Jan
27
Two new research documents released this week by Fitch Ratings analyzed the state of the South African insurance market in 2011 and what challenges and opportunity lie ahead. Overall the global credit ratings agency found that while the business environment in South Africa remains quite challenging at present, both the life and non-life insurance industries have proved to be widely resilient so far and will continue to develop going forward.
While South Africa has certainly been less affected by the 2008 global financial crisis than many other developed countries, the persistent financial market volatility and tough economic conditions that followed have of course had an adverse impact on the domestic insurance industry’s performance, driving down profitability and sales growth across most lines. Despite the South African market showing signs of recovery in 2010 and 2011, with improved local equity markets and consistent economic growth, it remains challenging for insurers to turn a profit. Overall, Fitch expects earnings for insurers to remain under pressure in the near term in view of the difficult and volatile South African and global investment market conditions and continued pressure on disposable income in South Africa. “Although the local economy showed a gradual recovery, the investment markets were volatile and consumers’ disposable incomes remained under pressure,” Fitch noted.
In “South African Life Insurance: Good Performance in Difficult Environment,” Fitch wrote that they had now affirmed the rating outlooks for all life insurers in South Africa as stable after witnessing a number of positive factors in 2011, including market-wide improvements in operating performances, more robust capital levels, higher policyholder resiliency, as well as maintenance of market share. “The local insurance industry performed well in H111, despite tough economic conditions,” Fitch said in their report. “Profitability improved (although it remains under pressure), with major insurance companies reporting higher net profit compared with H110.”
According to Fitch, South Africa’s life insurance industry remains well regulated, highly competitive and moderately saturated. Following the merger of two large domestic insurers, Momentum and Metropolitan in 2010 to form MMI, the South African life market is now dominated by four major insurance companies – OMSA, Sanlam, Liberty and MMI. Together, these groups reported a 14 percent growth in net income for the first half of 2011, taking in ZAR7.1 billion (US$910 million) versus ZAR6.2 billion (US$790 million) in 2010. Fitch added that South Africa’s life insurers have been able to maintain adequate capital reserves during this period as well. Although the minimum regulatory capital adequacy requirement in South Africa is currently only equal to 1 times business outlay , the majority of the country’s life insurers are well capitalized with cover ratios of between 2 and 4, according to Fitch.
The Fitch report also discusses what upcoming regulatory changes could affect the South African life insurance sector going forward, including proposals for a compulsory retirement savings initiative, a National Health Insurance (NHI) system and the Solvency Assessment and Management project. The South African government is taking more proactive steps to combat both the country’s poor savings rate and crumbling public health infrastructure through compulsory pension and health insurance funds. While Fitch believes these moves could all significantly affect how life insurers operate, much about these schemes remains uncertain and the ratings agency expects major insurers will ultimately be able to adapt successfully to the proposed reforms.
In a separate report, “South African Non-Life Insurance: Strong Operating Fundamentals in Tough Environment,” Fitch found that South Africa’s general insurers were facing similar issues to their life market counterparts, and received an identical stable credit outlook in tow. “Despite the ongoing challenging operating environment, all non-life insurers rating outlooks remained stable in 2011. This was attributable to resilient and improved underwriting performances, strong solvency positions and the maintenance of market share,” Fitch wrote.
South Africa’s general insurance market is also well regulated and very competitive. While the market is also currently dominated by four major non-life insurers, these players are not nearly as dominant as the top four in the life market, and only control around a 50 percent market share between them. Like the life market as well, general insurers in South Africa are continuing to face a tough operating environment, where flagging consumer spending power, competition, and low interest rates, limit the ability of insurance companies to set appropriate premium rates for the risks underwritten, which in turn has put downward pressure on company profit margins. Furthermore, Fitch noted that the larger non-life companies are now facing significant competition from non-traditional insurance providers, such as direct writers, banks and retailers.
Despite persistent financial market volatility and a soft pricing market, the South African non-life industry was able to grow last year with the major general insurance companies all reporting higher net profits when compared with the previous year. According to Fitch, these insurers reported a 37 percent growth in annual net income, from ZAR818 million (US$104 million) in 2010 to ZAR1.12 billion (US$140 million) in 2011. This success was reflective of the gradual recovery in the local economy post 2008, improved underwriting performances, strong solvency positions and improved sales. Going forward, the ratings agency has applied a cautious outlook for the South African insurance industry. Fitch expects the margins of both life and non-life insurers to remain under some pressure going into 2012, owing to market competitiveness, downward pricing trends, and relatively stagnant consumer confidence in South Africa.
Companies Mentioned
Fitch Ratings
Fitch Ratings is a global rating agency and provides ratings and analytical services for thousands of banks, financial institutions, insurance companies, corporations, and national governments. Fitch was founded in 1913 and now features dual headquarters in New York and London with over 50 offices worldwide.
Jan
26
HDFC Life Going International
Filed Under Middle East | Leave a Comment
In an attempt to capitalize on the increased spending power of India’s sizable overseas workforce, HDFC Life, one of the country’s leading private life insurance companies, announced this week that they have opened a representative office in Dubai – the company’s first international operation, with more to come.
It is estimated that of India’s 1.3 billion population, more than 25 million are now currently living and working abroad. Indian expatriates make up a significant proportion of the working class across the MENA region, with many moving to the rich Gulf States during the oil boom to work in construction and in other more specialized fields. The Gulf has proven to be an attractive destination for South Asian migrant labour due to the higher incomes available, employment opportunities as well as the relative geographical proximity to India. Nowadays, roughly 40 percent of the United Arab Emirates’ population is of Indian descent. This considerable demographic development has however presented a problem for the Indian diaspora, as citizenship and residency rights are seldom granted to immigrants in these Gulf countries. Maintaining affordable access to necessary services like healthcare and retirement planning thus becomes an issue for many non-resident Indians.
Announcing the launch at a press conference in Dubai on Wednesday, Anup Rau, HDFC Life Executive Vice President and Head of Sales and Distribution, told reporters that the insurance firm would use their new representative office in Dubai to more effectively target the estimated 1.7 million non-resident Indians (NRIs) currently living and working across the United Arab Emirates, and forecast Rs300 million (US$5.9 million) in premiums by the end of the first business year. HDFC Life predicts significant growth as demand for insurance products will continue to increase in conjunction with rising personal incomes and demands for greater protection, investment and savings, and retirement needs.
