China's decision to allow foreign insurers offer mandatory auto insurance may help local players with "more timely" government adjustments to the base rates for such policies, the nation's biggest non-life insurer said.

The impact from the opening of compulsory third-party liability vehicle insurance will be "very limited" for local companies, Zhang Xiaoli, Beijing-based board secretary of PICC Property & Casualty Co, said by phone on Feb 16. Foreign insurers, under pressure from the European debt crisis, aren't likely to "launch any big offensive," he added.

Regulators will probably loosen its controls on the premium rates for the compulsory insurance with the entry of overseas companies for such policies, BoCom International Holdings Co said. An increase in the government's base rate may help local insurers, who have posted losses from the mandatory insurance.

"That is certainly good news" for local companies, said Li Wenbing, a Beijing-based analyst at BoCom International. "Just breaking even in the mandatory business will be a huge boost to profitability."

The opening of the mandatory insurance removes a restriction that the American Chamber of Commerce said "effectively blocked" foreign companies from tapping the world's biggest car market. Drivers tend to choose the same insurer for both optional and compulsory coverage.

Profitability

PICC suffered a 4.3 billion yuan ($682 million) underwriting loss from the mandatory business in 2010, BoCom's Li said. That compares with its 5.2 billion total net income that year, which almost tripled as the Beijing-based insurer tightened controls on claims and costs.

China's auto insurance sector has turned profitable since 2009 as regulatory controls on price competition tightened, reversing years of losses in an industry where about 70 percent of premiums come from auto insurance. Underwriting losses from mandatory policies, which protect drivers against third-party claims in accidents, totaled 9.7 billion yuan in 2010, according to a statement on the China Insurance Regulatory Commission's website on Aug 4.

A press official at the CIRC had no immediate comment, declining to be named because of the regulator's policy.

Insurers should lower premium rates by 30 percent from the regulator's base rates if the policyholder had no liable traffic accidents in the previous three years, according to the CIRC regulation enacted in 2007. Government-tailored price cuts would push premium rates down by 4.9 percent in 2009 from the previous year's level, PICC said in a report on June 29 that year.

American International Group Inc is among the biggest foreign insurers operating in China.

China's share of global auto production surged to more than 20 percent by 2009 from 1 percent in 1990, according to estimates at CLSA Asia-Pacific Markets. Growth accelerated after its 2001 entry into the World Trade Organization and China passed the US as the largest auto market in 2009.