PetroChina's insurance company in Xinjiang OK'd

Chinese oil giant PetroChina Co has received the green light to establish its captive insurance company in Karamay city, in the Xinjiang Uygur autonomous region, with a registered capital of 5 billion yuan ($790 million), the China Insurance Regulatory Commission said on Wednesday.

A captive insurance company insures its parent company's business risks.

Experts said that PetroChina's insurance company could reduce its insurance and risk management costs.

Before the move, China National Offshore Oil Corp was the only large-scale enterprise that had established a captive insurance company, providing insurance to its parent company in cargo transportation, fire and natural disaster, property loss, among other areas.

Currently, most Chinese enterprises adopt a "self-insurance fund" strategy, setting aside a calculated amount of money to compensate for potential losses.

"Unlike a self-insurance fund, a captive insurance company is an independent legal institution with a mature operating mechanism, and its engagement in various business categories disperses the company's risks," Tuo Guozhu, a business professor at the Capital University of Economics told 163.com.

Tuo said that the most obvious benefit is to reduce insurance costs, since the insurance premium belongs to the parent company.

But experts said that a lack of related laws and regulations and vagueness in tax policies might restrict the development of captive insurance companies in China, according to 163.com.