Two foreign insurance companies have announced they will pull out of China because the distant prospect of healthy profits remains just that: distant.

The decision by Dai-Ichi Mutual Life from Japan, and Germany's Gerling AG, comes little more than a year after China joined the World Trade Organisation, promising to open up the financial services business to overseas competition.

But just days after the final agreement was sealed came September 11.

The human and property damage caused by the tragedy that day has come close to crippling large chunks of the insurance business.

Change of plan

For Gerling, as with the rest of the sector, the aftermath of September 11 has forced a rethink.

"We have to look at the near future," said Carl-Ludwig Dorwald, the representative for Gerling's non-life assurance business in China.

"We don't want to have to think any more of potential. If you look at China now, it is an attractive market with a lot of potential - but long term."

It has now cancelled its licence from the China Insurance Regulatory Commission (CIRC).

As for Dai Ichi - Japan's second biggest life assurance firm - its representative, Zhao Kefei, said the rules China had negotiated were still far too restrictive to suit its business.

"The law says that foreign life insurers can't have wholly owned China operations," he said.

"We don't really want to go into the China market this way."

Trend

The two are not the first to depart as the prospect of profits recedes.

Swiss Life left in May, while Allstate Corp from the US is also giving up.

But CIRC said such cases remained rare, and most saw the long-term potential as worth the wait.

Many of the office closures, the organisation said, stemmed not from companies throwing in the towel but changing representative offices - which cannot sell policies - into full-scale operating branches.