China Relaxes M&A Rules for Insurance Sector

China’s insurance regulator, the China Insurance Regulatory Commission (CIRC) is to relax the rules applying to mergers and acquisitions (M&A) between insurance companies, starting 1 June. The decision could pave the way for global insurance firms to expand their footprint in a US$288bn market.

According to a statement on CIRC’s website and dated 11 April, Beijing will permit insurers, including Chinese-based units of foreign insurance firms, to buy stakes in more than one peer that competes in the same market segment. Before now, insurers were prohibited from buying stakes in more than one peer that competes in the same products.

The announcement marks the latest step in the gradual liberalisation of China’s vast insurance industry over recent years, by abolishing or relaxing restrictions that made it difficult for foreign insurers to achieve scale and exploit advantages in underwriting techniques.

“The new rules allow foreign insurers to acquire domestic Chinese insurers with a nationwide licence, a highly attractive way of achieving target distribution scale,” said Maurice Williams, managing director for Asia Pacific, the Middle East, Turkey and Africa at broker Willis Re. “There is no doubt this transforms the investment potential for foreign insurers in China.”

The new rules also permit stronger domestic and foreign insurers to invest in weaker peers. “Some insurance players are not in such great shape, and this allows them to be taken under a warm and cuddly arm and nursed back to health by another insurer,” said Keith Pogson, managing partner in financial services Asia Pacific at Ernst & Young.

They should also help boost the small presence of foreign insurers, which have struggled to gain a foothold in China. Stringent regulations and restrictions have caused overseas insurance firms’ market share to decline to 4.3% in 2012 from 8.9% in 2005, CIRC data showed.

Europe’s Axa and Allianz , and Canada’s Manulife Financial Corp are among the global insurers operating in the world’s second-biggest economy via domestic joint ventures.

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