China plans to make it easier for foreign life insurers to buy domestic firms: sources

By Sumeet Chatterjee

HONG KONG (Reuters) - China plans to make it easier for foreign life insurers to make controlling acquisitions and large equity investments in domestic peers, five people with knowledge of the matter said, as the country pushes ahead in opening up its financial sector.

The plan being drafted by the sector regulator is also part of Beijing's efforts to bolster the capital levels of small and mid-sized local players, sources said, amid concerns about the impact of the new coronavirus pandemic on their financial foundations.

The new rules for the world's third-largest insurance market after the United States and Japan - worth about $318 billion in premiums according to a Swiss Re Institute report - are likely to be finalised in the second half of the year, sources said.

They will pave the way for foreign insurers to acquire a controlling or significant minority stake in a local peer, and run that business separately from existing joint ventures or wholly owned operations, they added.

"The move is aimed at giving the provincial insurance firms access to capital and an opportunity to leverage the best practices of a foreign insurance company," said a Beijing-based lawyer, who works with the China Banking and Insurance Regulatory Authority (CBIRC).

Existing regulations allow overseas life insurers, with operations in China, to own up to 15% stake in a local rival. Under the new rules being considered, the CBIRC will allow a foreign life insurer to own more than one main business license, the people with knowledge of the matter said.

"There is great M&A potential in the Chinese insurance sector," the Beijing-based lawyer said. Sources interviewed by Reuters for this story declined to be identified as they were not authorised to speak to the media.

The CBIRC did not respond to request for comment.

Opaque guidelines for acquisitions and a lack of majority control, with foreign ownership capped at 50% until recently, have long frustrated global insurers looking to expand market share in China, where individual wealth is on the rise and comparatively few people have life insurance cover.

Britain's Prudential (L:PRU) and Canada's Sun Life Financial (TO:SLF) and Aviva (L:AV) have been in China for decades, but their collective market share remains below 10% as a result of ownership curbs and limited geographical presence.

But China has been gradually easing access to its financial sector for foreigners in the last couple of years. As part of that push it already allowed overseas firms to take full control of their local joint ventures from Jan. 1 this year.

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The regulator also plans to dismantle the "international division" within its set-up over the next year, which deals with the licensing issues of foreign insurers, with an aim to create "a level-playing field" with local peers, two people said.