Although pricing and terms of the AIG purchase were not revealed yesterday, fund managers were positive on the development.
'Foreign strategic investment will increase the lure of PICC's share offering by introducing foreign expertise,' First State Investments director Martin Lau said. 'For many mainland listing candidates, foreign strategic investors play a key role in their reform.'
AIG is the latest foreign company to take an equity stake in a mainland insurer.
Last year, HSBC bought 10 per cent of Ping An Insurance. In 1997, Morgan Stanley and Goldman Sachs were given special permission to buy a stake in the insurer and they now hold a combined 15 per cent.
As part of the deal announced yesterday, PICC has agreed to reinsure certain accident and supplemental health (A&H) insurance risks with AIG - a move which will give the United States company access to the mainland market ahead of other foreign players.
Foreign insurers will be given a crack at the mainland A&H market at the end of this year, according to a phased opening plan that is dictated by China's World Trade Organisation commitments.
PICC is a new entrant to the A&H sector. As a non-life insurer it had previously been restricted by mainland rules from entering the segment. The strategic alliance with AIG, the world's biggest A&H provider, helps the state-owned insurer expand into new areas.
The tie-up is similar to other agreements between foreign and mainland firms, in which overseas companies bring in capital and technical expertise to help their Chinese counterparts explore uncharted waters. The foreign companies, in return, get access to the lucrative mainland market.
AIG already has 12 branches on the mainland, the largest network of any foreign insurer.
Ross Matthews, the regional president for Greater China of American International Underwriters (AIU), the firm's general insurance arm, said AIG was attracted to PICC's distribution network.
'They have really incomparable distribution: more than 4,300 branches in China. No other general insurance company has anywhere near it,' he said. 'And although we plan to invest in building up our own distribution system in China ... it will obviously take many, many years, if not decades, to approach their type of distribution network.'
Mr Matthews noted that AIG had been working with PICC for the past 20 years. 'The market is big enough for many players to grow and develop,' he said.
Indeed, foreign companies taking equity stakes in mainland banks and insurers are eyeing the extensive distribution networks of their Chinese partners, hoping to cross-sell financial services if this is allowed one day.
In the next three weeks, fund managers and investors will closely scrutinise PICC, which is expected to lose market share as the insurance sector emerges from decades of rigid state control.
'The industry is no doubt growing fast, but PICC's incumbent position means it is due to lose market share in the face of greater opening and growing competition,' Mr Lau said. 'Smaller insurance players may be better positioned to benefit from the changes.'
PICC has more than 70 per cent of the non-life insurance sector.
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