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
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.
Jan
9
Ongoing Confusion over Foreigners’ Inclusion in China’s Social Security System
Filed Under China, China insurance, Expat Insurance, Health Insurance, Income Protection, Life Insurance, Medical Insurance | Leave a Comment
There continues to be continued uncertainty over whether, as well as how, China is going to include foreign workers in the nation’s social security scheme, with only 3 cities so far, including the nation’s capital, having committed themselves to registering and taxing foreign employees.
The inclusion of foreigners in China’s social security taxation structure is part of China’s health care reforms and the modernization of the country’s social welfare structure to accommodate such reforms. Through taxing expatriates, China offers them access to a number of things through the social security system such as unemployment insurance, pensions and basic medical cover. The scheme requires that the employer pays a tax of 37 percent of the employees’ salary to the state, while the employee contributes a further 11 percent, although contributions are supposed to be capped at three times the average salary in any city.
The plan to include foreign expatriates in China in the social security taxation scheme was initially announced by the central government in July of 2011, and foreigners were supposed to have commenced paying into the social security scheme in October. However, while the Chinese central government announced the new taxation on expatriates, it is the local authorities who are supposed to be implementing it through the registration of foreigners and a mechanism for how to actually pay into the social security system.
The lack of clarity over how the process should work, as well as the relatively short timeline to put necessary frameworks in place in many localities, has resulted in much confusion all around. Beijing was the only city ready to begin registering foreign workers, and even that has been rumored to be fairly unorganized.
However, two new cities have begun registering foreigners to comply with the new tax law, namely Tianjin and Suzhou. Other large centers of commerce in China, such as Shanghai, Guangzhou and Shenzhen have so far not begun to implement the new taxes for the social security scheme.
On top of the general bureaucratic chaos, both companies and their foreign employees have great concerns over the new tax and its implications. Many companies are concerned that in a business climate where it is increasingly more expensive to do business in China, the tax on expatriates’ salaries would become a drain on both business growth and foreign investment.
Foreign employees on the other hand are concerned that since much of their rights as workers are linked to their work visas, they will most likely never see the benefits they have been paying for. When expatriates lose or finish their employment in China, they must leave the country, largely rendering the benefits of the social security scheme moot.
Only in December did state media outlet Xinhua cite an unnamed social security official in Beijing as saying that foreigners who leave China will have their pension accounts kept, until they return to the country, retire, or submit a written application to drop the scheme. Although given the fact that this came out three months after people were supposed to have started paying into a scheme which they may or may not see the benefits from, it may only serve to further the sense of confusion surrounding the new taxes. While the social security scheme is similar to many other countries which include both citizens and foreigners, much needs to be done in order to clarify the scheme in order to make it reasonable.
Jan
6
CIGNA’s China JV Adds New Product to Health Insurance Lineup
Filed Under CIGNA, China, China insurance, Health Insurance, Medical Insurance | Leave a Comment
Cigna & CMC Life Insurance Co., Ltd., Cigna’s Chinese joint venture company, is adding a new product to its portfolio. The new health management product named Cigna & CMC CARE+ will afford policyholders of Cigna & CMC’s high end health insurance plans access to a number of new services and benefits.
As a joint venture between Cigna and China Merchants Group, Cigna & CMC operates as a health, life and accident insurance company in China. It was announced shortly before the end of 2011 that they would be including the new health management product as a value added service for new clients immediately and that existing clients can avail themselves of Cigna & CMC CARE+ benefits upon renewal.
The Cigna & CMC CARE+ health management product is composed of three tools and services. These are the International Employee Assistance Program (IEAP), Expert Second Opinion services and a health and wellbeing assessment.
The Expert Second Opinions section of Cigna & CMC CARE+ can help clients that have received a serious medical diagnosis by providing them with an online diagnosis analysis as well as treatment recommendations. Cigna & CMC have partnered with the Cleveland Clinic to provide clients access to experts who can provide second opinions and medical advice.
The health and wellbeing assessment offers policyholders access to an online survey which will generate a personal report with suggestions for improving their health in areas such as sleeping, nutrition and stress. After completing the assessment policyholders can receive advice and tools that can help them affect a positive change in their state of health.
The International Employee Assistance Program is one of the services that clients can use to begin improving their circumstances, as it provides confidential short-term counseling services and resources at no additional charge that policyholders can use to help resolve personal issues.
The announcement of the Cigna & CMC CARE+ product came shortly after the company had a new General Manager and CEO appointed in mid-November, 2011, named Mr. Fernando Moreira. The company currently offers 4 types of health insurance plans, titled jade, silver, gold and platinum, and the addition of the new health and wellbeing tools and services in Cigna & CMC CARE+ enable clients to stay healthy and possibly prevent future health issues.
