Cap on insurance stakes doubled
China will double the ownership cap for a single investor in mainland insurers to 20 per cent from June 15, in an attempt to attract more private investment capital into the sector.
Foreign companies are set to be major beneficiaries of the liberalisation, which comes as China prepares to lift geographic restrictions on overseas insurers before the end of the year to comply with World Trade Organisation rules.
HSBC Holdings and American International Group had already unveiled plans to raise their 10 per cent stakes in mainland partners Ping An Insurance and PICC Property and Casualty, respectively.
Nomura International Hong Kong regional insurance analyst Karen Chan said the change was unlikely to trigger a new wave of foreign investment as most of the 24 main domestic insurers already had a foreign partner.
There have already been cases in the past where foreign firms had obtained special State Council approval to buy stakes of more than 20 per cent in mainland insurers. Dutch-Belgian financial services group Fortis, for example, took a 24.9 per cent stake in Tai Ping Life.
Nonetheless, foreign firms will welcome the changes.
'To foreign investors, the change is definitely good news,' Ms Chan said. 'This is an important step towards regulatory certainty, and winning them a measure of management control.'
About 40 foreign insurance firms have been trying to crack the China market through joint ventures with local partners. Others, like HSBC, have bought small equity stakes in domestic firms with a view towards progressively raising their investments as the sector is liberalised, with the ultimate aim of gaining management control.
The new rules cap combined foreign ownership in Chinese insurers at 25 per cent, but foreign firms will tend to keep their stakes at 24.9 per cent. This is because at 25 per cent ownership, a venture is considered a foreign-funded entity under Chinese law, subjecting it to more restrictive regulations.
However, the China Insurance Regulatory Commission (CIRC) said the foreign ownership cap would not apply to listed insurers. This means firms listing abroad will still be considered domestic companies, even if more than 25 per cent of their equity is in the hands of foreign portfolio investors.
Guotai Junan analyst Dai Zuxiang said the revised regulations would help set up a 'freer and more flexible' regime for insurers.
He predicted further relaxations, including a removal of the ban on direct investments in insurance firms by mainland banks.
The liberalisations follow CIRC chief Wu Dingfu's announcement last week that it would approve one or two insurers to manage occupational pension funds.
