
Apr
17
ERGO Eastward Bound
Posted on Apr 17, 2012 by Sergio Ulloa (G+)
German insurance group ERGO announced Friday that they will finally be entering the Chinese insurance market after receiving the necessary start-up permissions from local regulators to launch a joint venture operation with a Mainland government-backed partner. ERGO Insurance, a subsidiary of global reinsurance giant Munich Re, had first agreed to establish a public-private joint venture insurance company with Shandong's State-owned Assets Investment Holding Company (SSAIH) back in January 2011. ERGO is currently Germany's second largest primary insurer by market value, after Allianz SE. The financial investment unit of SSAIH is part of the provincial government of Shandong. In 2011, the company, which employs over 8,000 local staff, held assets worth around €2.7 billion (US$3.52 billion). Now that the regulatory approval for commencing the start-up has been given by the Chinese Insurance Regulatory Commission (CIRC), the two firms can begin to establish their distribution platform, recruitment mechanisms and overall market strategy under a preparatory license. As per the terms of the partnership, ERGO and SSAIH, which is part of the provincial government of Shandong's asset manager, will each hold a 50 percent share in the venture and the headquarters will be located in Jinan city, the capital of Shandong province. This new joint venture company, which yet has to be named, will primarily focus on selling life insurance and other savings-related products to retail customers across Shandong. Speaking on the significance of this bold new venture at the signing ceremony, ERGO Insurance Group Board of Management, Dr. Jochen Messemer explained that adding the Chinese market to their international operations portfolio would prove to be a strategic move going forward, despite regulatory hurdles. "China is one of the strongest growth regions in Asia. As a consequence, both private customers and companies have an increasing requirement for provident products and a safeguarding against risks," Dr. Messemer said, adding that "by entering the Chinese insurance market, we are strengthening our position in the emerging Asian markets, which are a focal point of our international growth strategy." The Chinese market will no doubt continue to offer enormous potential for further growth. China's insurance sector has proven durable in the aftermath of the global financial crisis, consistently delivering high growth rates in recent years as both the number and sophistication of insurance policies sold continue to rise in tow. ERGO has had a presence in China for several years through its' representative office in Beijing and their new life insurance joint venture will enable them to position another office 250 miles further south in Jinan. ERGO has spent their time Beijing analyzing the Chinese insurance market and how, in particular, foreign insurers have fared once they've entered the market. The primary-insurer felt that the time was right to test the country's life sector through a partnership with SSAIH. The decision to enter Shandong province was taken because the region plays an important role within the Chinese economy and has become the third largest domestic insurance market over the past few years. The province has a population of 96 million people, and this offers ERGO huge potential for sustainable premium growth alongside their Chinese public sector partners. While the continued growth of China's economy no doubt offers substantial business opportunities going forward, ERGO is well aware that the highly competitive and often duplicitous nature of their market environment has been particularly challenging for foreign insurance entrants, with some foreign invested joint venture companies already leaving the market in recent years, citing exorbitant claims figures, poor competitive positions and stifling industry regulations. Once again, Dr. Messemer assured shareholders that a German insurer could survive and thrive in China, saying that "we are confident that - based on our technical and risk management expertise and international know-how in setting-up life insurance operations - we will set strong foundations for being successful in China in the long run. We have chosen a focused approach for entering the market in the Shandong province." ERGO plans on sharing its international insurance expertise in areas of sales, risk management and product development to hopefully impact and lift the business practices and customer service standards in the local market. Subject to final regulatory approval, the ERGO-SSAIH joint venture is expected to formally launch its business operations sometime during the first half of 2013. Many multinational insurers are now shifting their focus away from stagnant western economies to the growth markets in Asia in order to capitalize on the increasing affluence in the region. China is ranked as roughly the sixth largest insurance market in the world, and the second largest in Asia. Many industry observers fully expect the Chinese insurance market to eventually overtake the United States and become the number one overall protection and investment market in the world, possibly by as early as 2020. Insurance Companies Mentioned ERGO
