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Fubon fishes for China insurer

"China's population is enormous and the insurance penetration rate is low. So the potential is huge."

Fred Juang, manager in the planning department at Fubon Insurance

Fubon Insurance Co (富邦產險), Taiwan's biggest non-life insurer, is seeking a stake in a Chinese insurance company, aiming to hasten its entry to a market whose premium revenue is likely to double to US$35 billion by 2005.

``We are looking at more than one takeover target among Beijing-based insurance companies,'' Fubon Group Vice Chairman Daniel Tsai (蔡明忠) said in an interview. ``Whether we buy control or just a stake depends on regulatory and other issues,'' he said, declining to name potential targets.

Fubon's plan underlines the growing ties between Taiwan and China, political foes that are finding common ground in businesses ranging from computer production to financial services. Buying a stake in a Chinese insurer -- the maximum allowable by a single foreign company is 10 percent -- would let Fubon circumvent Taiwan restrictions that bar its companies from directly offering banking and insurance.

"Taiwan insurers are looking for Chinese partners to form joint ventures because without a local license, they can't do business," said Gary Tsai, who helps manage NT$3.6 billion (US$103 million) of stocks at ING CHB Securities & Investment Trust Ltd (喬治亞彰銀投信).

"They'll use whatever means they can." Like rivals Cathay Life Insurance Co (國泰人壽) and Shin Kong Life Insurance Co (新光人壽), Fubon wants access to China's market of 1.3 billion people as Taiwan economic growth slows to just above 1 percent.

Fubon, 15 percent owned by Citigroup Inc, also wants to expand in Hong Kong, South Korea, Thailand, Singapore and Malaysia. The three insurers already have offices in Beijing.

Many of China's biggest Beijing-based insurers, including The People's Insurance Co of China, Pingan Insurance Co, China Pacific Insurance Co, Taiping Insurance Co and Huatai Insurance Co of China, all based in Beijing, denied they were in talks with Fubon.

Chuck Chen, president of Tianan Insurance Co, a Shanghai-based life- and non-life insurer with a branch in Beijing, declined comment.

"We're in the process of investing in a Chinese insurance company," said Fred Juang, manager of the planning department at Fubon Insurance. "We haven't completely finished. We're still talking with the target." Further complicating the investment relationship between China and Taiwan is the mainland's pending entry to the World Trade Organization, which will clear a path within three years for the entry of more foreign rivals into one of the world's fastest- growing financial services markets.

Once China opens its market, foreign general insurance firms will be able to choose any location and domestic partner they like, though life insurance firms will still have to find a domestic partner and can own no more than a 50 percent stake.

Chinese insurers have sold stakes overseas twice before. They can sell more than a tenth -- a maximum of 25 percent -- to at least three foreign partners.

Chinese premium revenue is likely to reach 278.4 billion yuan (US$$34.6 billion) within four years, according to the China Insurance Regulatory Commission. Officials are "studying the possibility of changing the requirements for Taiwan insurers," said Lee Junan, a commission spokesman. "But it's still too early to disclose any details."

Taiwan is equally concerned that its economy is becoming too dependent on China. Taiwan companies such as Acer Inc (宏電) and Quanta Computer Inc (廣達電腦) have already taken advantage of lower wages to open factories that make computers and other products.

Foreign insurers have already found the Chinese market hard to crack. Though seven European Union insurers, including CGNU Plc and Axa SA, were granted China licenses last year, not one has actually started selling.

At issue: Chinese regulators want progress on the nation's WTO bid before letting them start business. The EU, meantime, cites China's failure to honor its insurance pledges as one of the hurdles to WTO membership.

Ten joint venture life insurance firms and eight wholly owned foreign non-life insurance firms now operate in China.

China is also keen to keep its citizens' 6.3 trillion yuan of savings in the hands of domestic companies. Foreign life insurers can only set up joint venture with domestic companies, while general insurers are able to set up wholly owned subsidiaries.

Chinese authorities treat Tai-wanese companies like any other foreign firm -- they need at least US$5 billion of assets and must have been in operation for 30 years to qualify to establish a representative office.

They also need patience. Insurers must run a representative office for at least two years to qualify for a branch license, which needs to be obtained through a joint venture with a local company.

Then there's another wait before the joint venture can start selling insurance -- hence insurers' eagerness at any special concessions by China.

"We will play the waiting game with the CIRC, no matter how long it takes," said Chen Yaodong, an official in the overseas marketing department of Mingtai Fire & Marine Insurance Co (明台產險), which is awaiting approval to open offices in Shanghai, Beijing, Guangzhou and Xiamen.

At Fubon, however, the clock is already ticking -- and officials can hardly hide their eagerness to get started.

``China's population is enormous and the insurance penetration rate is low,'' Fubon's Juang. ``So the potential is huge.'' Fubon Insurance shares fell 2.9 percent yesterday to NT$27.10, in line with a 2.7 percent decline in Taiwan's benchmark TWSE index.

So far this year, Fubon Insurance is up 36 percent, compared with a 4.9 percent drop in the TAIEX.
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