Making money in insurance is all about assessing risk with technical precision. That makes Joe Perrott, general manager of the Shanghai branch of Royal & Sun Alliance, a bit unusual.

He believes in the power of the stars. In addition to the long years of hard work and patient waiting that was invested by the company's China Development Team, nothing else, says Mr Perrott, can fully explain how Royal &Sun Alliance (RSA) succeeded in getting a licence to operate in China.

Sun Alliance established a representative office in Beijing in 1992, one of more than a dozen foreign firms then lobbying for non-life licences. By the time Mr Perrott arrived in 1998, the People's Bank of China (PBoC) had already handed out its sole designated "American" licence to AIG, its "Japanese" licence to Tokyo Marine & Fire and its "Swiss" licence to Winterthur (Asia).

When the British turn came, CGU was still sorting out its 1998 merger (between Commercial Union and General Accident). But the newly formed RSA was ready. During Prime Minister Zhu Rongji's visit to Britain in spring 1998, he let it be known that if RSA applied for a non-life insurance licence, it would be approved. RSA complied, and in a record six months the application process was complete. The British prime minister, Tony Blair, was on hand in October 1998 to open RSA's new office in Shanghai.

Once RSA obtained its licence, it encountered a few bumps along the way. The first was a glitch possible only in China. The machinery used to print the official Chinese tax and invoice forms for new companies broke down, incurring a three-month delay, and RSA only started selling its policies in January 1999.

The next problem RSA encountered was in devising its distribution strategy. The company originally planned to distribute its policies to customers using independent insurance intermediaries, specifically Hong Kong-based international brokers with mainland rep offices. But in March 1999 the China Insurance Regulatory Commission (CIRC) decided to close down the foreign brokerage sector.

Many brokerages had been conducting business outside the scope of their licences. Policy wording had become lax. Increasingly, firms were competing purely on price, and were neglecting training. The CIRC handed out high-profile punishments to Sedgewick and Jardine brokerages, although other firms were also guilty.

One of the regulator's motives was to stamp its new authority on the sector. Though the clampdown made it a lot more difficult for RSA to do business, Mr Perrott believes that ultimately it was a healthy move. "Some of the market practices were getting out of hand," he says. "We ultimately benefit from the rule of law rather than the law of the jungle."

With the international brokers gone, RSA had to find another way to identify and contact its customers. Borrowing a tactic from AIG and other foreign life insurers, RSA formed a 25-person direct sales force. But life and non-life insurance are very different products. "Life insurance is like food", says Mr Perrott, "everyone needs it." Selling life policies is basically a sales and distribution issue. This, he believes, helps account for the life insurance market's comparatively fast growth rate.

Selling non-life insurance is more complex. Insuring a building against fire or a marine cargo against damage requires a detailed knowledge of the case-by-case specifics. "It's all about assessing and managing risk, and that means that you have to have a well-trained team who know how to select and price risk," says Mr Perrott. It takes time to build expertise, and a staff that is willing to learn.

RSA's sales staff are helped by the fact that the China operations of foreign firms must be insured in China. However, carving out a niche is hard work, especially for inexperienced staff. Most foreign insurers in China have had a similarly rough experience in the first year of operations. In 1999, RSA's first year of operations, the branch collected only a portion of its target premium income of $3m.

"Maybe we didn't work hard enough. Or maybe the target was wrong," says Mr Perrott. But he believes the first year's effort to build up the team has paid off, and RSA did in fact meet its target premium income in 2000.

The RSA China office is well aware of having to answer to both the Chinese government and RSA headquarters. "We have proved to the government that we are good corporate citizens and a law-abiding firm", says Mr Perrott. "The task now is to show that we can also be a profitable business."