Cigna & CMC’s Senior Vice President of Healthcare Products, Ken Vaughan, said that “Cigna’s mission is to improve the health, well-being and sense of security for the customers we serve. Building the foundation for health and well-being starts with access to the right tools and services.”
Insurance Companies 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.
Cigna & CMC
Cigna & CMC is a joint venture in China, established in 2003 by Cigna and China Merchants Group. The company offers life, accident and health insurance products in China. It was awarded the Best Foreign Life Insurance Company Award in China in 2008 and 2009.
Dec
20
Chinese Insurers See Premium Income Growth Amid Mixed Markets
Filed Under Asia, China, China insurance, Insurance Company | 1 Comment
Despite mixed stock movements in China recently, Chinese insurance companies have seen premium income grow over last year’s results, including China Life which recently begun trading in Hong Kong and Shanghai.
China Life Insurance, China Pacific Insurance Group and Ping An Insurance Group, which includes Ping An Life Insurance, Ping An Health Insurance, Ping An Annuity and Ping An Casualty Insurance, all saw positive growth on premium income over 2010.
China Pacific Insurance Group reported total premium income of CNY 143.8 billion (US$ 22.67 billion), demonstrating year-on-year growth of 12 percent. China Pacific’s life insurance business earned CNY 87.9 billion (US$ 13.86 billion) in the first 11 months of the year, while the property and casualty business reported CNY 55.9 billion (US$ 8.81 billion) for the first 11 months of 2011.
Ping An reported large gains for the first 11 months of the year, with each of its four main insurance businesses reporting over 20 percent year on year growth. Ping An Health Insurance saw the largest rate of growth in premium income of Ping An’s business segments, reporting 92.08 percent year-on-year growth to hit CNY112 million (US$ 17.66 million). Ping An Casualty Insurance grew 34.42 percent, earning CNY 74.68 billion (US$ 11.77 billion). Ping An Annuity earned premium income worth CNY 4.773 billion (US$ 752.48 million) showing a 21.62 year-on-year growth, while Ping An Life Insurance with the highest premium income of the group earned CNY 110.03 billion (US$ 17.35 billion) at 29.36 percent growth year-on-year. The Ping An Insurance Group saw overall premium income reach CNY 189.55 billion (US$ 29.89 billion) for the first 11 months of 2011, demonstrating year-on-year growth of 31.12 percent.
China Life Insurance earned premium income worth CNY 301.2 billion (US$ 47.49 billion) for the first 11 months of the year, showing more meager growth of 0.63 percent over last year’s CNY 299.3 billion (US$ 47.19 billion) for the same period. China Life Insurance has also recently had held their IPO for both the Hong Kong and Shanghai bourses in December, 2011.
So far, China Life has had mixed trading results, with stocks in China growing at 13.7 percent during its first day of trading on the back of a 2 percent rally of the Shanghai Index. China Life’s stock closed at CNY 26.44 (US$ 4.17) on Friday December 16th. China Life’s Hong Kong listed stocks started trading on Thursday, when they dropped 9.8 percent, although it rallied on Friday in light of Shanghai’s strong percent, rising 2.7 percent to close at HK$26.45 (US$ 3.40). Trading in the near future may be difficult to predict, as stock markets in Asia are already on edge due to the unexpected death of North Korea’s Kim Jong Il.
Companies Mentioned
China Life Insurance
China Life Insurance Company Limited (China Life) is a People’s Republic of China-based life insurance company. The products and services include individual life insurance, group life insurance, accident and health insurance. The Company operates in four business segments: individual life insurance business, group life insurance business, short-term insurance business, and corporate and other business.
China Pacific
China Pacific Insurance (Group) Co., Ltd. (CPIC) is a insurance company providing, through its subsidiaries, a range of life and property and insurance services and pension products to individual and corporate customers throughout the country. CPIC was founded on May 13, 1991, and is headquartered in Shanghai. The company was listed in Shanghai Stock Exchange on Dec. 25, 2007, with the stock code of 601601 and the stock name of “China Pacific”. The Company was listed in the Stock Exchange of Hong Kong Limited on Dec. 23, 2009, with the stock code “02601” and the stock name of “CPIC”.
Ping An
Ping An Insurance is the first integrated financial services conglomerate in China that blends its core insurance operations into services including securities brokerage, trust and investment, commercial banking, asset management and corporate pension business to create a highly efficient and diversified business profile. The group was established in 1988 and headquartered in Shenzhen, Guangdong Province, China.
