China’s IAMCs can benefit from liberalisation: Cerulli

IAMCs, regardless of foreign ownership, have the ability to provide expertise in investment and research.

Recent liberalization measures have prompted global insurance companies to expand their presence in China, according to a report by market research and business consulting company Cerulli Associates.

The removal of foreign ownership restrictions on insurance asset management companies (IAMCs) in September 2022 is expected to encourage more firms to offer their expertise and establish stronger partnerships with other players in the financial sector.

The insurance sector was the first in China's financial industry to allow foreign capital. 

The relaxation of the upper limit on foreign ownership of life insurance companies to 51% in 2018 further accelerated this trend. 

“There is plenty of room for foreign insurance companies to develop in China, despite the challenges they face in localization and in establishing nationwide sales channels. Acquiring shares in joint ventures and establishing wholly foreign-owned enterprises are just some of ways in which they can increase their local footprints,” Joanne Peng, research analyst of Cerulli said.

ALSO READ: Asia’s insurance industry has the weakest growth—here’s why

Over the past decade, several global players have expanded their reach in China. In regional hubs like Beijing and Shanghai, the market share of overseas insurance companies by premiums has reached 20%, according to the Insurance Association of China.

Given China’s large senior demographic, private wealth management, pensions, and health sectors are grounds for insurers to offer their expertise.

 “IAMCs, including those with foreign ownership, should develop the third-party asset management business by improving their investment research and product innovation, and strengthen their cooperation with the asset management industry.” Peng said.

Fund management company (FMC) subsidiaries are usually used by insurance firms to manage funds from pension products. 

However, IAMCs have advantages in developing product portfolios with long-term durations that can alleviate market fluctuations and generate investment returns. According to Cerulli, the long-term fund management and diversified investments offered by IAMCs could help enhance the private pension system.

Cerulli also emphasised that IAMCs have an important part in China’s asset management industry. Due to foreign IAMCs' variety of offerings, they can navigate more through a client’s needs. Further, foreign IAMCs can expand connections with other financial institutions within capacity.

Reinforcing traditional and non-standard investments can be done through IAMCs’ comprehensive risk management systems. Strengths – such as debt and equity – and foreground on investment banking allows the possibility of collaborations in joint ventures with FMCs, securities firms and private fund managers.