International health insurance giant, Bupa International, continue to focus their development in the Asia region with particular interest in the China market. There have been a number of successes and announcements recently supporting Bupa International’s move and focus. Read more
Hedge fund managers in China are feeling positive about the rest of 2013 as the nation’s stock market recovers, resulting in high expectations for potential yields. One of the fastest growing and most attractive segments for fund managers in China is that of healthcare and pharmaceuticals.
Although investment in the Asia Pacific region, particularly in private equity, has been sluggish since 2011, the healthcare industry has seen surprising and promising growth. Many articles, opinion pieces and exposes have highlighted the new frontier that is Asia healthcare.
With the release of MSH China’s April 1st premium rate adjustments, Globalsurance is pleased to report a stable increase of 10.5% across the board of all plan options. While this increase is in line with the market average, coverage adjustments have been made to certain benefits. These adjustments should not have a large impact on plan renewability, but Gloabalsurance analysts expect that in many cases, the renewal rate will increase for affected plans.
In addition to Bupa’s April 1st premium adjustments for their Premier Worldwide Health Option plan (PWHO), which caters to the China market, the leading health insurance provider has also announced major changes to their child coverage.
Some of these changes have left Globalsurance parents with Bupa plans feeling concerned. Children have typically been separated into two brackets based on age, a 0-6 bracket and a 7-20 bracket. Children that fall into the first bracket are likely to see premium increases of about 25-50%, while children in the older bracket will only see premium increases of around 6%. The result of this decision now makes it more costly to insure a child that is under the age of 6 than one in the 7 to 20 age range.
MSH International entered the Chinese insurance market in 2001, setting up a Third Party Administrator service that allowed the parent company to establish MSH China. Based off their success in Europe, MSH began to offer new health and life insurance product options in the region. Read more
Globalsurance continues to see differing indications of the state of the health insurance industry in China. Most analysts concur that the country’s high-income earning population are not likely to buy comprehensive health insurance in the short term. Many of the health insurance companies that have invested in developing on-shore solutions for health coverage continue to see varied results. While some insurers are re-figuring their China strategy, others continue to develop new products to further test the market.
Earlier this month and after little success, ICBC AXA eliminated its ‘China Executive Plan’ that was launched in December 2011 and targeted high-income Chinese nationals. The ‘China Executive Plan’ featured benefits that were below more typical expatriate policies but higher than domestic Chinese policies. One particular point of interest was that the plan had options for covering preexisting conditions, an option readily available with many health insurance policies.Read the rest of the China’s Emerging Wealth not Buying Medical Insurance as Expected article.
November 8th marked the official re-branding of the AXA Minmetals Ultracare International Medical Insurance Plan in China with a new, updated name, ICBC AXA Ultracare. The move comes after the shift in the majority shareholding from Minmetals to ICBC.
This change is only one of a few to have occurred in regard to the ICBC medical plan in China. Globalsurance CEO, Neil Raymond notes that these modifications are definitely steps in the right direction; “The ICBC AXA plan was the first true global health plan in China to be onshore and licensed, initially with RSA, then Minmetals and now finally ICBC. During this transition the plan has had its ups and downs but we feel very positive about the current changes,” he said.
Some of the other changes that have taken effect refer to plan benefits and premiums. These changes are seen as a positive shift by analysts at Globalsurance, and they maintain optimistic outlooks that this plan will continue to perform well.
Globalsurance can confirm that Bupa International’s medical inflation rate has come in below long term average which is good news for clients. Global medical inflation in the international Private Medical insurance (iPMI) market has been running at 10.8 percent on average for the past 5 years so although Bupa’s increase looks high by most inflation measures, it is actually typical within the iPMI sector.
Bupa International is unique as an insurer in that it has a bi-annual premium rate increase for individual international private health insurance policies and it changes its premiums twice per year – on the 1st of April and the 1st October. Earlier this year, Bupa adjusted its premiums by 6 percent and then by 4.3 percent this October meaning an effective rate of yearly medical inflation of 10.3 percent.
