This is a good case study on how NOT to enter a foreign market. Partner with a local company whose core business is unrelated to yours to enter a highly regulated industry and compete against much larger, entrenched, politically-connected, and dominant competitors. And be limited to a minority equity position. This battle was over before it started.
Foreign insurers have to set up JVs with Chinese companies to enter China's life insurance market. More than half of the 26 Sino-foreign insurance JVs involve non-financial Chinese partners. Only AIA, the Asian life insurer once owned by AIG, has its own full license obtained after years of lobbying China's leaders. Examples include:
China's insurance market may be large, growing and hold much future potential, but it is dominated by a handful of Chinese firms: State-owned China Life Insurance, privately owned Ping An Insurance, and China Pacific Insurance.
The 26 Sino-foreign JV collected <5% of the industry's total premiums in 2012. The figure was down from 8% in 2007.
Large potential markets tend to create untenable expectations. A McKinsey consultant stated most of these JVs were hoping to break even in the first 7-8 years, but it took many much longer, and many are still losing money. Understandably, the Chinese partners, particularly non-financial companies, are waking up to the fact a rising tide does not automatically lift all boats, and many are jumping overboard.
What went wrong:
Source: "China Firms Lose Interest In Insurance", Wall Street Journal, February 19, 2013
http://online.wsj.com/article/SB30001424127887323764804578313602576294418.html?mod=ITP_businessandfinance_0
CKB Solutions is all about real solutions for the real world. To learn how we can help your business, contact Greg Kovacic in Hong Kong.
Foreign insurers have to set up JVs with Chinese companies to enter China's life insurance market. More than half of the 26 Sino-foreign insurance JVs involve non-financial Chinese partners. Only AIA, the Asian life insurer once owned by AIG, has its own full license obtained after years of lobbying China's leaders. Examples include:
- Manulife partnered with a unit of Sinochem Group, a state-owned chemicals firm.
- Japan's Meiji Yasuda Life partnered with Haier, known for washing machines and refrigerators. Haier has since sold the bulk of its stake to unlisted Founder Group, controlled by Peking University. Haier now has around 20% . Meiji Yasuda holds 29%.
- Japan's Nippon Life partnered with Chinese consumer-electronics maker SVA. SVA has since sold its entire 50% stake in the JV to Beijing-based Great Wall Asset Management.
- Korean insurer Samsung Life Insurance partnered with Air China, the airline.
- Sino French Life Insurance was formed by China Post Group, China's post-office operator, and French insurer CNP Assurances.
- AXA partnered with banking giant Industrial & Commercial Bank of China (ICBC) and Chinese metals giant Minmetals.
- Sun Life Financial reduced its stake in its partnership with China Everbright Group, the lone case the foreign party realizing the limitations they face in China and their capital is better deployed in other markets.
China's insurance market may be large, growing and hold much future potential, but it is dominated by a handful of Chinese firms: State-owned China Life Insurance, privately owned Ping An Insurance, and China Pacific Insurance.
The 26 Sino-foreign JV collected <5% of the industry's total premiums in 2012. The figure was down from 8% in 2007.
Large potential markets tend to create untenable expectations. A McKinsey consultant stated most of these JVs were hoping to break even in the first 7-8 years, but it took many much longer, and many are still losing money. Understandably, the Chinese partners, particularly non-financial companies, are waking up to the fact a rising tide does not automatically lift all boats, and many are jumping overboard.
What went wrong:
- Failure of Chinese partners with a large customer base to capitalize and cross-sell insurance products, even with the help of foreign insurers
- Insurance JVs face challenges expanding beyond their permitted geographies under their licenses allow. There are complex regulatory requirements each time. Smaller firms also need constant capital injections from their owners to maintain strict government capital requirements.
Source: "China Firms Lose Interest In Insurance", Wall Street Journal, February 19, 2013
http://online.wsj.com/article/SB30001424127887323764804578313602576294418.html?mod=ITP_businessandfinance_0
CKB Solutions is all about real solutions for the real world. To learn how we can help your business, contact Greg Kovacic in Hong Kong.
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