HDFC Life has officially been operating out of Dubai for nearly three months now and, according to company officials, has already witnessed strong interest from the local Indian workforce for its life insurance products. “There were inquiries from NRIs to buy HDFC products estimated at Rs50 million (US$1 million) in the first three months,” Rau told attendees, adding that the company’s prime target will continue to be “white-collar NRIs returning home for some reasons.” Observing this considerable demand, the company has already hired nine people to work its Dubai office, with more to come if need be.
HDFC Life decided that Dubai would be the host of its first overseas subsidiary as the city-state is currently home to the largest population of NRIs in the Middle East. The insurer will then use their new representative office in Dubai to properly test the Gulf insurance market and adjust their regional business strategy accordingly going forward. HDFC Life plans to enter other GCC countries are on hold due to Indian industry regulations, which do not allow locally domiciled insurers to launch full operations or set up joint ventures in international markets without exhaustive regulatory procedures. However, as Rau explains, the success of the Dubai branch will ultimately decide HDFC Life’s international expansion plans going forward, both within the Gulf region and globally. “The launch of our operations in Dubai is the beginning of HDFC Life’s expansion into the region. The objective of this office would be to serve our existing policy holders and further understand their financial needs better,” Rau said.
HDFC Life is a joint venture established in 2000, between Housing Development Finance Corporation Limited (HDFC Ltd.) and Standard Life Assurance Company, one of the United Kingdom’s leading financial services firms. The joint-venture company has been quick to expand in its home market over the past decade, and now boasts one of the largest distribution networks for an Indian private insurer with over 500 branches servicing customer needs in some 700 cities and towns across the populous South Asian country. While there is still considerable scope for insurers in India to increase their coverage in a country with a population exceeding a billion people, most uninsured, HDFC Life believes that now is the time to look outside the country and will leverage its strong brand presence and existing clientele to market to and eventually through the sizable global Indian diaspora. “HDFC Life is a preferred and trusted brand in India and has diverse product portfolio catering to the different life stage needs of an individual,” Rau explained, adding that “with a strong brand proposition, well balanced product portfolio, need-based selling approach, long-term investment philosophy, and above all a strong lineage, HDFC life aims to successfully establish its presence in the [GCC] region within the next few years.”
Commenting further on HDFC Life’s strategy and reasons for continued international expansion, M.I. Taher, Vice President and Head of International Business, noted that entering Dubai at this time was a crucial step in the evolution of the company, one which could put HDFC Life on course to compete with more prominent multinational insurance companies in the near future. “The objective of our operations in Dubai is the first step towards understanding the Gulf market, the customer segments, apart from serving our existing policy holders and further understanding their financial needs,” Taher said. HDFC Life’s products are aimed at Non-Resident Indians in the UAE in order to better cater to their insurance needs, and needs of their families back home. “Our presence in this region will help us research the market better and devise new products catering to the specific needs of the NRI’s here,” Taher concluded.
Insurance Company Mentioned
HDFC Standard Life Insurance Company Ltd
HDFC Standard Life Insurance Company Ltd. is one of India’s leading private life insurance companies, which offers a range of individual and group insurance solutions with a strong base of financial consultants. The company provides a line of protection, retirement, savings and investment, children, health, and group plans. It is a joint venture established in 2000, between Housing Development Finance Corporation Limited (HDFC Ltd.) and The Standard Life Assurance Company, a leading provider of financial services from the United Kingdom.
Jan
20
New Health Insurance Deal in Jordan
Filed Under Middle East | Leave a Comment
Arab Orient Insurance Company (AOIC) made news this week by finalizing their partnership agreement with French insurer SCOR, who will now re-insure their health insurance portfolio, one of the largest in Jordan.
In a press statement, AOIC Chief Executive Isam Abdelkhaliq, heralded their new joint venture as an important step for both the Jordan health insurance market and his company. “This agreement adds a new dimension in the medical insurance market in the region and is a record for the great achievements by Arab Orient Insurance Company.” The deal was reached at the signing ceremony at SCOR’s Cologne headquarters in December 2011, with each company’s president and top executive in attendance, but took until mid-January to receive the necessary approval from Jordanian regulators to proceed.
Health insurance represents the second largest segment in Jordan’s insurance market. In 2010 health insurance premiums amounted to JD93.9 million, or 23 percent of the domestic market’s total output. Over 80 per cent of Jordanians are estimated to be covered by some form of health insurance at present, either in public or private schemes, and the Ministry of Health has stated its intention to expand coverage to all citizens by 2014, a reform idea shared by many neighboring Gulf countries. Individual insurers in Jordan cater to a small private sector, as public healthcare is provided to public sector employees through various government-run insurance schemes. Despite this, medical insurance business has grown at compound average growth rate of roughly 16.6 percent over the past ten years and the long term trend for greater medical coverage seems to be towards higher volumes and perhaps sustainable premium growth. The Jordanian health insurance market is not without it’s problems however, suffering from low profitability in recent years on the back of intense competition, which has placed downward pressure on policy prices while the costs of medication and medical services continue to rise. Despite these limited margins however, local insurers simply cannot afford to limit their exposure to medical insurance as it continues to be a major revenue source and greater international attention is surely imminent.
AOIC was established in 1996 and has gone on to become one of the leading non-life insurance and reinsurance companies in Jordan, in terms of premiums. The company was the first accredited insurance company in Jordan and is also one of only two Jordanian companies to be rated ‘B++’ or higher for four consecutive years by ratings agency AM Best. In accordance with the rising demand for healthcare and financial products occurring throughout the Gulf Region, AOIC has shifted its focus increasingly to providing comprehensive medical insurance services through new partnerships, products and distributions channels, which will provide services and medical programs to its agents through the best coverage and the broadest medical network. The deal with SCOR, whom they describe as “one of the largest companies for medical re-insurance in the world” in their statement, will provide AOIC will the necessary capacity and financial security to both care for their existing Jordanian customers and pursue new long-term business opportunities as well.
Mr. Abdelkhaliq added that partnering with prominent Western insurers has enabled the company to tap into overseas industry expertise and improve the quality of their coverage and service options to better match international standards. “In addition, the signing of this agreement solidifies the effort of the medical insurance staff, a collective of highly experienced administrators, doctors and nurses who work around the clock to provide renowned quality service to the 185,000 customers providing the best coverage and the largest medical network in the Kingdom,” Abdelkhaliq said. Last year the company entered a similar partnership with British healthcare provider BUPA to upgrade and review the health insurance products and services available in Jordan. AOIC has also taken greater steps to better integrate their customer service experience, launching two fully functional service and care offices at Arab Center Hospital and Ibn al-Haytham Hospital in January, with more branches expected to launch at The Specialty Hospital and Jordan Hospital later in the year. AOIC has aimed to distinguish itself further in the market by launching these new offices, hoping that customers will appreciate a more efficient administrative process in affiliated hospitals.
