The Geneva Papers, 2015, 40, (279–294) © 2015 The International Association for the Study of Insurance Economics 1018-5895/2015 www.genevaassociation.org Suggestions for Bancassurance Markets in China: Implications from European Countries Hsin-Yu Liang a and Yann Peng Ching b a College of Business, Department of International Trade, Feng Chia University, 100 Wenhwa Rd., Seatwen, Taichung 40724, Taiwan. b School of Business and Management, Southern University College, PTD 64888, 15KM, Jalan Skudai, P. O. Box 76, 81300, Skudai, Johor, Malaysia. This study discusses the operational benefits of integration of the banking and insurance sub-sectors in Europe to formulate policy recommendations for the bancassurance markets in an emerging country, China. When the financial integration of banking and insurance services began in European countries in the 1990s, most banks and insurance companies had already been listed for some time. Thus, we use the monthly stock returns of banks and insurance companies that had not yet been integrated as of 2008 to examine efficient frontier portfolio and pairwise combinations in European bancassurance markets. We find that portfolio diversification is an important benefit of banks inte- grating with different types of insurance companies. Consistent with the literature, we further show that banks strategically involved in non-life insurance will benefit in terms of enhanced returns and reduced risks. Our results present implications for building a bancassurance market in China. The Geneva Papers (2015) 40, 279–294. doi:10.1057/gpp.2014.22 Keywords: bancassurance; portfolio diversification; financial service integration Article submitted 4 August 2013; accepted 5 May 2014; published online 27 August 2014 Introduction Researchers 1 and policymakers are focusing on the creation of universal financial markets as the next step for bancassurance in the 21 st century. Some researchers 2 also show that not only inter-bank relations but also interactions between banks and insurance companies are essential for estimating financial fragility because of risk-transfer spillovers between the banking and the insurance sectors. The formation of bancassurance markets within or across countries or regions has raised much discussion about economies of scale, economies of scope, risk transfer and diversification. Finaccord Ltd 3 surveys the world’s top 125 retail banking groups and provides an overview of the bancassurance global strategies of these sample banks. Bancassurance is defined as a part of the conglomeration process that originated during the late 1970s and early 1980s in Europe involving the manufacturing and/or distribution of insurance products by banks. 4 Bancassurance 5 is more than simply a method of distributing 1 Chen et al. (2009). 2 Bernoth and Pick (2011). 3 Finaccord Ltd (2013). 4 Swiss Re (2002). 5 Benoist (2002).