These changes relate to all of the company’s Worldwide Health Options (WHO) and Lifeline health insurance products.
In a move that has caught agents and brokers off guard, Nordic Healthcare, a provider of international health insurance, has announced that it will cease sales of new individual policies in all but its core markets. This means that, with immediate effect, Nordic will no longer be issuing new IPMI policies anywhere in the world except Europe, Singapore, Hong Kong, Thailand and Vietnam. The announcement deals mainly with individual clients, it is understood that corporate business will be assessed on a case by case basis. This announcement follows close on the heels of Nordic’s announcement earlier this year to pull out of South America.
Although Nordic will no longer be accepting new business in areas outside of the aforementioned countries, it insists that all existing policies will continue to be renewed and that customers with policies currently in force will not be affected in any way, a move that is warmly welcomed by clients and intermediaries. To date, Nordic has continued to treat its existing customers fairly and continued to support them even after pulling out of selling new business in a particular market.
The move appears to be an attempt by Munich Re, the owners of Nordic, to make the Nordic Healthcare business more compliant. Historically many international private health insurance providers were prepared to sell a policy to an expatriate in almost any country, particularly to individuals. The nature of the business and associated regional regulation, means that insurers, mostly based and licensed in Europe, have been selling policies to client anywhere in the world in an uncompliant way. All insurers are regulated in their home country, but because international health insurance policies are aimed at non nationals and are sold by foreign brokers or insurance companies, they fall into a grey area (particularly individual policies) which makes it difficult for local regulators to exercise any oversight of their operations. Most regulators require an insurance company to have a local presence before it can sell insurance products to nationals, but it is not always worth the investment for an insurer to open a local office if the IPMI market in a particular country is very small, and in many countries the legal requirements to be registered as an insurance provider represent a large financial commitment.
In the past twelve months, many insurers have been making efforts to become regulated in key markets. Recent moves by Bupa and Allianz in China and Aetna in Singapore are early indicators of an industry wide shift taking place.
This drive to be more compliant explains Nordic’s actions as far as most of Asia is concerned, withdrawing from poor or developing countries with very small expat populations will not affect Nordic’s balance sheet much. What is puzzling is that they have also stopped selling new policies in China and South America, some of the biggest emerging markets around. Nordic is the only European insurer to have made such a massive exodus, it has obviously deemed the risks high enough to justify pulling out of such potentially lucrative markets. Whether this move is reflective of internally motivating factors for Nordic Healthcare or whether it is more indicative of issues brewing in the wider IPMI market is difficult to tell.
It is possible that Munich Re will follow the lead of Bupa and launch a locally based IPMI product in China, where it is seeing 20% annual growth in its reinsurance business, and is clearing the way for a similar move by pulling Nordic’s operations from the region. It is hard to imagine Nordic have completely abandoned the region since China is such a valuable market for all types of insurance business. While there is bound to be more than regulatory pressure involved, right now, we can only speculate as to what is really happening, whilst keeping an eye out for more developments that are sure to follow soon.
Globalsurance has learnt that Bupa is launching a new product for the Chinese market. Bupa has teamed up with China based Alltrust Insurance Company to provide Bupa Premier Worldwide Health Options (PHWO), which becomes available from the 1st of October. PWHO is unique in that it will consider covering pre-existing medical conditions, a first for international private medical insurance plans in China.
While the attention of the financial world is fixated on the unfolding European crisis, there is a sleeping dragon some 5,000 kilometers away about to wreak chaos around the world. The dragon is China, the world’s most populous country and the world’s second largest economy. The problem has been festering for years and has been somewhat controlled through governmental stimulus money but this problem can no longer be delayed – the slowdown in the economy is becoming a pressing concern for people around the world. The effects of this recession could be disastrous and would affect healthcare and international health insurance worldwide.
