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Citigroup plans to start Life Insurance venture in China

Citigroup Inc, the world's biggest financial services company, will start offering life insurance products in China next year after gaining regulatory approval to start a venture with the Shanghai municipal government.

Citigroup will own 50 percent of the venture with Shanghai Alliance Investment Ltd, whose chairman is the elder son of former President Jiang Zemin (江澤民). The company received approval from the China Insurance Regulatory Commission today, the New York-based bank said in a statement.

Chinese citizens are turning to insurers to foot medical and other bills as the world's most populous nation dismantles its state welfare system. Citigroup, American International Group Inc and Allianz AG are among insurers trying to tap a market where 2.2 percent of the population had life insurance in 2002 and US$1.4 trillion in household savings are in deposit accounts.

"What's exciting about China is the emergence of the middle class," said Chakara Sisowath, who helps manage US$2 billion at Comgest (Far East) Ltd in Asia. "There's one thing that is missing in China and that is the choices for savings. For now, 90 percent of savings are in bank deposits."

Overseas insurers increased premium income by 56 percent in the first four months of this year from a year ago, according to government figures. They still only had a 2 percent share of the industry's total premium income of 155.4 billion yuan (US$18.8 billion).

Nearly three decades after American International, the world's biggest insurer, first linked up with a Chinese domestic insurer in 1975, Ping An Insurance Co (平安保險), China's second-largest life insurer, controlled 36 percent of Shanghai's life insurance market in 2002, compared with 29 percent by China Life Insurance Co (中國人壽), the nation's biggest insurer.

The US-based insurer's subsidiary, American International Assurance Co is China's largest foreign insurer with about 7.4 percent of the business in Shanghai in 2002.

"The smaller players are the ones that are going to suffer first from foreign competition," said Sisowath.

"And than maybe 10 or 15 years later, the foreigners will be able to start threatening the more established players," Sisowath said.

China plans to open its insurance market further to overseas companies to meet pledges made on joining the WTO. For now, China doesn't allow foreign insurance companies to own more than 50 percent of local life insurers.

Citigroup, owns 4.6 percent of Shanghai Pudong Development Bank (上海浦東發展銀行) and has five of its own bank branches in the mainland.

In February, Citigroup and Pudong started offering credit cards in Shanghai.

"Citigroup's expansion into life insurance in China is part of its broader effort since 2000 to develop a strong insurance and underwriting and distribution presence in Asia, Europe and Latin America," said Michael Froman, chief executive of CitiInsurance, Citigroup's international insurance business.

China Life, Ping An and other domestic and foreign insurers in China collected 8 percent more in premiums in the first four months than in the same period a year earlier, China's insurance regulator said.
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