For SCOR meanwhile, Jens Sonnenschein, Head of Middle East Departmental Director, explained that their decision to partner with one of the largest non-life insurance companies in the Middle East would not only expand their geographical footprint considerable but could work to enhance the medical insurance business in Jordan’s insurance market. Scor has been looking to strengthen its position across global reinsurance markets as part of the company’s 2010-2013 strategic plan, titled “Strong Momentum.” The plan has targeted improved profitability and solvency combined with a rebalance between life and non-life contribution inside Scor’s portfolio. In accordance with this strategy, SCOR sold its US fixed-annuity business for US$55 million in February 2011 in order to free up capital for expansion of its core life reinsurance businesses. The French reinsurer then completed the ambitious acquisition of Transamerica Re, a life reinsurance division of Aegon, for US$912.5 million in August, becoming the second-largest US life reinsurance company in a move to better develop value added services for its insurer clients.
According to their most recent earnings bulletin, SCOR has done well by their expansion strategy so far. For the first nine months of 2011 SCOR’s premium income was €5.421 billion ($7.345 billion), up by 8 percent on the corresponding period in 2010. The French insurer’s third quarter reporting period, the first in which newly acquired Transamerica Re was included, has been a particular highlight, with gross written premiums surpassing €2 billion in a quarter for the first time, and up 14.7 percent on last year. SCOR Global Life gross written premiums meanwhile hit €984 million, a 30.5 percent annual improvement, with the Transamerica Re’s business contributing over €256 million since August 2011.
Multinational insurers like SCOR will continue to look towards markets in the Middle East and North Africa region as a rich and sizable prospect base to tap. Although the recent Arab Spring protests may hinder insurer business in the short term, there is still considerable opportunity for foreign investors to build the insurance trade across the MENA region.
Insurance Company Mentioned
Scor
Scor is organized through two main businesses – SCOR Global P&C and SCOR Global Life – which are leading underwriting and reinsurance providers. The group writes business in Europe, Latin America, Asia, the Middle East and the USA.
Jan
19
Though saddled with ongoing global economic challenges, moribund interest rates and intense competition, insurance companies will need to focus on innovation, sound business practices and emerging market opportunities in order to generate growth and profits going forward, according to a new report from international consulting firm Deloitte.
Released today, Deloitte LLP’s “2012 Global Insurance Outlook: Generating growth in a challenging economy takes operational excellence and innovation,” assesses the international insurance industry’s prospects for 2012 and the decade ahead. The report identifies that persistent global economic turmoil, high unemployment, low interest rates and a slow housing recovery have created unique challenges for insurers operating in US and Western European markets, sapping both consumer demand and investment income simultaneously. While the US economy has shown recent signs of recovery in terms of consumer spending, given Europe’s ongoing struggles with sovereign debt issues, Deloitte sees little respite for insurers on the economic front at present.
Despite these underlying macroeconomic concerns, there are still many things insurance companies can do for themselves to generate profitable growth and increase their market share. According to Deloitte, product development, distribution and customer service remain three key areas where industry innovation could reap sizeable returns almost immediately. Insurance companies in general must continue evolving their operations to improve margins and generate bottom line growth. They can do this by adopting new technologies and risk management strategies to squeeze out unnecessary costs and use their people and capital more productively.
According to Deloitte’s market outlook, insurers involved in the property and casualty sector will likely benefit from increased top line prices due largely to 2011’s unprecedented string of natural catastrophe losses and the subsequent rate hikes in reinsurance premiums. Other non-life lines will also be able to recover, as auto and general insures charge higher loss-driven rates while the pricing market in commercial lines appears to have bottomed out with both insurers and brokers reporting consistent premium increases on renewals. Meanwhile in the life and annuity market, Deloitte notes that while sales of variable annuity products are growing, products with structured guarantees will probably continue to struggle due to rock bottom global interest rates. Sales of traditional whole life insurance policies could also further improve if insurers update their marketing, sales and distribution systems to target a still largely underinsured market.
Deloitte lists several possible avenues for growth insurers could pursue in 2012 and beyond, the most attractive of which perhaps being to tap emerging insurance markets with faster-growing economies for sustainable premium growth. With mature market economies in the US and Western Europe unlikely to generate consistent growth prospects in the short-to-medium term, insurers may be able to offset any anticipated shortfall and find success by entering potentially lucrative emerging markets, with China, India and Brazil being particular highlights. The Deloitte report acknowledges that while doing businesses in these markets often comes with unique business challenges, including cumbersome regulation, poor infrastructure and distribution networks as well as cultural differences, the overwhelming demand for greater insurance coverage and financial security amongst these countries’ expanding middle class populations will likely provided sufficient growth opportunities to international insurers with the resources to adapt and capitalize on them. According to Insurance Information Institute’s 2010 statistics, the ratio of general insurance premiums to GDP is still just 1.5 percent in Brazil, 1.3 percent for China and only 0.7 percent in India. By comparison, the penetration rate is 4.5 percent for the United States, 4.1 percent for Canada and between 3.1 to 3.7 percent in the major European economies. These differences translate into a trillion dollar coverage gap between West and East, plenty of room for new insurance companies to set up shop and acquire a share of these still largely untapped markets.
Insurance companies can also expand through strategic mergers and acquisitions. Deloitte noted that m&a volume was up during 2011 although deals tended to be calculated bolt-on acquisitions with buyers adding new product lines, distribution channels, and international market share. Sellers meanwhile divested from underperforming business lines to shore up their bottom lines and left overseas markets where they lacked sufficient scale to thrive. The Asia-Pacific region has fast become the most attractive market for investment activity, accounting for 23 percent of global M&A insurance activity in the first half of 2011, up by 12 percent on fiscal year 2010. Deloitte say there is potential for an uptick in bigger deals in 2012, especially if organic growth in mature markets remains elusive. The international insurance market in fact remains ripe for more consolidation due to excess capital, bargain pricing and low returns.
As well as expanding outward, Deloitte mentioned several things insurers could do to pursue operational excellence at home, with adequate preparation for upcoming regulatory changes that could arise when the Dodd-Frank Act and Solvency II come into effect being one such requirement. The report adds that many insurers are improving the integration of enterprise risk management (ERM) and taking greater steps to prioritize good governance, infrastructure and disclosure over risk modelling into their standard operation procedures. Improving both recruitment and retention of industry talent has also become a major challenge facing insurers today.
