Regulators’ commitment to developing and liberalizing China’s insurance industry bodes well for prospects in the long run, by diversifying investment avenues and encouraging global players to increase their engagement with the local industry.

China's insurers saw robust growth in 2019, with premiums up 12.1% to RMB3.9 trillion (US$545.3 billion), compared to growth of 6.6% in 2018. Due to the impact of COVID-19, year-to-April life premium income fell by 6.8%, compared to the same period in 2019. However, this could be a blip, given that China is seen to have the highest growth potential for non-affiliated life insurance opportunities among Asia ex-Japan markets over the next three years, according to 100% of fund managers surveyed by Cerulli last year. This is hardly surprising, given its huge market size and relatively low life insurance penetration compared to developed North Asian markets.

A series of liberalization measures since last year, such as the full removal of the foreign ownership cap and raising of limits on foreign shareholdings in insurance asset management companies (IAMCs), should further boost the industry’s potential. In April 2020, China reportedly announced plans to further pave the way for foreign life insurers to set up onshore operations. Under these plans, the China Banking and Insurance Regulatory Commission (CBRIC) could allow foreign insurers to hold more than one main business license, acquire a controlling or significant minority stake (compared to the existing 15%) in a local counterpart, and run that business separately from existing joint ventures (JVs) or wholly owned operations.

Cerulli understands that such initiatives could boost the capital levels of small and mid-sized local players through potential acquisitions to relieve their financial stress, besides accelerating foreign players’ expansion. In addition, large insurance groups could achieve better synergies. For example, German insurer Allianz became the first global player to set up a wholly foreign-owned insurance holding company, Allianz (China) Insurance Holding Co, in January 2020. It is currently in discussions with local regulators to qualify as an insurance asset manager to ramp up its onshore business.

Another significant development was the guidelines on insurance asset management products. The measures, which were released in March 2020 and came into effect on May 1 this year, specify that the investment scope for such products is consistent with that of wealth management products and privately offered asset management plans. The measures also simplify the administrative procedures for issuing these products, and expand their distribution channels. Cerulli understands that the new measures will offer insurers more investment choices by opening up new paths for them to invest in large infrastructure projects. They can also achieve better duration matching with such long-term investment vehicles.

“With supportive measures in place, Cerulli expects sound long-term growth prospects for China’s insurance industry, despite the impact of the coronavirus outbreak in early 2020,” said Ye Kangting, research analyst with Cerulli Associates. “Foreign insurers also stand to benefit from reforms to open up the sector. To perform well, they will need to achieve a balance between localization and retaining their global brands to succeed.”