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May 29, 2017

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CTBC to invest in China insurance firm pending government approval

CTBC Financial Holding (中信金) decided to invest in a China-based insurance company, but Taiwan's regulators said the investment will need government approval.

Officials from the Financial Supervisory Commission (FSC, 金管會) said the regulatory body will review CTBC's plan to invest in China-based ABC Life, but the reviewing process will not take too long to complete.

The Taiwan-based holding company and its subsidiary CTBC Life, at an extraordinary meeting of their boards of directors, approved a plan to invest 1.71 billion yuan (NT$8.4 billion) to take a 19.99 percent stake in ABC life at 4.2 yuan per share.

The FSC officials said because the investment will affect CTBC's operations, they need to see whether such a plan conforms to the regulations governing financial holding companies.

Taiwan-based insurance firms have shown eagerness to invest in China, as the domestic market matures.

Taiwan-based China Life Insurance has taken a stake in China-based CCB Life; while Mercuries Life Insurance has previously proposed it be allowed invest in other insurance companies in China, according to the Central News Agency (CNA).

Industry analysts were cited by CNA as pointing out that it will be much easier for a foreign firm to take a stake in an existing insurance company in China than to start from scratch by forming a joint venture with local investors.

A foreign insurance company looking to form a joint venture with local investors needs to have a minimum paid-in capital of US$5 billion. The company must have worked in the insurance sector for at least 30 years and have set up offices in China for more than two years, the analysts said.

Not too many foreign insurance companies can meet the criteria, and therefore investing in existing insurance firms in China is a feasible alternative, they said.

The analysts also pointed out that in China's insurance sector, the number of joint ventures set up by foreign firms and the number of local firms are approximately the same, but the former only has five percent of the market, and the latter the rest.

Therefore investing in an existing firm looks a better option than setting up a joint venture, the analysts said.

But government officials in Taiwan warned of the risks of investing in China-based insurance firms, as the investors will not have control over the companies they invest in.

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