ANALYSIS-Chinese eye Taiwan as foreign insurers move out

* Taiwan insurance sector consolidates as foreigners exit

* Big China insurers seen entering Taiwan

* Taiwan financial stocks hover near all-time lows

By Faith Hung

TAIPEI, March 4 (Reuters) - Heavyweight Chinese insurers such as China Life and Ping An are expected to enter Taiwan's $57 billion market, filling a void as foreign insurers leave to shore up their capital needs at home in the grip of a global financial crisis.

The foreign exodus from Asia's fourth-largest insurance market is also likely to play into the hands of local firms, and it may be tough for overseas brands such as Dutch ING Groep and Britain's Prudential Plc to get back into the market at a later date.

"Foreign firms are leaving Taiwan because they desperately need money to meet capital requirements at home, rather than being bearish about Taiwan's prospects," said Grace Hung, a vice president at Taiwan's China Life.

"Chances are slim for them to return in the near future, as it will take time for them to lick their wounds," said Hung, whose firm is buying most of Prudential Plc's local insurance business.

ING and Prudential are packing up, while American International Group has been trying to offload Taiwan assets, and local media has reported that loss-making Aegon is looking to sell, so it can focus on shoring up its core business.

They, and around a dozen other international groups such as Allianz, HSBC Holdings and BNP Paribas, have been battling local rivals for around a third of a fragmented market.

The rest is dominated by local firms Cathay Financial, Fubon Financial, Shin Kong Financial and China Life.

Allianz has denied local talk that it is looking to sell, but sources within the industry have said most foreign insurers are seeking an exit.

China Life Insurance and Ping An Insurance are seen as future entrants to a market that is attractive mainly for its wealth and government pension funds, once China and Taiwan sign a landmark financial services agreement, expected by mid-year.

"Taiwan is a place full of business opportunities, which would certainly attract mainland insurers," said J.J. Lee, chief investment officer of New York Life Insurance in Taiwan, which made up 16 percent of New York Life's total new business in Asia.

Taiwan's insurance industry grew 1 percent last year after an 18 percent jump in 2007 and 6 percent growth a year earlier.

Taiwan and mainland China are expected to sign a financial services agreement in May or June, opening the island's financial markets to China and allowing Taiwanese banks to set up branches on the mainland.

Yang Chao, the chairman of Beijing-controlled China Life, said on Tuesday that the country's dominant life underwriter was in talks for overseas investment.

With one of the world's top five foreign exchange reserves, Taiwan was a key profit contributor for many foreign insurers before the financial crisis deepened late last year.

In both 2006 and 2007, ING, Allianz and MassMutual Mercuries Life generated profits in Taiwan, according to company data, while Prudential had a loss in 2007, but made profits in 2006.

Turbulence created by the foreign pullout, and low interest rates, have weighed on Taiwan financial stocks, sending them to near record lows amid worries they will continue to pile up losses.

"Taiwan's interest rates have been among the lowest in Asia for years, hurting insurance shares badly. Rates will continue to trend lower in the next 2-3 years," said an analyst at a UK-based brokerage.

In a fiercely competitive market, foreign insurers can survive by distributing their policies through banking channels, and, once the global crisis abates, they could look to Taiwan again as a market where they can expand.

"Foreign players won't give up on the Taiwan market," New York Life's Lee said. "When they recover, they will still need to expand ... and Taiwan will be a priority."

"It's one of the richest countries in Asia, after all." ($1=T$35.1) (Additional reporting by Yvette Chen) (Editing by Tony Munroe & Ian Geoghegan)