The Chinese government is reporting 7% – 8% Gross Domestic Product (GDP) growth this year, so how could the Chinese economy be in a recession? Many experts agree that China could be deceptive about their GDP numbers. As reported by Reuters, WikiLeaks revealed that in 2007, during discussions with Clark Randt, the US Ambassador to China at the time, Li Keqiang (head of the Communist Party in 2007) hinted at the fact that China’s GDP figures were not necessarily based on real data.
This should not come as a surprise. The country is a totalitarian state controlled by the Communist Party of China. To the government of China, maintaining a strong public image to both its own citizens and the rest of the world is very important. Fortunately, investors and citizens can turn to more reliable data which can also confirm whether or not China’s economy is slowing down or entering a recession.
Many economists and investors use other sets of data to help determine the strength of an economy, aside from the GDP. Even if there was truth behind China’s GDP growth numbers, GDP itself may not be a good indicator of economic health in the sense that it does not take into account the general financial state of the typical citizen.
One data set that other financial analysts look towards is the Purchasing Managers’ Index (PMI). The PMI is an index composed of five indicators which come from purchasing managers in a given country. This gives diversified results and provides a good sample of the economic industries. The indicators included are; production levels, new orders, supplier deliveries, inventories and employment level, with each indicator having a different weight. Purchasing managers will indicate whether their indicators are better, worse, or the same than the previous month. The index is then reported on a scale of 0 to 100, with anything higher than 50 indicating that the economy is in growth, and anything lower indicating the economy is slowing down in growth or is in recession. A number lower than 42 indicates that a recession is either occurring or is close to doing so.
The index focuses on manufacturing, and while the Chinese economy may not be solely based on manufacturing, a large portion of it is, and recessions traditionally affect manufacturing first. Even more so, factory output is significant in China because the economy has used its cost effective labour to become the world’s factory, accounting for a large portion of China’s overall GDP.
For China, there are two PMI numbers: one released by HSBC, conducted by Markit, and one that is sponsored by the state and is the official figure released by China. Both numbers are within tenths of percentage points of each other and it is important to note that the difference between the two numbers is due to the composition of the surveys – China’s numbers focus on larger corporations, while HSBC’s numbers take into account small and medium sized enterprises (SME). As SME’s may be more representative of the general population, it seems wiser to take these into consideration. Despite their differences, both figures indicate a below 50 reading, indicating that the industry is contracting, but not yet in a recession.
Another indicator is the amount of loans being granted or applied for. China’s banks recently indicated that they may miss their loan targets for 2012, something that has never been missed in the past seven years. Banks have a heavy dependency on the SME market for loans, not because of their loan amounts, but because of their volume. This points to a slowdown in China’s economy as the fact that businesses do not require loans may indicate that there is no need to expand, or an incapability to expand. It could also indicate a business’s inability to acquire the loan due to its poor financial standing. SME’s health is crucial to the financial health of China’s citizens as SMEs make up the vast majority of the total contribution to GDP and employment. Poor SME health could therefore indicate that the overall state of the economy is in a terrible condition.
Electricity consumption could also be used as an economic barometer. If GDP increases, then electricity consumption should follow as electricity use will generally increase in from higher productivity. However, China’s electricity consumption and demand has slowed over the past few months, which seems to contradict China’s picture of continuing high GDP growth. It does, however, coincide with the PMI indication that things in China may be slowing down. China is actively spending to reduce its energy consumption in spite of this, and analysts still agree that factory consumption of power is slowing.
Finally, rail cargo volume can also point to changes in actual production. Rail cargo volume for China has been declining and while there are many seasonal highs and lows, the lows for the past few months have been significantly lower than historical values. Moreover, analysts have indicated that the decrease in rail cargo volume is comparable to the amount of decrease that happened during the 2008 financial crisis, which causes alarm for many who are monitoring these stats.
There are some significant consequences that can arise if China were to enter a recession. The effects of its recession could be comparable to those of America’s recession as China is the second largest economy in the world. Although a weakened Chinese Yuan as a result of the recession may encourage foreigners to outsource from China, the lowered demand from foreign companies is what contributed to the Chinese downturn – the deepening Global Recession may continue to produce lower demand for Chinese products even after the Yuan is lowered.
