HSBC Holdings Plc, Europe's biggest bank, has received regulatory approval to start an insurance joint venture with National Trust Ltd on the mainland, where the bank's insurance arm plans to tap increasing personal wealth.

HSBC Life Insurance Co will start in the third quarter and HSBC and Beijing-based National Trust will each hold 50 percent, the London-based bank said in a statement yesterday.

"A growing personal wealth base will drive the use of insurance products" on China's mainland, David Fried, chairman and chief executive of HSBC Insurance for Asia-Pacific, said in the statement.

The insurance division of HSBC accounted for almost a third of the company's $9.1 billion pretax profit last year after losses on US subprime mortgages crimped earnings. The bank, which gets 75 percent of profit from emerging markets, plans to expand its insurance unit by selling life insurance and pension products through its branch network in India and China, the world's two most populous countries, Clive Bannister, group managing director of HSBC insurance said.

There are 16 foreign insurers with property and casualty licenses in China, and 27 with life insurance licenses, according to the China Insurance Regulatory Commission.

The Chinese venture is HSBC's "first substantial underwriting entity" in the country, Bannister said. The company will offer life, pensions and medical insurance. HSBC, the biggest foreign bank on China's mainland, owns a 16.8 percent stake in Ping An Insurance (Group) Co, and has a small brokering operation called HSBC Insurance Brokers Ltd China with 14 employees.

HSBC is looking to take advantage of demographic trends through its tie-up with National Trust, said Bannister. "Growth potential and, in time, profit contribution potential is immensely substantial," he said.

The project will take "a long time" to contribute to earnings as life funds typically take between five and seven years to build up enough capital to make returns to shareholders, said Bannister. "In an embedded value sense it will be profitable before that," he said. Embedded value estimates a fund's net worth excluding new business.

Bloomberg News

(HK Edition 06/10/2009 page4)