Decision by Chinese regulator raises limit for overseas investment

The UK insurance industry could see billions of pounds of investment from Chinese insurance companies following their government’s decision to relax foreign investment rules.

The decision last week by the China Insurance Regulatory Commission (CIRC) will raise the limit for overseas investment by Chinese insurance companies from five to 15% of their assets. This lowers the geographical barrier that has held the burgeoning market back and potentially free up around £24bn.

Experts said the move would see Chinese insurers investing in rather than acquiring UK insurance businesses.

Richard Baddon, insurance partner at Deloitte, said: “It will take a while before Chinese insurance companies become acquisitive. They don’t have the industry experience to allow them to say ‘we want to buy into this particular market’. It is more about trying to understand how their own market works first.”

The flow of business into China has surged in recent years as foreign investors take advantage of an emerging economy. But the flow of business out of the country has been stifled by regulatory constraints. The commission’s decision is likely to impact the direction of flowing capital.

A survey of financial service M&A activity in Asia carrier out by PricewaterhouseCoopers (PwC) revealed that a main goal for companies was entering geographical markets, with 68% admiting they are looking for strategic investment and 58% expressing interest in joint ventures and partnerships with overseas firms .

Only regulation and regulatory attitude is holding them back from restructuring and M&A?activity.

Charles Garnsworthy, partner at PwC’s insurance practice, said: “The Chinese market has huge potential that is growing rapidly, and Chinese companies have learned from more mature markets, which have helped with product knowledge and pricing.”

The commission’s decision signals the way in which China’s economy is maturing and import and export of capital is progressing.

At a stage where Chinese companies are evolving, growing and innovating, he predicts they will now stretch their reach either through acquisition or joint ventures with foreign companies.

Chinese insurers have combined assets of £161bn, with the total growing at a rate of 25% to 30% a year.

Meanwhile, Royal & SunAlliance has been granted approval from the CIRC to establish a subsidiary to transact non-life insurance in China. This will enable R&SA to build capability, develop a nationwide network.