China Remains Tough Market For Foreign Insurers - PwC Survey

SHANGHAI -(Dow Jones)- China remains a tough market for foreign insurers to operate in due to its highly regulated environment and the increasing dominance of domestic firms, but they are set to stay in the country despite these difficulties, according to a PricewaterhouseCoopers survey published Thursday.

All of the life insurance companies in the survey of 31 foreign insurers expect their share of the Chinese market to remain around 5% in the next three years, while the property

and casualty insurers say their market share will stay around 1%, PwC said.

"Foreign insurance companies operating in China have tried in vain to gain traction and increase their market share. Established domestic insurers and the aggressive geographic expansion of the smaller insurers are giving the foreign players a run for their money," said Tom Ling, insurance industry leader at PwC China.

"Because of the stiff competition, some foreign partners are considering diluting their shareholdings, and looking toward domesticating their operations, " he said.

In the first half of this year, the 46 foreign insurers operating in China collected CNY32.58 billion ($4.9 billion) in insurance premiums, accounting for 4% of the country's total premiums, data from China's insurance regulator showed. The figure represents a decline from a market share of 6% in 2007 and 9% in 2005.

Last month, France's AXA SA became the latest foreign insurer to scale back its business in China after it said it would sell part of its stake in a joint venture with China Minmetals Corp. to Industrial & Commercial Bank of China Ltd. In July, China's insurance regulator approved a plan by Canadian insurer Sun Life Financial Inc. to effectively make its joint venture with China Everbright Group Ltd. a Chinese insurer.

Foreign insurers are concerned about the bancassurance business as more Chinese banks with extensive networks enter the insurance sector, according to the survey.

Major state-run lenders such as ICBC and China Construction Bank Corp. have started to set up insurance units as China's population ages and consumption grows, and they have been encouraged by Beijing, which wants to transform its banks and insurers into financial conglomerates.

But foreign insurers still believe there are opportunities in the Chinese market, PwC said.

"The foreign insurance companies see China as an underinsured market with huge upside potential. In fact, companies are on a hiring spree again as staff turnover is expected to return to pre-crisis levels," Ling said.

According to the survey, foreign insurers expect demand for insurance products and premium income to continue to grow in the next three years.

China's insurance premiums in the first half of 2010 rose 34% from a year earlier to CNY800 billion, according to data from the China Insurance Regulatory Commission.

-Rose Yu contributed to this article, Dow Jones Newswires; 8621 6120-1200;

No wonder they are staying despite the difficulties they face in regulation, 5% of a potential 1.2 billion consumers is not to be sniffed at that’s for sure. But as China and her companies grow in confidence over the next decade it is going to be very hard for these companies to fend off the domestic insurers, and who says there not going to expand into these insurers home territories’? The rise of China continues apace.