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Global insurers' exit suggests China losing appeal – Moody's
November 30, 2011, Wednesday
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THE recent exit of some foreign insurers from China suggested that China's growth story was losing some of its appeal despite the country's rising economy, Moody's said today in a report.
"As a whole, foreign firms have made little headway in the Chinese insurance market and to this day still suffer from low market shares and low profitability, despite significant growth opportunities," says Sally Yim, a Moody's senior credit officer.
Foreign players including AXA, New York Life and Sun Life have cut or sold their stakes in Chinese joint ventures since last year.
Foreign insurers are allowed to set up wholly owned subsidiaries in the non-life insurance sector in China. For life insurance, overseas players are allowed to take a stake of up to 50 percent in joint ventures.
"One key question raised by these recent withdrawals is whether they mark the beginning of a broader retreat by foreign insurers," Yim said.
As of September 2011, foreign life insurers commanded an inappreciable market share of 3.7 percent, while property and casualty insurers had an even lower 1.1 percent.
Moreover, among the 46 foreign insurers operating in China in 2010, only 11 made a profit, which contributed negligibly to their global profits, the report said.
Foreign insurers' weak performance defied strong overall market growth, Moody's said.
As China's operating environment has become more competitive in recent years, foreign insurers are faced with challenges including high and rising operating costs, a lack of brand recognition, and difficulties in gaining access to distribution channels.
"All these put foreign insurers at a competitive disadvantage to domestic players, and also inhibit their ability to deploy their sophisticated expertise in a developing market with mainly plain vanilla insurance products," said Yim.
But China continues to offer significant growth opportunities – with a growing middle-income group and urbanizing population – and therefore, any successful market penetration by a foreign insurer could have long-lasting positive credit implications.
"As a whole, foreign firms have made little headway in the Chinese insurance market and to this day still suffer from low market shares and low profitability, despite significant growth opportunities," says Sally Yim, a Moody's senior credit officer.
Foreign players including AXA, New York Life and Sun Life have cut or sold their stakes in Chinese joint ventures since last year.
Foreign insurers are allowed to set up wholly owned subsidiaries in the non-life insurance sector in China. For life insurance, overseas players are allowed to take a stake of up to 50 percent in joint ventures.
"One key question raised by these recent withdrawals is whether they mark the beginning of a broader retreat by foreign insurers," Yim said.
As of September 2011, foreign life insurers commanded an inappreciable market share of 3.7 percent, while property and casualty insurers had an even lower 1.1 percent.
Moreover, among the 46 foreign insurers operating in China in 2010, only 11 made a profit, which contributed negligibly to their global profits, the report said.
Foreign insurers' weak performance defied strong overall market growth, Moody's said.
As China's operating environment has become more competitive in recent years, foreign insurers are faced with challenges including high and rising operating costs, a lack of brand recognition, and difficulties in gaining access to distribution channels.
"All these put foreign insurers at a competitive disadvantage to domestic players, and also inhibit their ability to deploy their sophisticated expertise in a developing market with mainly plain vanilla insurance products," said Yim.
But China continues to offer significant growth opportunities – with a growing middle-income group and urbanizing population – and therefore, any successful market penetration by a foreign insurer could have long-lasting positive credit implications.
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