present, the largest shareholder of Ping An is Hong Kong and Shanghai Banking C orp.; the largest shareholder of New China Life Insurance is Zurich Financial Services Group from Switzerland; and the largest shareholder of Taikang Life Insurance is Swiss Life. There are many other similar cases. Figures from the CIRC indicate that by the end of 2005, 17 Chinese insurance companies had foreign shareholders.
　　“Since the insurance market is opened, there has been over 60 billion yuan worth of overseas capital coming into China by way of establishing foreign-funded insurance companies or buying shares of Chinese insurance companies, driving development of the Chinese insurance industry,” said Meng Zhaoyi, Director of the CIRC International Department.
　　Among the paid-in capital of PICC Property and Casualty Insurance Co. Ltd. and China Life Insurance Co. Ltd., which are listed overseas, 10 billion yuan is foreign capital, according to CIRC figures.
　　“In the future, foreign capital may focus on the insurance agency market, which is slated to open further,” Meng said. “This will bring more pressure to Chinese financial institutions. Meanwhile, we will actively expand international insurance supervision cooperation and strengthen supervision over cross-border insurance transactions.”
　　“We have now seen the services and performance of foreign-funded companies,” said Hao Yansu, Dean of the Insurance Department of Central University of Finance and Economics. “Their training and their management attitude toward products make the Chinese insurance industry learn much and advance faster. After 2006, the Chinese insurance market should be more open to facilitate foreign-funded companies. It might be good news to the Chinese insurance industry, and to the Chinese people.”
　　
　　
　　Insurance Industry Highlights in China
　　
　　-- Within five years after China entered the WTO, China had fulfilled its commitments and opened the insurance industry. However, foreign-funded property insurance companies cannot offer motor vehicle third party liability insurance. Joint ventures also must be adopted if foreign investors plan to establish life insurance companies in China. Foreign capital must hold shares of no more than 50 percent.
　　-- According to the latest CIRC statistics, among the 89 insurance companies in China, half are foreign-funded ones. There are 47 foreign insurance companies from 15 countries or regions with 121 operating institutions in China with total assets of 20.77 billion yuan, accounting for 31.4 percent of the total assets of all foreign-funded enterprises in China. Major transnational insurance groups in the world and insurance companies in developed countries have entered the Chinese market. China has become one of the most important emerging insurance markets in the world.
　　-- From January to October 2006, premiums of foreign-funded insurance companies totaled 19.11 billion yuan, with a market share of 4.07 percent. In Beijing, Shanghai, Shenzhen and Guangdong, which were opened ahead of other regions with more concentrated foreign capital, foreign-funded companies hold 18.15 percent, 18.62 percent, 10.73 percent and 9.68 percent of the market, respectively.
　　-- Foreign-funded insurance companies are encouraged to establish operating institutions in the central, west and northeast areas of China. Qualified domestic joint stock insurance companies are allowed to introduce foreign capital.
　　

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