China yesterday approved a joint venture between Cathay Life Insurance Co (國泰人壽) and China Eastern Air Holding Co (中國東航) to set up an insurance unit in Shanghai, a Cathay Life official said.
"After obtaining the license, we plan to begin the joint-venture's operation by the end of the year," Lee Chang-ken (
Cathay Financial is the nation's largest financial services company in terms of assets, with Cathay Life its largest cash producer.
China Eastern is the third-largest airline in China and operates 500 routes. The carrier has NT$189.2 billion (47.3 billion yuan) in assets and 25,000 employees in 10 business units and 18 financial holding subsidiaries, which extend into nine sectors including the financial and food industries.
According to Lee, the yet-to-be-established insurance unit in China will be a 50-50 joint venture between Cathay Life and China Eastern, with a registered capital of 800 million yuan.
Lee expects Cathay Financial's re-investment business in China to break even "within three to four years."
Under a preliminary agreement signed between the two sides, a six-member board will be established to approve future appointments by the new insurer's chairman, who will be nominated by China Eastern, and the president, who will be nominated by Cathay Life. Each company will have three board seats.
Cathay Financial was upbeat about its life insurance business in China, saying that the market across the Taiwan Strait was witnessing fast growth driven largely by the lack of a social safety net in the country. It said the market has begun to see double-digit growth in the past few years.
While China's insurance market has been expanding fast, the country's insurance sector is still underdeveloped, with a 2.67 percent penetration rate, Lee said. Taiwan has a 10.3 percent penetration rate, which made it over-crowded, Lee said.
Also, average spending in China on insurance is only around US$28.8 per person, while in Taiwan it is US$1,423, which leaves little room for growth, he added.
The planned venture will target China-based Taiwanese as its potential clientele, since Shanghai has more Taiwanese businesspeople than any other Chinese city.
However, Cathay Life Insurance plans to branch into other Chinese cities in the near future by applying for a national license. Its initial license restricts its operations to Shanghai.
Under WTO agreements, China agreed to lift all geographic restrictions on foreign companies and eliminate any joint-venture requirements within five years of accession.
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