Insurance product innovation and augmentation is also an area where Deloitte says individual companies can now exert greater control over their own destiny during these tough economic times. Going forward, insurers must use market research effectively to ensure that both new and traditional insurance policies remain relevant to the needs of consumers operating in our new global economic environment. According to the report, the predominance of international business supply chains pose new property and casualty risks which have in turn necessitated new types of insurance products, including cyber liability, green construction cover, nanotechnology insurance and global political risk cover amongst others. Meanwhile in personal lines, more hybrid products are coming to market which meet multiple needs, including long-term care benefits in life and annuity, private unemployment insurance, homeowner’s value protection, and other products. Overall, it will be incumbent on insurers to continue and explore new niche markets and develop specialty coverage products to generate additional sales.
In addition to developing new products and entering new markets, Deloitte adds that perhaps insurers should take their social media marketing efforts more seriously. While most insurance companies already have a presence on prominent social media sites, like Facebook or Twitter, many have yet to analyze this massive dataset properly. According to Deloitte, these readily available analytics can offer valuable insights about buyer needs and can improve customer experience as well as the efficiency of their operations.
Overall, the report emphasizes that smart insurers should be able to weather current market conditions and potentially even thrive through sound, strategic investments that work to secure growth, achieve operational excellence and encourage innovation. Sam Freidman, Deloitte’s insurance research leader, expalins that “while achieving growth, operational excellence and innovation in such a difficult economic and competitive environment might be easier said than done, opportunities are available for insurers that can seize the moment. There are many options insurers might consider to grow even in the toughest of economies if they can overcome the obstacles they face.”
Company Mentioned
Deloitte
Deloitte is the world’s largest private professional services organization. The consulting firm, founded in 1845, now has over 170,000 staff, working out of 140 different countries. Deloitte provides audit, tax, consulting, enterprise risk and other financial advisory services through its many member firms.
Jan
18
RMB to Play Bigger Role in Hong Kong Insurance
Filed Under China insurance, Hong Kong | Leave a Comment
Hong Kong has announced new measures this week to liberalize yuan capital requirements for local banks in a bid to promote the city-state’s status as China’s main offshore currency centre. This move will likely result in more yuan-denominated insurance products and retirement funds becoming available in Asia’s premier insurance market soon.
On Tuesday, the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, declared that local banks would now be able to include both their holdings of yuan-denominated Chinese sovereign bonds that were issued locally in Hong Kong and bonds traded within Mainland China’s inter-bank market as part of their mandatory capital reserve requirements going forward. Prior to this regulation, all Hong Kong-based banks trading on the offshore yuan market had to set aside cash and settlement balances as reserves (equal to 25 percent of customer deposits) with a separate yuan-clearing bank or through the fiduciary account in the People’s Bank of China, as part of the city’s strict risk management regulations. Relaxing these requirements now will allow Hong Kong banks to take on more risks, hold more cash for mainland interbank lending, and increase their involvement overall in the fledgling offshore yuan market .
This announcement follows the HKMA and UK Treasury decision earlier in the week to launch a new joint private sector international forum designed to promote the globalization of the yuan. The forum will enhance cooperation between Hong Kong and London’s financial centers and work to support the continued development of the offshore yuan market.
After years of stringent currency isolation, the Chinese government is now attempting to promote the use of the yuan overseas as part of their long-term plan to turn their notes into an international reserve currency to compete alongside the United States dollar. China sees the growh of the Hong Kong yuan market in particular as a key component to this objective, and are working to support it’s continued development. Yuan-denominated deposits in Hong Kong increased to CNY627.3 billion (US$99.18 billion) in November 2011, up by 1.4 per cent from a month prior. London, the world’s largest foreign exchange centre, will soon be permitted a slice of this yuan action too, as the United Kingdom looks to boost its trade and investment ties with Asia’s fast-growing economies.
Speaking at the annual Asia Financial Forum in Hong Kong yesterday, HKMA Chief Executive Norman Chan told attendees that the new relaxed rules on yuan capital requirements would ensure the stable development of the offshore Chinese currency market and become a boon for the rest of the international business community as well. “These measures greatly expand the scope of offshore yuan business development,” Chan said, adding that this in turn “raises the flexibility on how banks manage their yuan assets, favoring further growth in the market.” The HKMA has advised however that banks should of course continue to adopt prudent measures in measuring their foreign exchange and liquidity risk when engaging in yuan-denominated activities. “We are required to change financial rules according to market conditions. Our principle is to make gradual change while keeping risks at bay,” Chan concluded.
One of the beneficiaries of this development will of course likely be the Hong Kong insurance industry. The HKMA Chief admitted that they were already looking for ways to get insurer investment back into the Mainland interbank bond market. Increasing insurer trade would in turn lead to an increase in the number of yuan-denominated insurance products and retirement funds with longer maturity available in China. According to HKMA statistics, the value of new life insurance premiums priced in yuan hit a record CNY4.43 billion (HK$5.4 billion) during the first half of 2011, representing about 13.8 percent of the total Hong Kong life market for the year. The mainland insurance market offers business opportunities that HK insurers cannot ignore, provided they are permitted to engage with them.
One of Hong Kong’s chief insurance sector legislators, Chan Kin-por, was also on hand at the Asia Financial Forum to explain that currently only China Reinsurance is allowed to invest the yuan-denominated premiums. “If insurers could directly invest in the mainland interbank bond market, that could generate 3-4 percent return almost risk- free,” said Chan Kin-por, adding that a direct investment channel for HK insurers is long overdue. Four HK-based insurance companies have already confirmed their interest in the mainland bond market and will likely be granted an investment quota soon, with pension funds expected to wait a while longer.
Despite persistent financial market volatility, Hong Kong’s insurance industry kept pace with double-digit growth rates posted in several neighboring Asia-Pacific markets throughout 2011. According to the latest figures made available on the Office of the Commissioner of Insurance (OCI) website, Hong Kong’s insurance companies posted HK$172.8 billion (US$22.2 billion) in gross written premiums for the first three quarters of 2011, a 12.6 percent growth rate over the same period last year, with overall underwriting profit rising from HK$1.7 billion (US$220 million) to HK$2.1 billion (US$270 million) during that time.
