Following a 2017 decision to open China's financial sector to foreign firms, the People's Bank of China recently announced further measures to open up the insurance sector. These include lifting the foreign ownership limit on life insurers in 2020 and removing a previous restriction that allowed only foreign insurers with operating histories of over 30 years to enter the market.
Foreign financial institutions will also be allowed to set up or invest in pension fund management companies and hold more than 25% in insurance asset management firms. At the same time, foreign life insurers operating in China will be given greater management autonomy and more flexibility in their expansion plans.
According to a commentary from Moody's Investors Service (financial institutions group) VP-senior analyst Frank Yuen and associate managing director Sally Yim, these rules are credit positive for China’s insurance industry because they will raise foreign participation in the industry and quicken its development.
The new rules come as the industry tries to reduce its reliance on short-term savings-type policies and develop its protection-oriented products under stringent product control and regulatory desire for higher protection coverage.
Mr Yuen and Ms Yim also said that with China facing an ageing population, foreign insurers experienced in carrying out distribution and asset-liability management in demographically ageing and developed economies will help the local insurance industry develop retirement solutions.
As the retirement and pension businesses are underdeveloped segments of the local industry, this will facilitate the industry’s development of its own risk-management framework and talent pool for managing longevity risks.
However, there are concerns that increased foreign participation will drive more market competition but the impact on domestic insurers will be more than offset by the potential benefits it brings to the industry’s diversity and product scope. Moody's Investors Service also said that the current regulatory focus on product design and interest-rate risk will limit the risk of foreign insurers starting a destabilising price war.