While the Yuan lowers, imports will decrease, compounding the effect of lowered imports due to lowered production levels. This can have significant effects around the world as China is one of the largest importers for many different minerals and raw materials, used often in their manufacturing industries.
As the Chinese economy worsens, general prices in China may increase due to lower demand and lower quantities will be sold as a result. Moreover, prices may increase because imports could become more expensive due to the weakened Chinese Yuan. Businesses may exit the market because profits are not as high anymore and may reach an unsustainable state.
In recessions, government spending is cut in order to maintain proper budgets for more essential and important aspects. As such, subsidized healthcare is usually one of the first departments to receive cuts. China currently offers a progressive subsidized healthcare system whereby the small and local clinics / hospitals receive a sizable subsidization and larger more specialized hospitals receive significantly less subsidization.
Once cuts are put in place, healthcare receives cuts, and the chances of people not being able to pay for their healthcare needs increases; costs of healthcare in emergency situations can represent significant amounts. Due to the higher relative costs of healthcare, health insurance in turn could end up costing more. This is because of the way health insurance premiums are calculated: what are the chances of a certain person requiring healthcare and how much would it cost if they do? A recession can push up the cost of healthcare and the cost of health insurance.
After the recession, because of citizens’ poor financial health, demand for health insurance will be lowered. As such, many small local health insurance companies may be forced to exit the industry as well, which could see some people at loss because of lack of coverage.
Acquiring an international health insurance policy in China now, before the recession takes place, is much more attractive. If you currently have health insurance, it is a safe way to hedge your bets against the Chinese recession since your plan will remain at its current price for rest of the term, as well as any financial problems which might occur in the future.
How long might this recession go on for and just how deep into the economy could it reach? This is a difficult question to answer. If the 2007/2008 recession is anything to go by, a recession in China could pull the world into a depression. The Global Recession still hasn’t concluded yet and is on the brink of further collapse.
As a sort of safety net, the Chinese government has set aside hundreds of billions of dollars in stimulus money in the event that action is required. This money will go towards cost saving measures for both the government and the average citizen, such as incentives for purchasing energy saving air-conditioners.
The real question at hand is not about the possibility of China going into an economic downturn – the real question is whether it will be a soft landing or a hard one. Some analysts think that it will be soft and that China is well equipped and large enough to absorb some of the loss. Some analysts, however, feel that their recovery from the previous 2007/2008 recession was too manufactured and that it wasn’t a sustained recovery – they are afraid that there will be widespread damage across the globe especially with the European crisis still unfolding. Whether it is a soft of a hard landing, many feel that this downturn is inevitable and fast on its way.
Filed Under Aetna, Africa, Allianz, Asia, AXA PPP, BUPA, China, China insurance, DKV, Europe, Expat Insurance, Health Insurance, Hong Kong, IHI Bupa, Insurance Company, International Healthcare, Medical Insurance, Middle East, Philippines, UAE Insurance, United Kingdom | 9 Comments
In this article we will first present our findings of the premium increases and premium inflation rates in each region and country we studied, with specific insurance findings to be presented at the end. Overall our findings were that International Private Medical Insurance (iPMI) premium inflation was very high, at roughly 10.8 percent per year over a 5 year average. While variations exist between countries, the reality is that iPMI inflation rates were extremely consistent throughout the world. However, it is important to note that this is medical insurance premium inflation at the high end of the sector, and not necessarily with regards to the mass market.
Even presenting the argument that premium increases are fairly consistent on a global basis, there are some immediate outliers – Hong Kong, for example, runs at an iPMI premium inflation rate of roughly 13 percent per year, while Kenya’s premium inflation rate is approximately 9 percent per year. Although there is a difference in premium inflation rates between Hong Kong and Kenya, the difference is not overly substantial – as will be seen inside this report.