While these double-digit premium growth rates may prove elusive in 2012, Hong Kong’s insurance companies will likely benefit from the business potential available across the Asia Pacific region, specifically Mainland China. According to a recent report issued by the Hong Kong Federation of Insurers (HKFI), Mainland Chinese customers are projected to contribute 20 to 30 percent of all new HK insurance sales over the next five years. China is now the world’s second largest economy, with an emerging middle class population ready to spend vast sums on a variety of insurance and investment products. This tremendous potential customer base has presented sizeable opportunities to major international financial markets, most notably Hong Kong of course, which is both convenient geographically and culturally as well. While this Hong Kong-China relationship has frequently been tested, made notable last year by maternity tourism abuse, overall the mainland market will provide many HK businesses with bountiful business prospects going forward. Hong Kong insurance companies that can develop both innovative and cost-effective insurance products not yet available on the Mainland will be able to capitalize upon a still under-penetrated and lucrative market.
Jan
17
Growth Inevitable for Indian Insurance Market, Profits Maybe Not
Filed Under Uncategorized | Leave a Comment
A special report released today by international insurance information and credit ratings agency AM Best has provided new analysis on both the opportunities and challenges facing insurers, consumers and regulators in India’s emerging insurance market as we head into 2012.
At present, India’s insurance market is composed of 23 different life and 24 non-life companies, with a total value estimated at over US$ 66 billion per annum. The development opportunity for life and non-life insurance coverage has been driven by the continued growth and expansion of India’s overall population and economy. In their new report, titled ‘Growth Anticipated for Indian Insurers but Frustrations Remain’, AM Best acknowledges that while India’s insurance sector has posted strong growth indicators in the decade since the market was first liberalized in 2000, with consistent double-digit premium growth achieved primarily through the country’s life market, achieving profitability remains a challenge for many of the country’s individual insurance companies. While the insurance sector’s overall prospects for growth still appear bright in the long term, the market’s unique idiosyncrasies will need to be addressed in order to attract and sustain the necessary investment and innovation required to take India’s insurance industry to the next level.
According to AM Best, intense competition, poor underwriting practices, and high expense ratios have been three of the chief concerns brought forward by insurance companies operating in India. The impact of de-tariffing on the Indian general insurance industry in 2007 has made it particularly difficult for companies to sustain profitable operations at present. Over the past few years, intense competition has forced insurers to drive down rates without due regard to the risks and overall profitability of the business being generated. Ten years on since the state’s insurance monopolies were officially ended, the public sector undertakings (PSU) New India Assurance, United India, Oriental Insurance and National Insurance Co, in the non-life sector, and Life Insurance Corporation of India, in the life market, remain the dominant players across their respective lines. Private sectors insurers in India have continued to find it challenging to achieve profitability and generate the necessary scale to compete with state-backed firms, citing the costs of establishing distribution channels and sustaining a consistent customer base by offering ever-more competitive prices, as prohibitive obstacles.
AM Best adds that the Indian Motor Third Party Insurance Pool (IMTPIP) has also played a significant role in driving up company underwriting losses, as claims inflation continues to rise across the country’s non-life market. Under the IMTPIP, established in April 2007, all insured losses are distributed amongst the country’s auto insurers according to their overall market share of all lines of business. This mechanism has severely tested the solvency of those involved in the general insurance sector due to the huge inefficiencies in claims, fraud, and pricing amongst the market’s participants. According to AM Best’s report, India’s third-party motor pool posted a record loss ratio of 194.2 percent for the year 2009-2010, while it maintained reserves for a loss ratio of only 126 percent. Insurers are hopeful that the upcoming reforms to the IMTPIP in March 2012 will lead to an eventual improvement in rates and enable the country’s potentially lucrative motor insurance market to properly reset and prosper.
The country’s life insurance sector has meanwhile had to deal with new regulations governing popular unit-linked insurance policies, which took effect in 2010. AM Best notes that the impact has so far proven significant, resulting in a sharp industry-wide drop in first-year premium. The ratings agency notes however that companies are now beginning to adjust their product portfolio toward more conventional policies, which should in turn improve underwriting performances.
Despite these varied challenges, AM Best notes that there are still bountiful opportunities for insurers in India, and top-line growth remains strong, with non-life gross written premiums increasing by 23.8 percent from April to October 2011. Continued economic growth and infrastructure development, together with an expanding middle class and a surging demand for health insurance are resulting in international insurers and reinsurers seeking to develop a greater presence in the world’s second most populated country. International insurers have so far found success in the country through direct investment and operating as joint venture partners alongside major local insurance and finance conglomerates, which can provide more immediate access to local expertise and distribution networks. However, while these companies would like to increase their commitment to India, in pursuit of risk diversification and mutual growth, they are facing repeated frustrations in attempting to increase their involvement in the populous South Asian country, with a lifting of the country’s onerous foreign direct investment limit from 26 percent to 49 percent unlikely to change in the near term.
Recent foreign entrants into India’s insurance market include Japan’s Tokio Marine Holdings and Berkshire Hathaway, who became a licensed corporate agent of Bajaj Allianz last year. The country’s bancassurance sector has also grown in international importance, as was evident by MetLife India’s decision to acquire a 30 percent stake in Punjab National Bank in July 2011.This was followed by Nippon Life’s move to acquire a 26 percent stake in local power Reliance Life in August 2011. The year wrapped up with moves made by US health insurance giants to take advantage of India’s emerging medical coverage demands. First Aetna purchased local health provider network Indian Health Organization Pvt Ltd (IHO) and then Cigna signed a joint-venture agreement with Indian consumer goods company TTK Group to sell a range of health, wellness and insurance products in November 2011.
Overall, India looks set to be one of the world’s fastest growing insurance markets over the next decade, with total premium income projected to reach US$350-400 billion by 2020. Rising income levels and greater awareness of risk management practices are expected to drive a considerable demand for coverage solutions nationwide. Furthermore, India’s insurance companies could make a significant mark and compete on the international insurance stage if they are able to update their business models and capitalize on the tremendous potential client base available in their home market.
Companies Mentioned
A.M Best
A.M Best Company was founded in 1899 and is a full-service credit rating organization dedicated to servicing the financial services industries, including the banking and insurance sectors.
Jan
16
Starting January 1st 2012, visitors from Mainland China are allowed to travel to nearby Taiwan for the express purpose of medical tourism. The first application made by Chinese travelers seeking medical treatment has already been submitted to Taiwan’s National Immigration Agency and many more are now expected to come throughout the year to take advantage of the cross-strait healthcare advantages made available through this new initiative.
In the past, Mainland Chinese tourists bound for Taiwan were not allowed to officially declare that they would be visiting the Asian island nation solely for medical tourism reasons. Those who sought health checkups or elective surgery while already visiting the country would only have access to certain medical treatment as part of their individual or group travel itineraries. This system however didn’t work in practice and lead to widespread confusion with Chinese travelers using Taiwanese hospitals and clinics surreptitiously during their stay anyway, often overwhelming local medical facilities and immigration officials in the process. Taiwan’s private hospitals and clinics meanwhile want to capitalize on the business opportunity these Mainland Chinese patients present and instead are finding an increasing number of these clients travelling further afield to Malaysia, Singapore or the USA for expensive medical treatment.
