Ping An Insurance, the mainland's number-two life insurer, expects the fledgling pension market on the mainland to boom in three to five years, though the way to success may be tough due to regulatory uncertainties.

Executive Vice-President Emily Li of Ping An Annuity Insurance Co, a fully-owned unit of Ping An Insurance (Group) Co, said yesterday that the company has secured 20 corporate clients on pension services and expects to sign a contract with a multi-national corporation on the mainland soon.

"I cannot give an estimate but I would like to say that the number of our clients should jump at a very fast pace in the next three to five years," Li told Reuters in an interview.

"The speed could be as fast as you can imagine as we have seen huge demand for enterprise annuities, especially with more and more foreign employers coming to the mainland," Li added.

The mainland's voluntary corporate pension scheme, known as enterprise annuities, is similar to the 401k plans that dominate corporate retirement planning in the United States.

Analysts and industry executives estimated that within a few years enterprise annuities could surpass the mainland's US$25 billion National Social Security Fund (NSSF) as a source of new money to manage - and therefore as a source of fees.

"Of our existing 20 clients, most are big State-owned companies which have legacy problems with their retired staff, so they have to rely on outside forces for better solutions," Li said on the sidelines of Reuters Investment Conference 06 in Shanghai.

"But we expect more foreign companies to join the scheme as they may regard enterprise annuity as a way to keep their excellent staff staying with the employer," Li said.

Enterprise annuities are a recent development on the mainland. The Ministry of Labour and Social Security set the ground rules in 2004 and issued licences last year to about 30 institutions.

Analysts have forecast that once enterprise annuities mature, they could generate tens of billions of yuan a year in new assets for the industry to manage, especially if the government offers significant tax incentives to companies to use them.

Ping An Annuity Insurance, one of the oldest pension services provider founded in 2004, expected to see some challenges before the market becomes a key contributor to group profits.

Li said regulatory uncertainties and lack of more diversified investment channels could be the two biggest problems that she would be facing now.

"Regulators are now working together to frame the rules so we have to be patient and wait for the details," said Li, adding that it also takes time to educate clients, especially State-owned firms.

"And we are now short of investment channels due to regulatory restrictions," said Li, who is also an ex-Citigroup banker.

Currently, the government limits pension insurers to investments made through the country's stock exchange, mainly for secondary trade on stocks and bonds, Li said.

But she hopes Beijing would allow pension insurers to invest in the mainland's primary interbank market in the third quarter of this year, and said the Chinese Government may eventually allow them to apply to the Qualified Domestic Institutional Investor (QDII) programme after the NSSF makes its debut in the near future.

The QDII programme allows mainland banks, life and non-life insurance companies and local fund managers to manage assets for their clients through overseas capital markets. However, pension insurers have not yet been allowed to apply for QDII licences, Li said.

"Ping An Group has a long commitment to the pension business which will become a new and major profit stream to the group someday," Li said.

(HK Edition 06/14/2006 page3)