China’s Insurance Market to Benefit From Liberalization

March 31, 2023 — Singapore

Insurance asset management companies (IAMCs), including those with foreign ownership, can offer expertise in investment and research

Global insurance companies have accelerated their penetration and expansion in China following recent liberalization moves. The removal of foreign ownership on IAMCs in September 2022 should pave the way for more of them to offer their expertise and strengthen their partnerships with other financial sector players.

The insurance sector was the earliest in China’s financial industry to open to foreign capital. This accelerated in 2018 when the upper limit on foreign ownership of life insurance companies was relaxed to 51%. Over the past decade, a number of global names have expanded their footprints in China. In regional centers such as Beijing and Shanghai, the marketshare of foreign insurance companies has reached 20% by premiums.1

In China, blue-ocean sectors such as private wealth management, pensions, and health provide fertile grounds for foreign insurers to offer their expertise, given the aging society. Insurance companies generally manage funds from pension products through fund management company (FMC) subsidiaries. However, IAMCs’ advantages in product portfolio creation and long-term duration can help overcome market fluctuations to some extent and help reap investment returns. Cerulli believes that IAMCs’ long-term fund management and diversified investments can help strengthen the private pension system.

Amid the increasing volume of insurance assets outsourced to managers with non-insurance backgrounds, IAMCs have a significant role to play in China’s asset management industry. This is because IAMCs, in particular foreign players, offer more diversified and innovative product lines, and can therefore evaluate emerging investment opportunities to meet clients’ needs. Besides having expertise in absolute-return strategy products, they can rely on professional investment research teams to achieve absolute portfolio return growth by controlling target volatility and improving the stability and sustainability of product returns.

IAMCs can also utilize their capabilities to strengthen their cooperation with other financial institutions. For example, IAMCs’ comprehensive risk management systems can strengthen traditional and non-standard investments. In addition, IAMCs’ strengths in alternative non-standard investments—such as debt and equity—and background in investment banking can provide a basis for partnerships in joint product development with FMCs, securities firms, and private fund managers.

“There is plenty of room for foreign insurance companies to develop in China, despite the challenges they face in localization and in establishing nationwide sales channels. Acquiring shares in joint ventures and establishing wholly foreign-owned enterprises are just some of ways in which they can increase their local footprints,” comments Joanne Peng, research analyst. “IAMCs, including those with foreign ownership, should develop the third-party asset management business by improving their investment research and product innovation, and strengthen their cooperation with the asset management industry,” she concludes.


1 Source: Insurance Association of China

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Note to editors

These findings and more are from The Cerulli Edge—China Edition, 1Q 2023 Issue.

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