Dec
7
Report Finds Improvement in China Health Insurance Coverage
Filed Under China, Healthcare | Leave a Comment
A new study out of the United States shows that action taken by the Chinese government over the past two decades to improve access to medical facilities may have in turn allowed overall health insurance coverage to increase throughout the country between 1997 and 2006, with particularly strident gains found in rural areas during this time.
The research was done by Brown University sociologist Susan Short and fellow alumnus Hongwei Xu, now at the University of Michigan, with the findings presented in the December issue of Health Affairs, a prominent medical policy journal. The study used data from the China Health and Nutrition Survey to analyze medical insurance coverage patterns in China over the past decade, with a particular focus on the diverging health behavior occurring among the country’s rural and urban inhabitants. China’s Health and Nutrition Survey tracks households across nine Chinese provinces that cumulatively represent over 40 percent of the country’s population, so the findings should be widely applicable to the country at large.
China’s rapid economic development over the past few decades has worked to lift millions of people out of poverty and improve the country’s overall health standards. This has manifested itself in an improved life expectancy at birth rate, which has risen from 69 years in 1990 to nearly 75 years by 2010 and a decrease in infant mortality, which declined from 37 per 1,000 live births in 1990 to 17 in 2009, amongst other favorable indicators. Despite this noted progress, however, many health issues in China remain unresolved. Chief amongst them are the large disparities that persist between the country’s more affluent urban dwellers and poor urban and rural inhabitants in terms of access to medical services and quality of care. Many among the poor have limited their use of medical services for purely financial reasons, since the costs of treating a serious illness could wipe out a family’s life savings. To address this problem, new insurance mechanisms are being implemented by the government to cover a significant portion of medical costs and to help lower the impact of high out-of-pocket payments.
Xu and Short’s report found that, overall, the number of Chinese citizens with some form of insurance policy increased moderately at the turn of the century, moving from 24 percent of the survey sample size in 1997 up to 28 percent by 2004. Over the past few years however the changes have been more dramatic, with insured individuals already representing 49 percent of all survey respondents by 2006. Moreover, since then, the gap between the rates of insured Chinese people between rural and urban areas has narrowed greatly. In the report, Xu and Short, both credit this as perhaps the most profound development occurring in Chinese healthcare over the past ten years, referring to the rise in rural health insurance coverage as “nothing short of dramatic.” While the predicted probability of having health insurance improved in China between 2004 and 2006 for all locations in the nine provinces studied, rural areas had the most to gain. Susan Short wrote that millions of rural Chinese residents have likely benefited from increased coverage options so far. “There’s been great concern about increasing inequality in China, and particularly urban-rural inequalities. This work shows that at least in one sphere, health insurance coverage, urban-rural inequality may be decreasing,” Short added.
Historically, location has been one of the defining factors over access to healthcare and cover in China. Xu and Short’s analysis confirmed that the levels and trends regarding health insurance cover have been markedly different depending on whether the survey respondents were living in urban or rural areas in China at the time of the poll. The report found that coverage rates in rural villages fell from 1997 to 2000, while at the same time, the country’s suburbs, cities and towns observed no such change. It was during this period, the report notes, that the Beijing government’s new rural insurance system was still in undergoing its pilot phase and had not yet begun providing financial subsidies outside of a few select rural communities. After 2000 however, the level of health insurance coverage in rural areas rose sharply, from 17.9 percent in 2004 to 51 percent of all survey respondents by 2006, almost tripling the insurance penetration rate in the process. Survey data showed that coverage rates also rose quite significantly in smaller towns and suburbs at the same time, but changed little in China’s now burgeoning cities.
This remarkable rise in rural coverage rates has, according to the study, coincided with improved efforts by the Chinese government to develop more robust insurance initiatives and greater subsidies for the country’s rural inhabitants. “It is especially impressive to see this pattern in data such as these, that follow the same individuals over time,” Short said, adding that the changes now apparent in rural village coverage rates are surprising. “We are witnessing real change in many people’s lives in the way that urban, and especially rural, individuals experience health insurance coverage.”
Despite the considerable increase in individual coverage that has occurred throughout China, the report notes that many disparities between rural and urban consumers still persist, particularly as it concerns reimbursement rates and overall quality of care. Xu and Short’s analysis determined that urban residents in China continue to receive greater compensation on both their inpatient and outpatient claims, than their insured contemporaries from rural areas. However, the authors noted that these results should be interpreted with some caution due to a considerable number of incomplete self-reported reimbursement rates in the dataset. In his conclusion, Hongwei Xu, remarked that considerable progress has been made in the Chinese insurance industry. “The findings from this research highlight the recovery in health insurance coverage in general, and more importantly the significant reduction in the rural-urban inequality in the coverage in particular, largely due to the great efforts by the Chinese government, in a quite short time period,” Xu said, adding that the advantage insured urban residents continue to hold over insured rural residents, shows that more work needs to done. “On the other hand, the suggestive finding of continued rural disadvantage in terms of health insurance benefits suggests we should not overestimate the success of the policy interventions.”