In addressing these demands, the Taiwanese government announced on December 30th, 2011 that they had revised the country’s immigration rules specifically regarding permits for people arriving from Mainland China. Under the new rules, beginning in 2012, Chinese nationals can legally enter Taiwan specifically for the purpose of having health checkups, elective or non-urgent surgery, and cosmetic surgery procedures. These Mainland Chinese tourists are allowed to stay in Taiwan for up to 15 days, which includes a three day shopping and tourism allocation, in addition to their medical treatment days. Taiwanese private medical facilities that are qualified to provide these services meanwhile can apply to the National Immigration Agency (NIA) for visas on behalf of their prospective Chinese patients. According to Taiwanese officials, these applications will be given top priority for processing by the NIA and will take around five business days to review and approve, with potentially life-threatening cases put on a 4 hour fast track.
The response to this development has certainly been quick, with the first medical tourist visa from Mainland China filed only a day after the initiative came into force on January 1st. According to the NIA, the first cross-border medical tourist application was submitted by Shin Kong Wu Ho-Su Memorial Hospital. The Taipei-based hospital plans to host a 26-member group from the Chinese province of Liaoning in February. The first group of medical-visa tourists from Mainland China, composed of presidents from large domestic hospitals and officials from local governments, is expected to undergo several advanced health screening programs and learn more about Taiwan’s specific health checkups and cosmetic surgery practices during their expected six-day trip. How Shin Kong Wu Ho-Su Memorial Hospital’s premier medical tourist group fare could offer some interesting insights about the Taiwanese medical tourism industry going forward. There are currently over 30 hospitals and clinics in Taiwan with the appropriate qualifications to submit visa applications for and host medical tourists from Mainland China. These Taiwanese medical facilities include the National Taiwan University Hospital, Kaohsiung Medical University Chung-Ho Memorial, Cathay General, China Medical College Hospital and Taipei Veteran’s General Hospital, with many more small-scale hospitals and cosmetic surgery clinics expected to be added to the list of qualified institutions soon.
In addition to medical-visa revisions for local hospitals, the Taiwanese government is looking to invest in specialized medical zones near the country’s international airports to attract even more prospective medical tourists. Four of these zones are currently in development and are projected to pull in 40,000 tourists per annum once completed. Taiwan’s government is ultimately banking on these facilities, together with the country’s state-of-the-art health service technologies and low treatment costs, to take business away from the likes of India and Thailand.
Making Taiwan’s healthcare industry more attractive to international clientele within Asia’s highly competitive medical tourism market has become a priority for the national government. With a relatively modest 85,000 medical tourists visiting their facilities in 2011, Taiwan’s government and healthcare providers have had to take a more proactive and coordinated approach to recognize and develop areas of the international medical tourism market that they can more readily capitalize upon. One of these market segments is of course Mainland China, where Taiwan has an advantage over its regional competitors through shared language, similar culture and shorter travel distance. The number of outbound Chinese medical tourists has increased from just a few thousand at the start of the decade to nearly 60,000 annual travelers in 2010. An aging population and rising individual incomes have increased the demand for medical and healthcare products and services throughout the country in that time. Compared with China, Taiwan can provide higher quality medical services at more modest prices. Checkup fees for example are about NT$40,000 (US$1,320) in Taiwan, which is cheaper than the NT$60,000 (US$2,000) required on average in mainland China.
While the mass of emerging middle class Mainland Chinese clients definitely presents profound opportunities for international healthcare providers, this group can also come with certain drawbacks as well. One factor that has become quite unique to Mainland Chinese health travelers has been the wave of expectant mothers leaving the country solely to give birth in a foreign country, a practice known as maternity tourism. Hong Kong has so far proven to be the most popular destination for expecting Mainland Chinese mothers. While the prosperous city-state is of course now part of the PRC, following the handover in 1997, it has been exempted from the Mainland government’s population control policies (the one child policy). What’s more, children born within HK’s borders are ensured local residency, and all accompanying rights to local social services. In 2010 this resulted in Hong Kong’s hospitals and maternity wards birthing 40,648 Mainland babies, almost half of the city’s 88,000 total births for the year. This has now resulted in legislation from Hong Kong’s government that will cap the number of non-residents allowed to give birth in the city to 34,000 per annum, starting in 2012. With Mainland China’s population controls likely to continue, maternity tourism will no doubt continue to be an issue for Hong Kong, but one that can hopefully be ameliorated by the accompanying demand by Mainland Chinese clients for more advanced medical treatment options, both at home and abroad.
Jan
13
New Pension and Life Insurance Options Slated for Indian Expatriates
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India’s Prime Minister Manmohan Singh made news this week with the announcement of a new state pension and life insurance scheme designed to cover the country’s large expatriate workforce. The move looks to fulfill a long-standing demand of the prolific non-resident Indian diaspora and could encourage the country’s millions of overseas workers, especially the many now working in the Gulf states, to invest back in their home country and save money for their future.
Dr Singh laid out the details of the government’s new Pension and Life Insurance Fund (PLIF) in his inaugural address at the tenth Pravasi Bharatiya Diwas in Jaipur on Sunday. The Pravasi Bharatiya Diwas, or non-resident Indian day, is an annual event that recognizes the sizeable contribution made by the overseas Indian community to the continued development of their home country. The 1,900 delegates in attendance represented the interests of Indian expatriates from 60 countries.
Under the provisions of the PLIF, any Non-Resident Indian (NRIs) or Persons of Indian Origins (PIOs) who wish to save for their resettlement and retirement upon their return to India will be eligible for the scheme after proper immigration clearance. All subscribers who then contribute between Rs 1,000 (US$19.29) and Rs 12,000 (US$231.5) per year will receive an Rs 1,000 (US$19.29) annual co-contribution from the Indian government, with female overseas workers also eligible for a special co-contribution worth an additional Rs1,000 (US$19.29) a year. The Prime Minister added that the new scheme, which was only recently cleared by the Union cabinet, will offer a low-cost life insurance policy for Indian expatriates that will cover against natural death, and that this could become a key savings tool for many families. “This scheme fulfils a long-pending demand of our workers abroad,” Dr Singh said, adding that the PLIF “will encourage, enable and assist overseas workers to voluntarily save for their return and resettlement and old age.”
