Feb
3
Microinsurance in China Developing
Filed Under China insurance | Leave a Comment
China Pacific Life Insurance, the nation’s fourth-largest life insurance company, received approval from the China Insurance Regulatory Commission (CIRC) this week to expand their rural individual life microinsurance pilot program to seven more Chinese provinces. China’s insurance regulator is striving to develop the country’s micro insurance market, particularly in rural areas, in a bid to help Mainland farmers and low-income families better manage risks, protect their savings, and expand national insurance coverage in 2012.
A special report commissioned by the Asian Development Bank (ADB) in 2006 found that household vulnerability was the leading cause of new poverty in Asia. Amongst Chinese working poor, the two leading risk factors were serious illness/accident to family members, and investment failures due to price volatility or natural disasters. Insurance could of course play a key role in mitigating these risks, but standard coverage and savings tools remain out of reach for millions of poor and disadvantaged households in China, and indeed around the world. Mircroinsurance has been developed to rectify this problem.
Microinsurance refers to insurance products that are specifically tailored to provide basic, inexpensive cover for specific low-income populations that require protection for risks including healthcare, crop, catastrophe, life and non-life products. Premiums on microinsurance policies are kept at a low level, and often pooled across entire families or even villages, with the purpose of making the products more affordable and attractive to these first time policyholders. Microinsurance thus provides security options for populations that need some insurance protection against financial ruin but until now have been unable, or even aware of, the ability to afford a policy. For insurance companies meanwhile, microinsurance presents a key commercial opportunity due to the high volume of available policyholders combined with low cost margins. According to a recent Swiss Re sigma study, the global microinsurance market is now estimated to be worth over US$40 billion. In China alone, there are at least 200 million to 400 million potential clients. The Asia Pacific region overall is one of the fastest growing regions for microinsurance development, with Africa and Latin America also having emerging markets.
According to a CIRC filing, China Pacific Life will now be allowed to expand their rural individual life microinsurance programs into the provinces of Hunan, Inner Mongolia, Jiangsu, Ningxia, Qinghai, Xinjiang and Zhejiang. Prior to this accord, China Pacific Life was only cleared to provide rural individual life microinsurance, including accident injury protection and fixed-term group life insurance, in certain areas within the provinces of Guangxi, Hubei, Hunan, and Sichuan. Starting next quarter, the Shanghai-based insurer will also be given greater control over their own business model in certain districts, which will likely lead to them adjusting their rates downward to match domestic lower-income conditions. China Pacific Life will be required to work with local insurance regulators and to report back to the CIRC regularly on the progress of the life mircoinsurance scheme.
This is not China Pacific’s first venture into the Chinese microinsurance trade. The insurer’s non-life affiliate, China Pacific Property Insurance, received the necessary CIRC approval last October to participate in its own trial program for rural microinsurance. The China Pacific Insurance Group is cumulatively coming off a good year, reporting total premium income of CNY 143.8 billion (US$ 22.67 billion) for 2011, a 12 percent annual increase. China Pacific Life reported premium income CNY 87.9 billion (US$ 13.94 billion) in November 2011, up 7.8 percent from CNY 81.52 billion (US$12.9 billion) in October, while the insurer’s property and casualty business reported CNY 55.9 billion (US$ 8.81 billion) for 2011, noted the regulator.
China has over 700 million people in rural areas, making it a huge market for the micro insurance business. In a statement outlining its work for 2012, the CIRC intend to further develop the domestic rural insurance and catastrophe insurance markets in 2012. Going forward, further growth of the microinsurance sector hinges on better regulations and more innovation in distribution and communications with potential customers.
The Chinese government began testing life microinsurance schemes in rural areas in August 2008. China Life Insurance Co, the mainland’s largest insurance firm, was the first participant in the trial scheme, providing basic cover and savings products to rural farmers and low-income urban dwellers across nine Chinese provinces. According to the CIRC, the simple life insurance products that China Life developed for the pilot scheme provided an eight-time refund on annual premiums of CNY100 for farmers to cover against terminal accidents. In the pilot scheme’s first year of operation, China Life covered 1.2 million farmers with insurance income amounting to around CNY1.12 billion (US$180 million) in total. By the end of 2009, and now with more insurance companies in tow, the trial rural life microinsurance program generated premiums of more than CNY230 million, underwriting more than CNY136.4 billion (US$21.6 billion) in risks 8.71 million people. In 2010, the rural micro insurance program was expanded by the CIRC to cover 20 million people across 24 provincial regions. This is of course still a small number relative to the country’s overall population (and roughly equates 4 percent of the rural population), and the Chinese government recognizes the need to increase its penetration further. Microinsurance, with it’s lower premiums, easier-to-understand policies, and simplified claims procedures, is regarded as a particularly important tool in growing the rural insurance market. Besides local governments and insurance companies, multinational insurers are also showing growing interest in this potentially lucrative market.