Globalsurance is pleased to reveal the results of our latest study on the international health insurance industry and rates of international medical insurance inflation around the world as of August 1st 2012. Read more
A report released on Monday by the Healthcare Reform Office in China announced that the 3 year plan to improve some of the fundamental parts of China’s healthcare system completed its objectives on schedule. The Chinese Central Government spent almost US$71 billion between 2009 and 2011 in efforts to improve healthcare services to the public, build primary care medical facilities and new hospitals. Much of the effort was focused on extending coverage and providing medical services to the rural population, and the report claims that 95% of Chinese are now covered by public medical insurance.Read the rest of the Healthcare in China: The Overhaul that Underwhelmed article.
Insurance Australia Group (IAG) is planning to expand its presence in Asia following successful initial investments worth around US$735.5 million in five countries including India and Thailand. The expansion is part of IAG’s long term goal to have 10 percent or more of its premiums come from Asia by 2016.
IAG’s CEO, Mike Wilkins was confident that building on the company’s investments was the right decision, stating that: “The Asian opportunity is here and now. Over the past couple of years we’ve quietly gone about our Asian strategy and are now getting real traction. We are entering an exciting phase of our Asian ambitions as we shift from a market entry focus to one of driving operational performance from our enlarged regional presence”
Despite his confidence, shareholders are wary of investing even more money into Asia as it brings back memories of the company’s last offshore investment; a costly and damaging expansion into the UK market. The company expanded into the UK in 2006 with the purchase of motor insurer, Hastings Insurance. The investment was considered a failure after the Hastings posted losses which in turn brought down IAG
Some IAG shareholders have expressed that they want the company to focus on domestic markets rather than going abroad. Portfolio manager at Tyndall Investment Management Jason Kim said on his company’s stance: “[Asia] might be exciting but it’s very, very long term. They’ve got such a great business in Australia and New Zealand, and it would be really good to focus on that and harness that.”
Wilkins said IAG will be relying on the ever expanding middle class in Asia to ensure that the company’s latest investments prove to be successful as it is expected that middle class consumption will experience a 200 percent increase by 2020.
The investments that IAG has already made in Asia, including a venture with the State Bank of India and Malaysia’s AmBank have contributed approximately 6 percent to the group’s total premiums and it is next looking to expand into Indonesia.
While a merger in Indonesia is still some ways away as no official deal has been reported, IAG does have a number of possible merger partners. Citing a number of reasons including Indonesia being a “very-high growth market” with “very low insurance penetration” Justin Breheny, Chief Executive of IAG’s Asian operations said: “Its [Indonesia's market] got the characteristics which are very attractive to us.” If a deal occurs, the company will be leaning towards a bancassurance model, teaming up with a bank to provide insurance products through the bank’s existing sales channels.
It is expected that the Asian businesses will collectively lose US$50 million over the short term, however it’s not something that IAG executives will be losing sleep about. This is because by 2017, it is anticipated that the investments will bring in return rates of up to 17 percent, further cementing the point that the expansion into Asia is very much for the future rather than the present.
One of IAG’s three “developing businesses” is its joint venture with the State Bank of India. The venture resulted in the creation of the SBI General Insurance Company Limited, which IAG are hoping will be profitable by 2015.
Despite existing laws stating that IAG cannot immediately add on to the 26 percent of SBI General it already owns, it still expresses hopes that in the future a change in regulations would allow it to increase its stake to 49 percent. In the meantime IAG are hoping that the joint-venture’s plans to set up more distribution channels (including Bancassurance) will increase the amount of money it brings in.
The other two ‘developing businesses’ in China and Vietnam have both initially been successful. In China, IAG own 20 percent of Bohai Property Insurance. China’s insurance industry is dominated by domestic players, with foreign investors only holding 1 percent of the market, and as a result, one of IAG’s big goals for the future is to increase Bohai’s market share.
In Vietnam, IAG own 30 percent of the country’s 6th largest motor insurer, AAA Assurance. Much like China, the industry is dominated by local insurers, and through AAA, IAG are aiming to become the first foreign entrant to gain a meaningful market position by becoming one of the top 3 motor insurers.