In addition to this expatriate pension scheme, The Ministry of Overseas Indian Affairs was on hand to describe a new e-migrate initiative that will provide comprehensive computerized solutions for all stages in the country’s previously over-encumbered emigration system. Once implemented, the system should link all key subscribers onto a common network which will then be used by workers, recruitment agencies, immigration officials, employers, and Indian missions to better coordinate expatriate movement. The scope of India’s previous Labour Mobility Partnership Agreements with other countries will also soon be expand to cover more skilled workers students, academics and Indian professionals. According to a senior official, these updated agreements are currently being negotiated with The Netherlands, France, Australia and the European Union.
It has become increasingly important for Indian governments to woo their large overseas workforce with initiatives for reinvestment in their country. It is estimated that of India’s 1.3 billion population, more than 25 million are currently living and working abroad. While other prominent Asian nations like China and the Philippines have been able to reap great economic reward from their expatriate workforce, be it through remittances and trade, India’s emigrant investment has lagged behind, and thus the government is now trying to more actively engage their diaspora. “The government and people of India recognize and greatly value the important role being played by Indian communities living abroad. We believe that the Indian diaspora has much more to contribute in building of modern India,” Prime Minister Singh said.
Of particular interest of late has been the state of India’s expatriates in the Gulf. The Indian diaspora has made up a considerable proportion of the working class in the Middle East for a while, with many moving to the rich Gulf States during the oil boom to work as construction laborers and other more specialized fields. The MENA region has proven to be an attractive destination for South Asian migrant labour due to the higher incomes available as well as the relative geographical proximity to the subcontinent. This has lead to, in 2005 for example, over 40 percent of the United Arab Emirates’ population being of Indian descent. This considerable demographic development presents problems for the Indian diaspora, as citizenship and permanent residency are seldom granted to immigrants in these Gulf countries. Thus maintaining affordable access to necessary services like healthcare and retirement planning becomes an issue for many non-resident Indians. Added to this of course are increased regional security concerns in the aftermath of the Arab spring.
These developments follow the renewed moves made by India’s chief insurance regulator (IRDA) to update and liberalize the country’s insurance market and encourage the rising number of Indian middle-class consumers to make more proactive insurance and investment decisions. The county’s insurance sector has grown rapidly over the past decade, driven in particular by the popularity of life insurance products, which dominate the market. Since the Indian insurance market was first opened up to the private sector through the Insurance Regulatory and Development Authority Act in 1999, total insurance penetration across the country has nearly doubled, with the local market overtaking several developed economies in terms of premium output in the process. Critical to this growth has been the input from the international insurance industry. According to a recent industry report, over the past 10 years the market share of the previously state-run firms has decreased to 65 percent for life insurance and 60 percent for general insurance. Foreign multinational insurance companies have played a big part in this development. Despite the highly contentious 26 percent foreign ownership cap, the vast majority of insurance companies that have been established in India since 2000 have been joint venture operations with overseas partners. Overall, India represents one of the world’s fastest growing insurance and pension fund markets, with rising income levels and growing awareness of risk management amongst the populace expected to drive a substantial demand for cover and investment solutions nationwide. Contributions from the country’s tremendous expatriate populace will of course play a large part in this development as well. “The ‘global Indian’ is a symbol of this diversity of our ancient land. Your individual prosperity and personal achievement are a symbol of what a diverse people like us can achieve,” Dr Singh concluded.
Jan
12
Cigna and US Physician Group to Launch New Health Care Initiative
Filed Under CIGNA, USA Health Insurance | Leave a Comment
US health insurance giant CIGNA Corp. is launching a new collaborative medical care initiative with a New York-based physician group that aims to deliver improved medical access and outcomes at reduced cost for members and will work in a similar manner to the accountable care organizations outlined by the Obama Administration’s health care reform law.
Accountable care organizations, commonly referred to as ACOs, were introduced as part of the Patient Protection and Affordable Care Act in 2010. ACOs function as patient-centered networks of private healthcare providers that all agree to be made accountable for the overall care of their health plan members in exchange for additional compensation if they are able to improve health outcomes and reduce medical expenses.
On Wednesday, CIGNA announced that the Weill Cornell Physician Organization would be their partner in what will become the first accountable care initiative in New York that encompasses both a health plan and a physician organization. The move follows the establishment of a similar collaborative initiative between CIGNA and independent physician group Partners in Care in New Jersey last month. Nationwide, the Bloomfield, Connecticut-based health insurer is now running 11 accountable care programs across 10 states, with patient-centered initiatives now encompassing more than 170,000 Cigna policyholders and 1,800 primary care physicians. The insurer also participates in six multi-payer medical home initiatives across the USA.
According to a press statement released this week by CIGNA, the goal of all these ACOs is to ultimately provide a better service for policyholders through improved access to care and better coordination between medical providers. The statement outlined the company’s “triple aim” of raising member satisfaction, improving health outcomes and reducing the overall cost of medical care. Those who are already covered by Cigna and use Weill Cornell primary physicians will not need to do anything to receive the benefits of the program.
Under this new collaborative program, all nurses employed by Weill Cornell’s 71 primary care doctors will serve an additional role as clinical care coordinators for CIGNA policyholders. These registered nurses will use the patient-specific data provided by the health insurer to identify and reach out to patients discharged from their hospitals who might still be at risk for readmission, overdue for an important health screening, or someone who may have simply missed a prescription refill. These care coordinators will also work to help patients schedule doctor appointments, provide them with appropriate health information, and refer individuals to CIGNA’s disease and lifestyle management programs, the statement said.
Dr. Alan Muney, CIGNA Chief Medical Officer, declared in the statement that these programs were working to transform medical practices nationwide by changing the payment system to reward for quality and outcomes rather than pay for volume. “We believe that initiatives such as this will help transform the way medicine is practiced in the United States from a system that’s focused mainly on treating illness and rewarding physicians for volume to one that’s patient-centred and emphasizes prevention and primary care. We’ve already seen very promising early results in locations where we’ve implemented this type of program, and we believe these initiatives ultimately will lead to a healthier population and lower medical costs,” Muney commented, saying in addition that CIGNA has planned to continue increasing the number of such patient-centered initiatives nationwide throughout 2012
Weill Cornell’s chief contracting officer, Dr. Michael Wolk, was on hand to confirm the sentiment. “Providing value-added, patient-centred health care is our number one priority. We look forward to collaborating with Cigna to deliver the right care at the right time in the right place,” Wolk said, adding that patients that have needed greater help and communication in managing their chronic conditions, including diabetes and heart disease, would be the most likely to see the immediate benefits of the program.
