Foreign Insurers Key to Solving China's Looming Pension Crisis

In November last year, the central government removed the cap on foreign ownership in insurance companies, and gave German insurer Allianz the approval to set up China's first wholly-owned foreign insurance holding company. The approval came faster than the market expected, as the regulator had indicated that it would only remove the cap on foreign company ownership in the country after five years. It formed part of China's broader, accelerated opening-up of the banking and insurance sector.

The move stirred up the global insurance sector, encouraging more foreign insurers to invest in the country and to take on the domestic heavyweights. In a recent statement, the China Banking and Insurance Regulatory Commission, or CBIRC, said it has followed the central government in expanding “opening” policies to foreign banks and insurance companies, and have “approved a number of overseas companies' applications”.

According to government data, 93% of life insurance and 98% of non-life insurance in China is still provided by the dominant domestic insurers; and those foreign players already in the market are not all faring well. While new life insurance business sales in China grew by 28% in the first three quarters of 2018, the 28 foreign life insurance joint venture companies present in China actually reported a decline of 35% year on year in sales.

But it is not just insurance business that these foreign investors are interested in. China's $1.6 trillion pensions business is also a mouthwatering target for foreign insurers. And before declining, China's pension assets are expected to more than quadruple by 2025 after rising 20% to Rmb11 trillion in 2017, according to a 2018 KPMG report.

The government understands that tackling the long term problems of its dwindling state pension fund cannot be done without participation from the private sector. In February this year, Beijing gave approval to the first joint venture firm to establish a pensions insurance business. Heng An Standard Life Insurance is a 50:50 joint venture between the U.K.'s Standard Life Aberdeen and China's Tianjin TEDA International. More foreign players are rumored to be soon joining the party.

A Reuters report earlier this month said foreign insurers including Generali and Prudential Plc. are in early talks with authorities to enter the country's private pensions sector. AIA Group and Manulife are also reportedly considering similar moves.

It will not, however, be a smooth ride for foreign insurance companies as they will up against eight established Chinese pensions insurance firms that currently dominate the lucrative market.