China has reemphasized its decision to remove foreign ownership caps on life insurers in 2020 as part of its efforts to improve the efficiency of life insurance joint ventures in the country, experts said.

The China Banking and Insurance Regulatory Commission issued revised rules for the implementation of the regulations on foreign insurers on Dec 6, easing foreign ownership curbs for life insurance joint ventures from 50 percent to 51 percent, which will be further relaxed to 100 percent from next year.

As of today, AIA is the only wholly-owned foreign life insurance company in China as its operations were set up before the previous ownership restrictions were introduced.

"Ownership ratio is the biggest problem faced by joint ventures. Chinese and foreign investors that are evenly matched in strength will have a protracted fight if they have different mindsets, opinions, cultures and management approaches… If both investors want to play a dominant role in a joint venture, it will be difficult to solve problems and the firm will be inefficient," said Wang Guojun, a finance professor at the University of International Business and Economics in Beijing.

"The removal of ownership restrictions will help stop the fight and improve the efficiency of joint venture life insurers. The regulator also gives both investors time to discuss how to withdraw from or enter further into a joint venture based on their decisions about whether to be a financial investor or a strategic investor, or completely withdraw from the business," Wang said.

He said that foreign life insurers and property and casualty insurers contributed less than 7 percent of China's premium income due to insufficient localization, cultural differences and regulatory restrictions.

"The current relaxation of rules allows more foreign capital and foreign insurers which do not have operations in China in the past to enter China market. The advanced technologies, mindsets and products they bring will cause big changes in the domestic insurance market," he said.

Zhou Jin, a PwC China financial services consulting partner, said foreign insurers will introduce diversified, excellent products to China, which will enrich consumer choices while increasing the pressure of domestic insurance companies in terms of product design, operations and services.

"Refined management models, mature business experience and brilliant talents of foreign insurers will force their Chinese counterparts to face harsher competition, through which the country will raise the level of its life insurance sector," Zhou said.

Having a deep understanding of the laws of life insurance and a mindset highlighting security and the long-term value, foreign insurers will also set examples for China's life insurance sector to develop soundly in the long run and will contribute to investor education, he said.

The regulator also relaxed market access rules for foreign insurers by scrapping the requirement of a 30-year track record of business operations and the establishment of a representative office in China for two years.

Yang Zeyun, a finance lecturer at Beijing Union University, said the regulator set the requirements previously with the hope that foreign investors will fully understand China's insurance market and joint venture insurance companies will maintain steady operations, in addition to protecting the rights and interests of consumers.

"In reality, however, some newly formed insurers have advantages over those established earlier in terms of risk management, claim settlements and product design. Therefore, lifting these restrictions will help introduce new business models and experiences to China," Yang said.

China has accelerated the opening of its financial sector since 2018. The China Banking and Insurance Regulatory Commission said it hopes that the existing foreign banks and insurers in China will make full use of the further opening-up policies and keep improving their business vitality and management capabilities.

"In the meantime, we welcome more foreign financial institutions which meet our requirements to set up units and conduct business in China on a mutually beneficial basis … We will work hard to create a favorable business environment promoting fair competition and mutual development of Chinese and foreign investors," said the regulator in a statement on Dec 9.

The regulator also said it will keep stepping up the construction of regulatory institutions and enhancing the standards for prudent regulation.

By the end of October, foreign insurers in China recorded a total premium income of 251.36 billion yuan ($35.7 billion) and their total assets reached 1.28 trillion yuan, according to the regulator.