China's insurer to attract overseas investors

China United Property Insurance Co Ltd, a non-life insurer specializing in agriculture, plans to bring in international strategic investors to boost its competitiveness, the company's chairman said on Thursday.

"We are in contact with several foreign insurers on this matter," said company chairman Li Yingchun.

Li declined to elaborate.

The company has just received a 7.81 billion yuan ($1.24 billion) capital injection from China Orient Asset Management Corp, boosting its capital base to 15.31 billion yuan. In terms of capital base, the company is the country's second-largest non-life insurer, after People's Insurance Company of China, known as PICC.

After the deal, China Orient became the insurer's controlling shareholder, with a 51.01 percent stake. China Insurance Security Fund Co Ltd, or CISF, the second-largest shareholder, has a 44.82 percent stake.

"Bringing in China Orient helped us to increase our solvency-adequacy ratio to above 150 percent, but we're still on the lookout for more experience in products design, especially in catastrophe insurance, an area where foreign insurers have advantages," said Li.

The insurer has been seeking strategic investors since 2006. AXA Group, Groupama and Royal & Sun Alliance Insurance participated in the last round of bidding, with AXA claiming victory.

However, the reorganization was not implemented due to the global financial crisis.

Improving operations

The insurer's operations have been improving. From January to October, premium income reached 20.83 billion yuan, up 18.16 percent year-on-year.

By the end of the year, premium income is expected to reach between 24.3 and 24.5 billion yuan, Li said.

"Our profits may be 2.6 to 2.7 billion yuan this year, with a higher growth rate than the industry average," Li added.

But he admitted that the domestic economic slowdown has made the business environment more challenging for non-life insurers.

Chinese non-life insurers could see their operating margins constrained by capital markets volatility and higher acquisition expenses, Fitch Ratings said in a report on Thursday.

However, the declines in operating margins are unlikely to be substantial, due to sound claims experience and active regulatory supervision, which is reflected in the stable outlook for the sector, the report said.

"Escalating acquisition costs coupled with the regulator's proposal to partially liberalize commercial motor premium pricing could further weaken the sector's underwriting margins in the coming year," said Terrence Wong, the director of Fitch's insurance team.

The outlook could be affected by a sharp deterioration in operating performances due to higher underwriting deficits from the compulsory third-party liability motor insurance market, by motor pricing deregulation or by natural disasters.

Premium growth in the Chinese non-life sector remained strong during the third quarter, expanding about 15.1 percent year-on-year, despite slower economic performance.

The sustainability of double-digit growth depends on motor vehicles sales as motor insurance accounts for more than 70 percent of the overall non-life business.

Demand for non-motor insurance products, however, could be stronger than for motor insurance products in the next one to two years due to low insurance penetration, the report said.