Nov. 13 (NBD) -- The regulation that foreign-invested insurance companies must take the form of joint venture (JV) when setting up life insurance firms will be lifted in five years.

Addressing last Friday's briefing on economic results achieved in the meetings between Chinese and the U.S. leaders in Beijing, Zhu Guangyao, vice minister of the Ministry of Finance, said that single or multiple foreign investors will be allowed to hold up to a 51 percent stake in life insurance JVs in three years, and the investment cap is expected to be removed in five years.

Data from the China Insurance Regulatory Commission shows that as of July 2017, insurers from 16 countries and regions have set up 57 foreign-funded insurance companies in China, under which more than 1,800 branches have been built. The total assets of foreign-invested insurance companies in China amounted to around 1 trillion yuan (150.7 billion U.S. dollars) by the end of July 2017, representing a more than 300-fold increase as compared with the 3 billion yuan (452.2 million U.S. dollars) reported in the initial stage of China's accession to the World Trade Organization.

China's new decision of gradually lifting foreign ownership limits will pump new vitality into the life insurance market. This will accelerate foreign insurers' expansion in the Chinese market, said industry insiders. It is believed that more wholly foreign-owned life insurance firms will emerge in five years.

Zhu Junsheng, professor with Financial Research Institute, Development Research Center of the State Council, said that the new move is a positive signal to the insurance industry. Foreign investors will be more flexible when choosing the form of entering the insurance industry, be it taking controlling stake or running a wholly-owned subsidiary, Zhu explained.

Moreover, the further opening-up is helpful to boost the reform of the insurance market and promote competition, which will accordingly increase the efficiency, Zhu added.

In an interview with NBD, an insider with a foreign-funded insurer noted that the preferential policy will likely solve the predicament facing insurance JVs at present. Allowing foreign investors to hold controlling right or sole proprietorship is beneficial for life insurance JVs' decision-making, he explained.

NBD noticed that most life insurance JVs were formed on a 50:50 basis, which often resulted in a dilemma when Chinese and foreign shareholders differ with each other over the development strategy and operation philosophy.

However, whether foreign investors can gain a firm foothold in the life insurance market will be up to the market circumstances, supervisory conditions, investment atmosphere, operation strategy, and other factors, the insider added.

Judging from the current development, life insurance JVs are stable in operation and strong in risk management, but don't quite know about the Chinese market. In addition, their distribution networks need to be further improved.

Only by solving these problems, so can foreign investors expand their footprints in the Chinese life insurance market.

Email: lansuying@nbd.com.cn