With investments in China, India and Vietnam still in their infancy, it’s IAG’s ventures in Malaysia and Thailand that have been the most successful for the company. In Thailand, the company owns 98.6 percent of Safety Insurance, the sixth largest general insurer and one of the top three auto insurers in the country. In the future, IAG expect to increase Safety Insurance’s national presence and achieve a top two position in the motor insurance industry.
While IAG only has a 49 percent stake in its joint-venture in Malaysia, it also has proven to be a good investment up till now as the product of the venture, AMG Insurance, has become one of the top ten insurers in the country. In a couple of months the company is also expected to acquire Kurnia Insurans, a merger which will make AMG Insurance the largest auto insurer in the country.
In response to the seemingly positive investments made, Breheny attributed the success to a couple of elements: “Our extremely disciplined approach to market entry has resulted in an attractive portfolio of businesses, with differing stages of market development and associated growth and return profiles, but all with a clear ability to create value for the Group.”
Insurance Companies Mentioned
Insurance Australia Group
Insurance Australia Group was founded in 2000 and owns a number of smaller insurance companies around the world. It specializes in all sorts of insurance including general, commercial and auto.
SBI General Insurance Company Limited
SBI General Insurance Company Limited is a joint-venture between the State Bank of India and Insurance Australia Group. It has a presence in 20 cities in India and specializes in the retail, corporate and SME insurance industries.
Bohai Property Insurance
Bohai Property Insurance is partially owned by Insurance Australia Group. It has 25 provincial agencies and more than 200 municipal and county agencies and sepcializes in a wide variety of insurance.
Established in 2005, AAA Assurance is part owned by Insurance Australia Group. It boasts more than 30 branches in Vietnam and specializes in motor, property and other types of insurance.
Safety Insurance, a Thai insurer is 96% owned by Insurance Australia Group and deals predominantly with Motor Insurance.
AMG Insurance is 51% owned by AmBank Group and 49% IAG. It is Malaysia’s fourth largest motor insurer and has 2,900 insurance agents.
Kurnia Insurans is a Malaysian company that was formed in 1978. It is one of Malaysia’s top auto insurers and is expected to merge with AMG Insurance in the near future.
On October 15th 2011, China’s Ministry of Human Resources and Social Security put in place new regulations which required foreign employees working in China to contribute to the country’s Social Insurance System. The regulations stated that foreign employees would have to register after employment and start paying towards five types of insurance policies, including basic pension insurance, endowment insurance and unemployment insurance.
This brought about both positive and negative repercussions as while expats could now enjoy many of the same insurance benefits as local citizens, they were often already paying towards similar schemes in their home countries.
In light of this, China has now started negotiations with 11 countries so far including Singapore, Spain, Finland and Japan with hopes to simplify social insurance payments both for Chinese citizens working overseas and expats working in china.
Both employers and employees pay towards these endowments with workers contributing 8 percent of their wages and employers paying an amount equaling 20 percent of their workers wagers each month. Often, salary levels of foreign employees are high and result in a heavy financial burden for companies each month.
A simplified Social Insurance System could help China and other countries involved in the negotiations to avoid double payment of social insurance contributions as well as deciding which types of insurance policies should or shouldn’t be included in the system.
South Korea and Germany have already signed agreements with both deals exempting workers paying endowment insurance in the country where they do not reside. As a result, 2000 Koreans, 4500 Germans and 10,700 Chinese working in these countries have already benefited from these negotiations.
Other foreign nationals surely also hope that such agreements will be made with their home countries as expats working overseas tend to do so on a temporary basis and therefore would not benefit from paying endowment insurance, especially as the system requires an individual to work 15 years before they can collect their fund.
On the other hand, some expats may plan on retiring in China and would therefore appreciate being entitled to these benefits but could already be enjoying coverage from previous insurance policies of their home country and therefore negotiations could result in the exemption of certain policies within the system.