Insurance 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 Insurance
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”.
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
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
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
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.
Nov
14
Manulife Expanding in Hong Kong and China
Filed Under China, China insurance, Hong Kong | 1 Comment
Canadian insurance giant Manulife is looking to increase its agency force in Hong Kong in an attempt to capitalize on the resurgent demand for investment-linked insurance policies throughout the Asia-Pacific region.
In an interview with the South China Morning Post this week, Manulife Hong Kong executive vice-president and CEO, Michael Huddart, explained that while global financial market volatility has slowed down the sale of investment-linked insurance policies considerably over the past few months, insurers by and large remain confident in the long-term growth prospects for these products, and that their performance would no doubt improve when the market rebounds. “The outlook for these investment-linked plans is good, especially if we see some market recovery in 2012 and beyond. There is still a great need for accumulating wealth to pay for living costs and medical costs in retirement and these plans can be a useful vehicle to achieve this goal,” Huddart said in the piece..
Hong Kong – a special administrative region (SAR) of China – is the premier Asian insurance center, and attracts many of the world’s top insurance and financial service companies. Manulife, themselves, have had a presence in the City for over 110 years and now have around 1.6 million clients in HKSAR. Hong Kong has the largest number of authorized insurance companies in Asia at 167, and thousands of supplemental agents and brokers. The level of insurer business activity in 2010 amounted to 11.8 percent of Hong Kong’s gross domestic product (GDP), compared with 11.3 percent in 2009. Insurance continues to be an integral part of the city-state’s economy.
Investment-linked products had proven to be popular in Hong Kong due to their combination of both insurance protection and investment fund savings options. However, in the aftermath of the 2008 global financial crisis, the attractiveness of these insurance policies has now been sternly tested by waning investor confidence across most business lines. Statistics released by the Hong Kong government reveal exactly how closely the sales of investment-linked insurance policies have related to overall market performance. According to the data, when the Hang Seng Index passed the 29,000 benchmark and hit a record high in 2007, sales of investment-linked insurance policies rose in tow to HK$60.04 billion (US$7.72 billion). At that time, sales of new investment-linked insurance products accounted for around three times as many as traditional insurance policies, which totaled HK$20.31 billion (US$2.61 billion) that year.
Sales of investment-linked policies then dramatically declined to HK$15.06 billion (US$1.94 billion) in 2009, or roughly half those of traditional insurance policies, as the prevailing effects of the global financial crisis took hold. Investment-linked policies have since then seen much lower sales figures than traditional life insurance policies and have yet to fully recover as investor fears about the European sovereign debt crisis and a possible recession in the United States continue. Through the first half of this year, investment-linked products still only represent 30 percent of all insurance policies sold in Hong Kong, with traditional insurance policies making up the remaining 70 percent.
Despite this prolonged downturn in consumer confidence, Manulife and other players are continuing to invest in and market the long-term appeal of these investment-linked and other insurance products to clients throughout the Asia Pacific. The Toronto-based firm has planned to increase their insurance agency force in Hong Kong by 10 percent annually for the next 5 years, moving from roughly 4,600 agents at present to a staff of 7,000 by 2015. While this is happening, Manulife will also work to improve sales from non-agency channels, including bancassurance and independents, to hopefully account for roughly a quarter of total sales by the end of 2015, up from 13 percent currently. The company is also looking to promote yuan-denominated products, which have become increasingly in demand amongst investors who expect to benefit from the Mainland currency’s gradual appreciation. The yuan has already risen by some 20 percent since 2004.
Manulife is already reaping the rewards of its expansion strategy. In the third quarter results posted earlier this month, Manulife’s Hong Kong insurance sales were worth US$59 million, representing a 26 percent over the third quarter of 2010. The company has primarily attributed this performance to the increased number of active insurance agents, increased volumes of the popular critical illness product launched at the end of the second quarter, and higher sales made through the company’s expanded bancassurance channel.
