China Life Insurance Co, the country's biggest life insurer, plans to expand into the more rapidly growing non-life insurance sector by forming a joint venture with its parent firm China Life Insurance (Group) Co.
The registered capital of the joint venture will be one billion yuan (US$ 123 million), with Hong Kong-listed China Life contributing 400 million yuan (US$49.4 million) for a 40 percent stake and China Life Insurance (Group) taking the remainder.
In a statement to the Hong Kong Stock Exchange on Tuesday, China Life said it had not yet decided whether to set up a property and casualty company from scratch or buy an existing provider.
Under the terms of its life insurance licence, China Life can invest in a property and casualty company but it is not allowed to operate one.
The group has already been in talks to buy a majority stake in Shanghai-based property insurer Dazhong Insurance Co.
However, as German insurance group Allianz and American investment bank Goldman Sachs were also keen to invest in the company, China Life faces more uncertainty.
"Price is the key point," said Dong Chen, an analyst with China Securities. "China Life and Dazhong are now putting most of their negotiation efforts on the price terms."
Oriental Daily, a Hong Kong-based newspaper, reported that China Life withdrew from the battle due to the higher-than-expected price offered by Dazhong, which had a flat performance last year.
The shareholders of Dazhong Insurance are mostly State-owned companies such as Shanghai Chengtou Corp and Shanghai Dazhong Public Utilities (Group) Co.
As the life insurance sector faces an increasingly fierce competition due to more foreign and domestic players, China Life is striving to diversify its business by branching into pension and the non-life business.
In an interview with China Daily last year, Yang Chao, a 55-year-old insurance veteran who was appointed president in early June, said China Life will not miss any opportunities to strengthen its business.
"But we will stay out of health insurance and reinsurance."
Hao Yanshu, head of the insurance department at the Central University of Finance and Economics in Beijing said non-life insurance "is still the smaller part of the business, though its growth rate is higher."
According to China Insurance Regulatory Commission (CIRC), property and casualty insurance is the fastest growing segment of the industry. And liability insurance will be the new growth point for this sector, said Wu Dingfu, chairman of the regulatory authority.
As mainland wealth grows and more people acquire homes and cars, demand for such coverage is expected to boom.
Life insurance revenue last year was nearly 370 billion yuan (US$45.7 million), more than three times that of non-life insurance, according to figures of CIRC.
But the annual growth rate of life insurance was only half that the of non-life segment.
The country's insurance business boasted assets of 1.5 trillion yuan (US$190 billion) at the end of 2005 and its revenue jumped by 27 percent last year.
The stock of China Life closed at 8.85 yuan (US$1.1) yesterday on the Hong Kong bourse, up 2.31 percent on the previous day.
(China Daily March 16, 2006)