AXA Grows In China

Having long been a small player in China’s life insurance sector AXA SA has seen its fortunes change with the entrance of a new partner who could help it shake up the top order of China’s insurance sector. In September,  Industrial & Commercial Bank of China Ltd. entered AXA’s China life insurance joint venture as the biggest shareholder, sparking what has been a massive ramp up of premiums collected by the insurer.

AXA Chairman and Chief Executive Henri de Castries says the plan is to transform the joint venture into one of the six top players in the market, a club currently made up exclusively of domestic insurers.

According to data from the China Insurance Regulatory Commission, ICBC-AXA Life Insurance Co. ranked No. 12 among all insurance companies in terms of premiums collected over the first three months of the year, up from No. 38 a year earlier. Its 2.5 billion yuan ($403 million) worth of premiums pales in comparison to the market leader, China Life Insurance Co., which collected 111.9 billion in the first quarter of 2013. But as the biggest foreign life insurer, AXA’s joint venture easily trumped the number two foreign firm, AIA, which had 2.1 billion yuan in premiums.

In the first three months of 2012, AXA’s joint venture collected only 331 million yuan in premiums, according to the regulator, and was ranked No. 12 among foreign firms.

Foreign insurers have expressed optimism about becoming major players in China’s insurance sector before. When AXA first set up its joint venture with Chinese mining firm China Minmetals Corp. in 1999, taking a 51% stake, foreign insurers looked on China as a land of vast, untapped opportunity. The domestic companies were relatively small and weak, and lacked the sophistication and experience of their foreign counterparts. Access to China’s insurance market was billed as one of the major benefits Western economies would reap from China’s accession to the World Trade Organization in 2001, and the final deal accepting China as a member was held up as the U.S. pressed for more concessions on insurance.

But the initial optimism proved overblown. Foreign life insurers – which can only operate in China as joint ventures with local partners – account for less than 5% of premiums collected annually. While China has abided by the letter of its WTO commitments, administrative hurdles have resulted in foreign firms expanding slowly and being relegated to only a minor role in the market even as domestic competitors have grown in size and strength.

In October 2010, AXA and Minmetals agreed to a radical restructuring. ICBC was brought in as the controlling partner, with a 60% stake. AXA’s share was reduced to 27.5%, and Minmetals would hold 12.5%.

The increase in premiums since September is a result of being able to sell insurance products through ICBC’s sprawling network of bricks-and-mortar outlets. At the end of 2011, ICBC had more than 16,000 branches.

Distribution has long proven a frustration not only for foreign firms but also domestic insurers. Companies find it difficult to retain sales agents who regularly change employer in search of higher pay. And the biggest sales channel, bancassurance – whereby banks sell insurance companies products at their branches – is not particularly profitable for the insurers, with the banks’ fees cutting into the insurers profits.