Manulife is stepping up its agent recruitment effort primarily to grow their business and better compete in the city’s lucrative mandatory provident fund (MPF) marketplace. The MPF is Hong Kong’s compulsory retirement savings system, and is administered by the Mandatory Provident Fund Schemes Authority. With a 17.6 market share, Manulife is currently the number two insurer in Hong Kong’s MPF market. With an increased sales force, the Canadian firm hopes to successfully raise their share to over 20 percent by 2016, which would put them in a better position to compete with the predominant market leader, HSBC.
The marketplace Manulife is investing in is, however, experiencing some noted volatility at present. According to the latest figures filed by the Office of the Commissioner of Insurance (OCI), sales of retirement-related insurance policies dropped by 35.9 percent to HK$10 billion (US$1.28 billion) last year. At the end of 2010, there were 59,005 MPF contracts in Hong Kong carrying net liabilities worth HK$105.5 billion (US$13.55 billion). Local market observers have attributed this drop to a recent regulatory change regarding pensions. In 2009, The Mandatory Provident Fund Schemes Authority stipulated that all MPF funds must be held through trustees.
You don’t have to venture far outside of Hong Kong to discover one of Manulife’s other priority growth markets – Mainland China. Last week the insurer renewed their framework agreement with Bank of China, the country’s oldest bank, for another two years in a bid to further expand their bancassurance distribution network and ultimately sell more insurance products in the world’s second largest economy.
In his speech at the signing ceremony in Beijing, Mr. Donald Guloien, President and CEO of Manulife Financial, explained that China, with its robust economy and growing middle class, is an important marketplace to be in for all ambitious financial-services companies, especially considering the tepid business forecasts in their mature domestic insurance markets. Indeed, China’s insurance industry, in particular, has grown more profitable and evolved at a tremendous pace over the past decade and still has plenty of room further to develop due to generally stable economic indicators and an under-penetrated insurance and investment market. In 2010, the Chinese insurance industry grew by 30.4 percent, reaching a record US$221.4 billion in total written premiums. This momentum has continued into 2011 despite international financial market volatility and record catastrophe losses in neighboring Asian countries. The China Insurance Regulatory Commission (CIRC) interim report figures show that total premium income reported by Chinese insurance companies had increased to US$123.95 billion during the first half of 2011, maintaining double-digit growth with a 13 percent rise on last year’s interim period. At the moment, China is ranked as roughly the sixth largest insurance market in the world, and the second largest in Asia. Many industry observers fully expect the Chinese insurance market to eventually overtake the United States and become the number one overall protection and investment market in the world, possibly by as early as 2020.
Indeed, much of what may determine the future success of the Chinese insurance industry could come to a head in the coming months, as multiple Mainland insurers apply for their IPOs. More capital is needed for Chinese insurers to both capitalize on their home market and expand overseas if need be. Despite global financial market volatility, Chinese insurers remain attractive investment targets for large multinational insurance companies and investors from the financial-services sector. Over the next year, almost US$25 billion worth of dual share offerings in Hong Kong and Shanghai could be coming to the market from Chinese insurance companies alone. New China Life Insurance, China’s third-largest life insurance firm applied to the Hong Kong stock exchange for a dual listing, which could go through this week. The insurer is looking for US$4 billion in fresh funds by the end of the year. Taikang Life Insurance, China’s fifth-largest insurer by premiums, has also targeted between US$3 billion and US$4 billion from a Hong Kong listing in the next couple of years. PICC meanwhile have also expressed IPO interest and would look to raise between US$5 billion and US$6 billion in a dual listing by the end of 2012. Market analysts will be watching closely to see if these Chinese insurers and more can dual list successfully and build on their enormous domestic customer base to establish a more robust presence on the global stage.
Outside of China and it’s holdings, Manulife of course recognizes Asia as the most important market for the company’s sustained future growth and development. The region, as a whole, now accounts for over half of the company’s total insurance sales worldwide. The Canadian insurance company has seen its insurance sales across Asia jump by 22 percent to US$902.4 million in 2011, with budding businesses in less-established insurance markets like Vietnam, Indonesia and the Philippines being particular highlights. Going forward, Manulife has said they will focus on expanding insurance sales channels in these Asian countries, and will continue to upgrade the range of their core policy offerings, as the emerging middle class consumer demand in these markets matures and evolves.
Insurance Companies Mentioned
Manulife
Manulife (International) Limited is a member of the Manulife Financial group of companies. Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners.
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