China’s healthcare system going forward must tackle these challenges and more to continue to improve the quality of health care for the population at large. If insurers, both local and international, can work to effectively match the insurance demands of the Chinese people, cover against holes in the social safety net, and further encourage people to invest their considerable savings back into the market, they can share in this potential prosperity as well.
Dec
6
AON Note Chinese Market Progress, Challenges
Filed Under China, China insurance, Reinsurance | 1 Comment
China’s share of the world insurance market has quadrupled over the past decade, owing to a strong economy, surging demand and evolving industry regulations. A new report published on Monday by Aon Benfield, the global reinsurance intermediary of Aon Corp, acknowledges the opportunities the Chinese market now presents to the international insurance industry as well as the challenges now apparent after years of rapid growth.
The Chinese insurance industry has experienced phenomenal growth over the past decade and still has much to look forward to due to favorable economic conditions and an under-penetrated market. China now represents close to 4 percent of all life and property insurance premiums worldwide at CNY1.45 trillion (US$226 billion), moving up from just a 1 percent share decade ago. Industry analysts in the world’s second largest economy are now targeting a 15 percent compound annual growth rate over the next five years.
Aon’s report, titled ‘The China Property & Casualty Insurance and Reinsurance Market Report,’ is chiefly concerned with the slow development of the Chinese catastrophe insurance and reinsurance sector, which has become particularly glaring given the country’s increased exposure to widespread catastrophic risk. Indeed, given recent events in Thailand and Japan, the potential for supply chain disruptions in China due to natural disasters has become a growing concern for executives at large multinational corporations. According to the report, China’s property and casualty (p&c) insurance market is now growing only at the same rate as GDP, whereas the insurance sector overall is still growing much faster. Over the last ten years, the Chinese p&c market had grown by over 20 percent annually, outpacing the country’s GDP growth in that period and reaching CNY402 billion (US$63.4 billion) by 2010. While this has occurred, Chinese government subsidies have also been working to support the growth of agriculture premiums and have doubled in size since 2005, now amounting to CNY13.6 billion (US$2.15 billion)). Aon observed a similar growth pattern in aggregate reinsurance premiums acquired by China’s p&c insurers, which have seen a 67 percent compound annual growth rate since 2005, now totaling CNY44 billion (US$6.9 billion).
Aon’s findings indicate that insurance will continue to be a necessity in the country. The China Insurance Regulatory Commission (CIRC), the Mainland’s chief industry oversight body, recognizes that the insurance sector will keep on facing structural challenges due to the tremendous scale of the market combined with the recent speed of its development, and is planning considerable action over the next five years to address this. Aon notes that China has been hit by 5 of the top 10 most deadly natural catastrophe events in history, with recent disasters (earthquakes, mudslides, blizzards) affecting more than 70 percent of the country’s total land area and over half the population in some way as well. The CIRC is aware of this persistent catastrophe protection risk shortfall and is thus establishing a national natural disaster risk transfer program (similar somewhat to Japan’s in design) as part of its upcoming 5-year plan. According to Aon’s report, this new risk pooling program could lead to a spike in the uptake of catastrophe insurance and reinsurance policies and work to better address overall protection issues in the country for years to come.
Commenting on their new report, Malcolm Steingold, Aon Benfield CEO for the Asia Pacific region, explained that while China’s insurance industry would no doubt continue to expand, being able to solve explicit coverage gaps in the market quickly would enable the country to realize its sizeable commercial potential. “Over the past 10 years, China has emerged as an insurance and reinsurance market that cannot be overlooked. However, when we look beyond the macroeconomic growth, underlying opportunities and challenges are not necessarily what they first appear to be. For example, a detailed analysis of the property market shows that growth has been more in line with gross domestic product than with the faster overall market growth, which is largely driven by motor business,” Steingold said. Indeed, China’s motor vehicle insurance market could be subject to its own revision efforts, with the introduction of foreign insurance players potentially on the horizon.