Negotiations may still take a year or two to reach final agreements but they will undoubtedly remain a hot topic as China becomes an increasingly large hub for international business and foreign employment opportunities.
Insurance Australia Group (IAG) finalized its acquisition of a 20 percent stake in China’s Bohai Property Insurance Ltd this week, marking the Australian giant’s first venture into the fast-moving Chinese insurance market. The move comes as part of the company’s long-term effort to boost its presence across Asia’s rapidly developing insurance markets.
IAG confirmed their purchase of a strategic interest in Bohai following the receipt of all required regulatory approvals in a statement made to the Australian Securities Exchange yesterday. The deal, for a reported sum of US$100 million, presents the Australian general insurer with its long sought-after foray into the world’s second largest economy. Under current Chinese market regulations, 20 percent is the maximum holding a single foreign investor is allowed to have in a domestic general insurance company. IAG first announced their investment plans for Bohai back in August, 2011.
IAG chief executive Mike Wilkins said that the acquisition was another important step for the company and one that would contribute to their growth target of having around 10 percent of premium income generated from Asia by 2016, “Bohai Insurance is an attractive partner and provides an exciting opportunity for us to meet our long held ambition of entering China’s general insurance market,” Mr Wilkins said in a press statement. IAG has reported a net profit of US$167 million in the first half of its 2012 financial year.
IAG and Suncorp dominate the Australian insurance sector and control almost 70 percent of the country’s insurance business between them. As this situation offers limited scope for domestic expansion, IAG now looks to the Asia Pacific region for sustainable premium growth. Over the past 5 years, the firm has seen its Asian footprint grow as far as Thailand, Malaysia and India. The insurer’s ambitious global growth strategy has also seen it buy a controlling stake in New Zealand’s AMI insurance business in the past week. IAG’s Asian business currently accounts for roughly US$430 million towards the company’s US$8 billion total in gross written premiums.
The Australian insurer has targeted a partnership in China specifically due to its expanding economy, low insurance penetration rates and a now more favorable business environment. Bohai Insurance was first identified as a strong strategic fit for IAG’s investment last year. Since its inception in 2005, Bohai has been able to generate annual gross written premium in excess of US$200 million. The Chinese non-life insurer has been a well-run company focused primarily on motor insurance, a product line that IAG has had traditional competitive strength in. In addition to this, Bohai have strong local government support, a recognizable brand, and an established multi-channel distribution network of roughly 265 provincial and city-based branches. The insurer has also demonstrated a commitment on underwriting discipline and risk management, which is particularly important for cautious Western investors. The price IAG has paid for their 20 percent stake would put the cumulative value of Bohai’s business at around US$500 million. According to market estimates, Bohai will be on track to turn an profit by the 2013/14 financial year.
IAG have also highlighted the importance of the company’s location within China. Bohai is based in Tianjin, the centre of the pan-Bohai economic development region in China’s north-east. The area is one of the most economically significant regions in China and receives direct central Government funding and supervision for new development initiatives. Currently the pan-Bohai region accounts for both a third of China’s gross domestic product (GDP) and a similar proportion of the country’s annual US$60 billion insurance premium pool (almost twice Australia’s totals). By comparison, IAG noted that the size of the pan-Bohai economy would be equivalent to the entire Indian or Russian market.
China’s continued economic development will continue to support it’s growing insurance industry, and thus the decision to enter this lucrative market was an easy one for IAG. China’s GDP is forecast to continue growing at over 9 percent per annum for at least the next couple of years. According to IAG, the country’s general insurance market is also expected to grow by about 10 percent to 15 percent over the next decade at least. In conjunction with rising insurance demand, IAG also credited improvements to industry regulations in China with improving the sector’s underwriting discipline and overall business forecast. These infrastructure efforts have, in turn, encouraged greater foreign investment in the country. The Chinese general insurance market, once dominated by four big state-owned players has become more open, enabling smaller companies, like Bohai, to remain commercially sound and present more profound and diverse opportunities for the international insurance industry. IAG and Bohai are confident that by combining their strengths, they will be able to create a solid platform for long term insurance growth and profitability in China.