This collaborative accountable care initiative between Cigna and Weill Cornell demonstrates perhaps the steps now necessary for health insurers and providers to encourage greater patient participation with healthcare professionals while keeping costs manageable. Health insurance in the United States has been primarily provided through private sector employers, who bear a large portion of the nation’s healthcare costs. In times of limited economic growth it has thus become increasingly important for those involved in the country’s health system to find a model that can lower costs while maintaining and improving overall employee health and productivity. Added to this has been the continued fervor over the Obama Administration’s upcoming healthcare reforms. Under the Patient Protection and Affordable Care Act (PPACA) nearly all American citizens will have to carry health insurance by 2014 or else face a fine. The US Supreme Court has agreed to rule on whether the United States government can make its citizens engage in such commerce, with their verdict likely to be a critical issue in the run up to the country’s general election in November. The individual mandate, if deemed legal, will put the US insurance industry in a bind, with insurers having less control over whom they cover, which is predicted to drive up their medical expenses and drive down profits. Many insurance companies are therefore deciding look outside the country in order to offset the relatively low premium growth forecast in the USA.
Indeed, Cigna has proven to be one of the more proactive American insurers looking to develop their footprint in overseas markets. As BRIC economies in particular continue to grow, Cigna plans to be at the forefront with an aggressive strategy to take advantage of the increasing demand for insurance and savings solutions in these countries. Industry analysts predict Cigna’s international operations could grow to become a third of the company’s total business within the next three to five years.
Insurance Company Mentioned
Cigna
CIGNA Health Insurance is a global health service company dedicated to helping people improve their health, well being and sense of security. CIGNA Corporation’s operating subsidiaries provide an integrated suite of medical, dental, behavioral health, pharmacy and vision care benefits, as well as group life, accident and disability insurance, to approximately 46 million people throughout the United States and around the world.
Jan
11
Chinese Insurance Market Grows in 2011, Faces Challenges in 2012
Filed Under China, China insurance | 1 Comment
China may be home to one of the world’s fastest growing insurance markets but unless the country’s insurance sector can address some fundamental issues going forward, insurers will not be able to capitalize on the market’s profound business potential moving into 2012 and beyond. This is all according to Xiang Junbo, the head of the China Insurance Regulatory Commission (CIRC), who had strong words for the Chinese insurance industry this week, warning that they would indeed face major challenges this year despite the continued double-digit growth in premiums reported for 2011. Insurance companies will need to adapt to changes in the Chinese economy, adjust their business models and increase both their equity investments and bank deposits, all while making sure to maintain a healthy solvency ratio.
According to the latest industry data presented by the CIRC at the National Insurance Work Conference last week, Chinese insurance companies wrote CNY1.43 trillion (US$226.4 billion) worth of premiums last year, a 10.4 percent increase on 2010’s results. Broken down by sector, the country’s property and casualty insurance sector recorded an 18.5 percent annual increase in premium income to CNY461.8 billion (US$73.1 billion), while the life insurance industry posted a 6.8 percent rise in premium income to CNY969.9 billion (US$153.5 billion). This occurred while the total assets held by insurers in China rose to a record CNY5.9 trillion (US$930 billion), compared with CNY5 trillion (US$790 billion) in 2010, with the number of insurers failing to meet solvency ratio requirements declining from seven to five. Claims payments made by insurers meanwhile amounted to CNY391 billion (US$61.9 billion) in 2011.
Despite these strong growth figures, data that most markets would in fact be delighted with right now, the CIRC chairman Xiang Junbo used his time at the National Insurance Work Conference in Beijing on Saturday to warn those active in the domestic insurance industry that there were still deeply-rooted problems in the market that need to be dealt with promptly. Chinese insurance companies did indeed deal with difficult conditions last year, with the increased prevalence of natural disaster losses, inflationary pressure and ongoing global financial market volatility occurring throughout 2011 amongst other issues, and saw their annualized return on investment fall by 3.6 percent. According to the CIRC website, Xiang warned that if these challenges cannot be overcome, the growth potential of the insurance market may in fact exceed the domestic industry’s capacity to act. “Affected by severe external economic and financial conditions as well as the sector’s own problems, the industry is experiencing a rapid increase in difficulties,” Xiang said, adding that insurance companies could soon face greater pressure due to their relatively low capitalization, unrefined risk management practices and limited asset and liabilities management options.
In his speech Xiang, who was appointed CIRC commissioner last October, went on to outline several specific problems Chinese insurers must contend with in 2012. First off, the CIRC head admitted that the largest growth figures seen over the past year in the property and casualty insurance sector were mainly generated by the automobile industry and compulsory first party motor lines, not through any noted product or market developments. According to Xiang, the overall competitiveness within the Chinese insurance industry is still relatively weak, with some insurers in fact violating industry regulations in order to gain market share. An industry-wide development strategy that has focused primarily on gross premium growth has been the main culprit for this malaise. This current pattern of expansion, which comes largely at the expense of improved management structures and product/service innovation has failed to consistently satisfy public demand, Xiang held, and that pushing for more innovations in insurance product design and service would be the best way to address this issue going forward. There have also been problems with sales management mechanisms as most of the sales persons in the industry remain under qualified for their positions. Overall, Xiang feels that many Chinese insurance companies are simply not keeping up with “the profound changes in the external environment.”
In an attempt to remedy these issues and ensure that Chinese insurers do not fall further behind, the CIRC will actively encourage companies to bolster their capital reserves in 2012 and invest wisely in their businesses. Higher reserves will ultimately help companies survive unforeseen catastrophe losses and will enable them to better protect and serve their existing policyholders. The insurance authorities are also considering allowing greater foreign involvement, particularly in the country’s claims-heavy motor insurance market, amongst other reforms. The CIRC also has plans to help companies shift their focus toward subordinated, hybrid and convertible bonds, which will help boost their capital positions, as well as the performance of investments throughout the industry, keeping insurance credit ratings fairly high in tow. Xiang and his agency, are on record supporting plans for the People’s Insurance Company (Group) of China Ltd. to become a public company and will also push forward reform of shareholding arrangements at China Life Insurance Group Co.
Overall, while the Chinese insurance market will of course continue to provide tremendous business opportunities going forward, individual insurers active in the world’s second largest economy will need to build greater capital reserves and continue to evolve their business practices to succeed, a view shared by other prominent industry analysts. Recent reports published by AM Best and AON Benfield touch on many of the same concerns expressed by the CIRC but conclude ultimately that China’s continued economic development, pegged at 9.6 percent real GDP growth this year, will continue to provide scope for insurance demand across all business lines, provided of course regulation and business practices can improve as well.
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