Ralph Butterworth, Partner at an Aon Benfield consulting division, added that the Mainland’s transition to more refined and comprehensive risk management strategies would work to the benefit of their overall marketplace. “The evolution of Chinese insurance regulation is bringing the market closer to international best practice. Over time this should support increased transparency and improved profitability, potentially hand in hand with the entrance of more foreign insurers into the Chinese market and the global expansion of Chinese reinsurers,” Butterworth said, adding that “expertise and experience accumulated and tested in the global market are still of much relevance to China as it targets further growth over the next five years.”
In conclusion, Henry To, CEO of Aon Benfield’s China division, expressed confidence in the Chinese insurance industry’s ability to overcome recent hurdles. The CIRC’s latest 5-year plan, which introduces the national natural disaster risk transfer system and improves loss models and underlying data, should encourage sound risk strategy and ensure more protection options are available before disaster strikes. “Over the years from 2001 to 2010, the Chinese insurance market (P&C and life) was the second fastest growing national market in the world behind Malta and now represents close to 4 percent of the world’s total insurance premiums – up from about 1 percent in 2001. Given the still low insurance penetration rate and China’s comparative economic outlook, this share can only be expected to grow,” To concluded.
Companies mentioned
AON Benfield
Aon is a provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. It is based in the Aon Center in the Chicago Loop area of Chicago, Illinois, United States. Aon bought Benfield in 2008. Aon Benfield Analytics is the industry leader in actuarial, enterprise risk management, catastrophe management, and rating agency advisory. Their track record of innovation and world-class position in analytics, modeling and client-facing technology helps companies to optimize their portfolios. Proprietary tools include ReMetrica, CatPortal, and ExposureView. Also, their Impact Forecasting team develops tools and models that help companies understand financial implications of natural and man-made catastrophes around the world.
Nov
30
China Insurance IPO On the Horizon
Filed Under China, China insurance | Leave a Comment
New China Life Insurance, the state-backed insurer part owned by Zurich Financial Services, yesterday embarked on its international road show, which is seeking up to US$2.3 billion for their upcoming initial public offering. While the deal size is below the US$3-4 billion the Chinese insurer was initially hoping to raise this year, the IPO range remains at the top end of expectations given current market conditions.
Last week, New China Life, Mainland China’s third largest life insurer by premium volume, obtained the final securities approval needed for their dual-listing in Hong Kong and Shanghai, with the Hong Kong portion expected to account for around 70 percent of the combined offering.
Citing their most recent IPO term sheet, New China Life plan to sell as many as 158.5 million shares in Shanghai (A-share offering) at an indicative price range of CNY23-28 (US$3.60 to US$4.39) each, and a further 358.4 million in Hong Kong (H-share) at a price ranging from HK$28.20 to HK$34.33 (US$3.62 to US$4.40), with an option to expand it by another 15 percent. According to industry analysts, the A-share market has proven to be more sensitive to New China Life’s IPO, accounting for only 5 percent of the company’s total shares, and is in part why the company has allocated a smaller share to the Shanghai bourse. The insurance company is scheduled to first list in Hong Kong on December 15th, where it aims to raise between HK$10.11 billion and HK$12.3 billion (US$1.3 billion to US$1.58 billion). The Shanghai Stock Exchange listing, is scheduled to occur a day later and could fetch CNY4.5 billion (US$698 million), based on the same pricing as the Hong Kong sale.
As the year-end approaches, many Chinese companies are attempting to sell shares in the Asia-Pacific to fund future business ambitions, braving the mounting concerns over volatile global equity markets. Indeed, China’s two largest insurance companies, Ping An Insurance and China Life Insurance, have already been listed on both overseas and domestic bourses. The Beijing-headquartered New China Life’s dual listing could push the rest of China’s insurers to market sooner that expected. According to market analysts, there may be over US$10 billion worth of new dual share offerings in Hong Kong and Shanghai coming to the market over the next few months from Mainland insurance companies alone. State-backed property insurer PICC said on Tuesday that it planned to raise about CNY5 billion (US$786.5 million) via a rights issue to strengthen its capital base and improve its solvency margin. Taikang Life Insurance, China fifth-largest insurer by premiums, is also looking to list in Hong Kong, with plans to raise between US$3 billion and US$4 billion through an IPO in the next couple years.
New China Life has already secured commitments from four cornerstone investors for a reported US$780 million worth of shares, equivalent to roughly 60 percent of the Hong Kong portion of the initial public offering. Singapore-listed insurer Great Eastern Holdings Ltd will be the biggest investors after agreeing to purchase US$380 worth of New China Life’s shares. Hedge fund DE Shaw & Co and Malaysian sovereign wealth fund Khazanah are each committing US$150 million, while South Korean private equity firm MBK Partners will buy up US$100 million worth of H-shares. Each of the four investors has been guaranteed large allotments in exchange for agreeing to hold onto their shares for at least six months. The fact that New China Life has already received backing from a list of big-name global investors, including existing shareholders Zurich and Standard Chartered Bank, should make other potential buyers more comfortable to commit money to the stock. According to the company term sheet, 95 percent of the remaining shares to be offered will be sold to institutional investors, while 5 percent will go to Hong Kong retail investors.
