Banks eager to cash in on insurance sector
By Hu Yuanyuan (China Daily)
Updated: 2006-03-01 08:39

The trend of cross-sector operations in the financial business is gaining momentum in China with several banks itching to set up their own insurance companies.

Insiders said Bank of Communications (BoCom), the fifth-largest lender in the country, has received the green light from the State Council to be a pilot universal bank, which means it can run other financial businesses such as in insurance.

"We do commit to setting up the first insurance company initiated by a bank," Zhang Jianguo, president of BoCom, said when attending a conference last week. "But it is very hard to say when the company can be open for business."

BoCom has had a wholly owned property and casualty insurer in Hong Kong called China Communications Insurance Co Ltd (CCIC). The insurer started business in 2000 and had a registered capital of HK$100 million (US$12.8 million).

Experts estimate the insurance company that BoCom is planning now is probably a life insurer.

"Our initiated shareholders may also have some changes," Zhang added.

Air China, China State Construction Engineering Co and China Shipping were reported to be the initiated shareholders.

Due to the huge market potential of the insurance sector, other big banks, such as Bank of China (BOC), China Construction Bank (CCB) and the Industrial and Commercial Bank of China (ICBC), are also eager to cash in on this rapidly growing sector.

"We haven't received any formal application from banks to start their own insurance companies yet," Yuan Li, the spokesman of the China Insurance Regulatory Commission (CIRC), told China Daily. But he agreed that cross-sector operations help to improve efficiency.

"Banks can take advantage of their marketing network and customer base once they start their own insurance business," Yuan said.

According to the Chinese law, cross-sector operations among banking, insurance and securities are not allowed for the time being. The co-operation between banks and insurers is limited to selling products through their marketing channels.

But domestic financial institutions may reasonably evade the rule in two ways: Insurance groups can acquire a stake of a bank, while banks can initiate their own insurance companies.

According to the Hong Kong Economic Journal, CCB also plans to jump into the insurance sector bandwagon. CCB reportedly plans to invest in China Life Insurance Co, the Hong Kong-based, Chinese-language newspaper said, without identifying its sources of information.

The investment will help China Life to distribute its products through the vast branch network of CCB and allow the lender to get into the insurance business, according to the paper.

China Life, the nation's biggest insurer, is the only listed Chinese insurer in Hong Kong that doesn't have a strategic investor. Ping An Insurance (Group) Co is 19.9 per cent held by HSBC Holdings Plc, and PICC Property & Casualty Co is 9.9 per cent owned by American International Group Inc.

Meanwhile, China's insurance industry has maintained an average of 30 per cent growth in the past two decades, and the market is still growing.

(China Daily 03/01/2006 page9)