European Insurers See Massive Long-Term Potential in China

In this iPMI Global regional country guides article, iPMI report author and market analyst Ian Youngman, takes a look at news, that German insurance group ERGO, part of Munich Re, says that its new insurance broking joint venture is part of the group's efforts to enlarge its presence in China.

Overview

• If you listen to or read certain media outlets, you will get the impression that the Chinese economy is in crisis.
• 5% growth in GDP is something some Western European politicians would die for- so insurers are looking beyond the headlines to prepare for health insurance growth.
• Tensions between China and the USA mean some American businesses are holding plans back, but European companies are more than happy to get into China for what can be long-term potential in China.
• Getting into China also offers opportunities in Hong Kong, and African countries where China has economic and political influence.
• Getting into China is not a quick process, and it can take years to get trusted after setting up a local office.
• It can take up to five years to get from office to a fully running health insurer and broker.
• Some companies try to go it alone, but most agree that working in partnership with a local group is the safest way as they know how to navigate the complex legal and political  national and local waters.
• Global financial institutions are expanding their footprint in the Chinese domestic market to leverage its significant growth opportunities.
• There are millions of Chinese expats living and working globally.
• There are increasing numbers of expats working in China.
• In 2022, 477,000 residence permits were issued to foreigners going to China for various purposes such as work, family reunions, private affairs, and study.
• The figure for 2023 is expected to be much higher. 
• Munich Re’s ERGO has been in Chine in various guises for a while and is now launching an insurance broker.
• Fosun International is considering either selling or getting extra capital for its health insurer.
• Fidelity International, a global asset manager, increased the registered capital of its wholly owned mutual fund subsidiary in China by $30 million to $160 million, the fourth capital injection since the subsidiary's inception in 2021.
• BlackRock and Neuberger Berman also ramped up the registered capital of their mutual fund subsidiaries in China last year.
• China's vast domestic market remains an investment destination that foreign enterprises can't afford to overlook.

ERGO

• German insurance group ERGO, part of MunichRe says that its new insurance broking joint venture is part of the group's efforts to enlarge its presence in China.
• The joint venture, ERGO FESCO Insurance Brokerage, completes ERGO China's health insurance system in China by adding sales to the existing offerings that span insurance and services.
• ERGO FESCO Insurance Brokerage Co received regulatory approval to carry out insurance brokerage business in November 2023.
• Based in Beijing, ERGO FESCO was established by ERGO and the Beijing Foreign Enterprise Human Resources Service (FESCO), a state-owned human resources service provider.
• ERGO and its subsidiary hold 66% of the venture's shares, while FESCO holds the rest.
• ERGO FESCO provides health insurance solutions that integrate the functions of insurance brokerage, health insurance third-party administrator and health management.
• This integrated insurance solution caters to the increasingly different demand of Chinese consumers, a trend that has provided opportunities for launching innovative insurance services.
• Chinese consumers not only want simple insurance cover but related services such as handling of their claims.
• In August 2023, ERGO was approved to become the majority shareholder of ERGO China Life Insurance, its life insurance JV in China. ERGO raised its stake from 50% to 65%.
• ERGO says that China is growing very strongly in GDP and even stronger on insurance.
• ERGO FESCO has completed contracts with a range of enterprises — through which it reaches individual customers — spanning IT, finance and consulting to manufacturing and retail.
• The integrated insurance solution was developed to cater to the increasingly differentiated demand of Chinese consumers, a trend that has provided opportunities for launching innovative insurance services.
• In August 2023, ERGO was approved to become the majority shareholder of ERGO China Life Insurance Co Ltd, its life insurance JV in China, increasing its stake from 50 to 65 percent, as the country further opened up its insurance sector.
• China's institutional financial opening-up, which stresses aligning domestic rules and standards with international ones, is very important for ERGO, as having the same regulatory principles will help domestic regulators and foreign financial institutions talk the same language.
• FESCO is aiming to build a robust service capacity in its first year of operation, intending to acquire clients through the combined networks of FESCO and ERGO.

Foreign investment in China

• According to the World Investment Report 2023 published by UNCTAD, FDI inflows into China increased by 4.5% year-on-year in 2022, totalling USD 189.1 billion making the country the second-largest host country in the world.
• The increase came mostly from European companies as politics lead American ones to hesitate.
• A substantial number of foreign multinationals operate in China: GM, KFC, Cummins, Starbucks, Apple, Intel, Dell Computer, Texas Instruments, Walmart, Nike, Gucci, Abercrombie & Fitch, Toyota and Samsung.
• China is the largest internal market in the world, with 1.44 billion potential customers.
• Labour costs remain comparatively low, although the situation is changing in certain areas.
• New opportunities arise with the development of the western provinces (particularly Sichuan province)
• There us an ever-changing legal environment.
• Bureaucratic and administrative complexities persist.
• There is an ageing population.
• There are cultural differences in business practices that may be difficult for foreigners to learn and apply in new business situations.
• The Chinese government encourages investment in insurance as it is seen as a high potential sector.
• The acquisition of a majority interest in a local company is authorised in China.
• M&A activities are subject to different regulations depending on whether the company is a public, a non-listed public company or foreign.
• Foreign investors enjoy corporate tax reductions, exemptions of tax on dividends repatriated during a certain period and other tax advantages.
• Foreign direct investment incentives include packages of reduced income taxes, resource and land use fees, and import/export duties, as well as priority treatment in obtaining basic infrastructure services, streamlined Government approvals, and funding support for start-ups.

About the Author

Ian Youngman is an independent writer and researcher specialising in insurance. He writes regularly for a variety of magazines, newsletters, and on-line services. He publishes a range of market reports, and undertakes research for companies. To read his latest report, International Health Insurance 2023, please click here, or visit the REPORTS section of iPMI Global.