New China Life will use the proceeds from the dual-listing to bolster its capital position, improving margins in order to better keep pace with the firm’s rapid business growth while adhering to stricter regulatory requirements on adequacy ratios. Indeed, addressing these declining solvency ratios has become a critical issue for the Chinese insurance industry. Shares in China Life Insurance and Ping An Insurance, New China Life’s main rivals, have fallen by about 38 percent in Hong Kong trading this year, on general concerns over a slowdown in profits and whether the continued decline in equity markets will increase mark-to-market losses on insurer balance sheets going forward. Insurance companies tend to invest a large part of their income back into financial markets.
Although share prices of listed Chinese insurers have been suffering through the tough market conditions this year, New China Life expects to benefit overall from the further expansion and development of the country’s insurance market. Last year, the Beijing-based life insurer earned CNY93.6 billion (US$14.3 billion) in premium income, equating to 9 percent share of the country’s insurance market, according to the China Insurance Regulatory Commission (CIRC). New China Life, 15 percent owned by Zurich Financial Services, has been largely successful in adapting to China’s surging demand for insurance and investment products, reporting a compound annual premium growth rate of 40 percent over the past 5 years. The insurer has been able to earn itself a competitive advantage in institutional sales and has fostered a particularly robust presence in the big cities of Beijing, Shanghai, and Guangzhou. Today, New China Life has 1,400 offices in China and serves over 24 million policyholders.
While New China Life’s dual IPO will test shareholder confidence during this time of pronounced market volatility, the Chinese life insurance industry is one of the fastest growing in the world and will continue to target investment going forward. According to the CIRC, gross premium income received by China’s life insurers has increased at a 24.9 percent compound annual growth rate over the past 10 years. The country is undergoing a series of economic and demographic transformations, including widespread healthcare reform and a quickly aging population, and this will present significant growth opportunities for insurance companies.
In order to further capitalize on this considerable market potential, China’s insurers will need to build greater reserves and continue to evolve their business and risk management practices to succeed, a view now shared by not only industry analysts but the country’s top insurance regulator as well. This week CIRC launched a crackdown on rogue insurance agents in the midst of rising complaints of fraud and cheating from policy holders. According to the regulator, around CNY 80.66 million (US$12.66 million) has been taken illegally by insurers or agents from policyholder premiums so far this year, and the misdeed involved over 50 insurance companies and agents. “The main problem is the false, and non-transparent relationship between insurance institutions and agents,” the CIRC said in a statement. Going forward these problems will need to be addressed.
Insurance Companies Mentioned
New China Life
New China Life Insurance Co (NCI) has headquarters in Beijing and was established in 1996 It is a large national insurance company, with products including traditional protection products, bonus products as well as the products that have a strong financial management function. With sustained, healthy and harmonious development of the company, the brand value of NCI is a valuable asset.
Nov
25
Korea Life to Start Joint Venture in China
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A statement released this month by Korea Life Insurance Ltd confirms that South Korea’s second largest life insurance company has now received the appropriate regulatory approval from the Chinese authorities to establish a joint venture business in China with a local partner, and begin providing it’s insurance services and expertise in the world’s second largest economy.
The China Insurance Regulatory Commission (CIRC) has now signed off on a 50-50 joint venture life insurance business between Korea Life and Zehjiang International Business Group, a state government-owned asset management company, with operations scheduled to begin in 2012, according to the Seoul-based insurer. The new life insurance joint venture will have a total paid-up capital of CNY500 million (US$79 million), equally financed by Korea Life and Zheijang International, and will be headquartered in Hangzhou, the capitol city of Zhejiang province in eastern China. “With the insurance market potential and domestic economic growth in China, the joint venture is expected to begin its business in the Yangtze Delta region,” Korea Life said in the statement.
Korea Life will assume the overall business management responsibilities of the new joint venture, and will work to gradually localize their operations for the Chinese market with help from Zheijang International’s robust business network.
Korea Life has been looking for a way to enter into China’s fast-growing insurance market for a number of years. The Seoul-based life insurer first set up its representative office in Beijing back in August 2003. Then, in December 2009, Korea Life Insurance signed a memorandum of understanding agreement with Zhejiang International Business Group, which outlined their preliminary plans to partner together through an initial 45 billion Korean won (US$40 million) investment for establishing a joint venture life insurance operation in China. Now that the proper regulatory licenses have all been granted, Korea Life and their domestic partner can begin establishing their business presence in Zheijian province’s insurance market, one of China’s higher-income areas.
Expanding outside of their saturated home market has become increasingly important for Korean insurers. South Korea remains one of the world’s largest insurance markets by per capita premium levels, with a particularly high insurance-penetration rate in regards to life insurance products and services. In the aftermath of the 1998 Asian financial crisis, South Korea’s insurance industry has rapidly expanded on the back of regulatory developments, government support, economic growth and rising per capita income levels, to now become the seventh largest market globally in terms of market share. While the domestic insurance market has been open to multinational insurers since 1987, both the life and general insurance sectors are dominated by large domestic financial conglomerates, namely Samsung Life, Korea Life and Kyobo Life, which control over 60 percent of the life-insurance assets between them.
Despite this success at home however, in order to sustain their margins, South Korea’s most prominent insurance companies must now look towards expanding into other international markets. Local market analysts have long expressed concerns over the country’s alarmingly low birth rate and rapidly aging populace, and the effect this all has the insurance sector’s growth prospects if the prospective customer base continues to decline. At present, one in 10 Koreans is aged 65 or older, but the ratio is expected to rise to over 14 percent by 2018. These concerns are of course not unique to Korea. An OECD report issued earlier this year claimed that aging populations will cause global spending on long-term care to double or even triple by 2050, and this will have a considerable effect on insurance markets in tow, as the demand for health-care and retirement-related products continues to rise.
Founded in 1946, Korea Life Insurance is the Southeast Asian country’s first standalone insurance company. According to the Korea Life Insurance Association, the company reported over KRW 6.54 trillion (US$5.79 billion) in gross written premiums in 2010, and a 12 percent share of the life market. Korea Life has had to innovate in order to protect its position in the competitive local market. In March 2010, the Seoul-based company became the first Korean insurer to go public on the South Korea Stock Exchange. While that move has successfully raised capital for further development in their domestic life insurance operation, Korea Life is now looking to expand it’s footprint into more international markets. Currently the insurer’s global network feature offices in Tokyo, London and New York but more work needs to be done to develop a presence in emerging markets with real guarantees of sustainable premium growth. This was a sentiment shared by the company CEO and Vice Chairman, Shun Eun-Chul in an interim report filed earlier this year, saying “The local insurance market is becoming saturated, so advancement overseas is a must.” Overall, the company is putting itself on the forefront of Korea’s insurance industry as they all expand internationally.
Korea Life Insurance has already had some success in moving its operations into an overseas market. In April 2009, the company became the first Korean life insurer to enter Vietnam’s budding protection market, initially providing endowment policies and educated savings plans through a 2,000 strong agency force. In their first year, Korea Life took a 1.8 percent share of all new insurance sales in Vietnam, with over 10,000 new policyholders and premium income of US$3.3 million.
The company has now set an ambitious target to triple its manpower to 9,000 employees working across 22 branches in Vietnam, with projected annual premium income exceeding US$35 million by 2015. Korea Life is confident they can achieve these objectives due to the favorable market conditions in Vietnam versus Korea. The Vietnamese insurance industry is growing at average of 10 percent annually. When you combine these economic indicators with favorable demographics, as over 60 percent of the population is under 30, the potential for further insurance development becomes significant. After investing in and starting their operations in both Vietnam and now China, Korea Life Insurance is now considering making inroads into other emerging markets in the Asia Pacific region.
Insurance Company Mentioned
Korea Life Insurance
Korea Life Insurance is an insurance company specialized in providing life insurance business. The company offers a wide range of insurance products including whole life/term insurance, survival insurance, death insurance, group insurance, annuity insurance and many other services for both individual and corporate customers. Substantial loan services, credit options, fund products and risk management services are also offered. Korea Life Insurance was founded as Daehan Life Insurance in 1946. The company is headquartered in Seoul, South Korea with additional offices in Ho Chi Minh City and Hanoi, Vietnam.
Nov
18
New China Life Insurance, the country’s third largest life insurer by premium volume, received approval from the China Securities Regulatory Commission this week for its planned Shanghai initial public offering, kicking off the company’s Shanghai-Hong Kong dual listing that has targeted up to US$4 billion in fresh fundraising before the end of the year. This dual listing could be the first in a series of IPOs by prominent Mainland insurance companies, as firms seek out capital to boost margins and fund expansion plans in the world’s second largest economy.
In their IPO prospectus, New China Life have outlined how they plan to sell as many as 158.5 million shares in Shanghai (A-share offering) and up to 358.4 million in Hong Kong (H-share), with an option to expand it further by another 15 percent. According to industry analysts, the A-share market has proven to be more sensitive to New China Life’s IPO, accounting for only 5 percent of the company’s total shares, and is in part why the company has allocated a smaller share to Shanghai’s bourse. While overall fundraising targets have not been officially set, market forecasts estimate that around CNY6 billion (US$945.4 million) and CNY10 billion could come in from Shanghai from Hong Kong respectively.
Many companies from Mainland China are now attempting to brave volatile global financial market conditions and sell shares in initial public offerings to fund future business ambitions. Indeed, the two largest Chinese insurance companies and New China Life’s chief rivals, Ping An Insurance and China Life Insurance, are already listed on both overseas and domestic bourses. Beijing-headquartered New China Life’s IPO could even lead the rest of Greater China’s insurers to market sooner that expected. According to industry observers, there could be over US$10 billion worth of new dual share offerings in Hong Kong and Shanghai coming to the market over the next few quarters from domestic insurance companies alone. State-backed China Reinsurance and People’s Insurance Company (PICC) announced plans to raise between US$5 billion and US$6 billion through a dual IPO back in July this year. Taikang Life Insurance, the Asian nation’s fifth-largest insurer by premiums, have meanwhile also targeted between US$3 billion and US$4 billion from a Hong Kong listing in the next couple of years.
New China Life will use the IPO proceeds to replenish capital reserves and improve solvency margins and overall profitability in order to better keep pace with the firm’s rapid business growth. The Beijing-based fine insurer earned CNY93.6 billion (US$14.3 billion) in premium income last year, translating to around a 9 percent share of the country’s insurance market, according to the China Insurance Regulatory Commission (CIRC). The company, 15 percent owned by Zurich Financial Services, has been largely successful in adapting to China’s surging insurance market demand, reporting a compound annual premium growth rate of 40 percent over the past 5 years, from 2005 and 2010. New China Life has fostered a competitive advantage in institutional sales and now has a particularly robust presence in the big cities of Beijing, Shanghai, and Guangzhou. Today, New China Life has 1,400 offices in China and serves over 24 million policyholders.
Over the past few years however, the performance of some of China’s most prominent insurers has begun to slow down due to rising competition and unstable stock markets. Indeed New China Life posted a 15 percent decline in net profit last year and has not been able been able to regularly meet regulatory requirements on adequacy ratios. Ahead of their planned dual IPO the company has had to restructure themselves slightly in a bid to meet CIRC minimum solvency requirements, which have restricted dividends and further business development. In March, the life insurer moved CNY 14 billion (US$2.2 billion) worth of shares to twelve existing shareholders through a rights issue. The transaction increased New China Life’s registered capital base, up to CNY 2.6 billion (US$405 million) from CNY 1.2 billion (US$187 million), which in turn raised its solvency margin to above the required minimum 100 percent for listing. After the IPO, the company’s solvency ratio is expected to be above 150 percent.
New China Life’s dual IPO will surely test investor confidence as international financial markets continue to struggle with a potential US recession, Asia Pacific catastrophe losses, as well as the deepening debt crisis in Europe. American and European markets have been in a prolonged slump as concerns mount over Western policymakers’ ability to adapt and revitalize the flagging global economy. This is turn has affected the regional markets in Asia. The Heng Seng Index is down by 15 percent so far this year, while The Shanghai Composite has fallen over 8 percent. This market downturn has impacted Hong Kong’s prominent IPO market, with delays and cancellations worth US$19 billion in share sales from prominent companies already witnessed this year.
Outside of these macroeconomic concerns though, China’s insurance industry remains an attractive investor opportunity due to the country’s huge middle class population, favorable economic indicators and a largely under-penetrated protection market. Market observes will be watching closely to see if New China Life can dual list in Hong Kong and Shanghai successfully this year.
Insurance Company Mentioned
New China Life
New China Life Insurance Co., Ltd (NCI）has headquarters in Beijing and was established in 1996. It is a large national insurance company, with products including traditional protection products, bonus products as well as the products that have a strong financial management function. With sustained, healthy and harmonious development of the company, the brand value of NCI is a valuable asset.
Zurich
Zurich Financial Services Group is an insurance and financial services provider with a network of subsidiaries and offices in North America and Europe and also in Asia-Pacific, Latin America and other markets. Zurich is one of the world’s largest insurance groups, and one of the few to operate on a truly global basis. With 60,000 employees serving customers in more than 170 countries, our business is concentrated in three business segments: General Insurance, Global Life, and Farmers.
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