Insurance Companies Mentioned
Insurance Australia Group
Insurance Australia Group (IAG) provides personal and corporate insurance policies under several different brands, including NRMA Insurance, CGU, SGIC, SGIO and Swann Insurance. The company has been the largest general insurer for Australia and New Zealand and is now expanding out of its home markets and looking to Asia for growth.
Bohai Property Insurance Pty Ltd
Bohai Insurance is a Tianjin-based insurance provider. The company was founded in October 2005 and today has over 250 provincial and city-based branches and a large network of agents.
Taiwanese insurance companies looking to diversify and prosper outside their over-crowded home market will soon be given greater capacity to capture business opportunities overseas. It was announced this past week that Taiwan’s chief industry regulator, The Financial Supervisory Commission (FSC) will begin to loosen overseas investment rules for domestic insurers later this year.
According to the FSC’s revised measures governing foreign investments by insurance firms, published online last Thursday, Taiwanese insurers who maintain adequate solvency standards will soon be allowed to invest up to 60 percent of their equity holdings in BBB+ graded foreign bonds, up from the 40 percent allocation permitted originally. This regulatory revision, scheduled to take effect during the second quarter of 2012, is expected to give Taiwan-based insurance companies an additional investment quota worth NT$100 billion (US$3.4 billion) to further grow and diversify their businesses.
In addition to this regulation, The FSC also stated that any insurer with a risk-based capital ratio (RBC) above 200 percent can now apply to the commission for a new overseas investment quota, which will exclude the purchase of foreign currency-based insurance policies going forward. This move, according to Taiwan Economic News, is forecast to give the Taiwanese insurance industry an extra share of NT$300 billion (US$10.2 billion) for overseas investments.
While any international market could in theory now be targeted by Taiwanese insurers for investment, this liberalization move by the national government is intended to encourage greater cross-strait financial ties with Mainland China in particular. As part of this effort, the FSC has agreed to lower the required RBC ratio from 250 to 200 percent for insurance firms looking to invest in Chinese securities, including yuan-denominated stocks and bonds, going forward. The commission noted that several prominent insurance firms had dropped below the previous solvency threshold due to investment losses and international debt contagion issues last year and adjustments had to be made to reflect these new economic realities.
Taiwan’s banks and insurance companies, long struggling with an over saturated home market, have been clamoring for better access to China’s huge capital market. The FSC began allowing domestic banks and insurance firms to invest in Mainland China stocks and bonds last year, and since then the acquisition activity has been fervent. Seven Taiwanese insurance companies have now obtained the prerequisite QFII (qualified foreign institutional investors) license from the China Securities Regulatory Commission to begin investing in the Mainland stock market. These insurers are Shin Kong, China Life, Taiwan Life, Mercuries, Global Life, Cathay Life, and Fubon Life.
All foreign investors in China have to be both QFII licensed and also granted a specific investment quota by the State Administration of Foreign Exchange (SAFE) in order to legally buy and sell on the country’s stock exchanges. This second step has proven more elusive for Taiwanese insurers so far, with several QFII licensed companies only receiving their yuan-denominated investment allocation in the past month. Shin Kong Life Insurance announced on the 1st of March that it had been granted a quota of US$100 million to trade on the Chinese stock market, becoming the first Taiwanese insurer to clinch their allocation. That same day, Cathay Life Insurance Co, the nation’s largest life insurer by market value, said it gained a QFII license from China, with investment quota impending. Taiwan-based China Life Insurance then released a statement on the 8th of March saying that it had become the second insurance company to get a quota. According to SAFE, the Mainland government approved a record US$2.11 billion worth of foreign investment through the QFII program in March, a sum that exceeded the total amount approved last year. Going forward the government agency intends to further expedite their review process in order to better support China’s capital market reforms and development.
For Taiwanese insurers, the decision to increase and diversify their investments on the Mainland could prove particularly important in 2012. A new report published last week by prominent local consultancy group, Taiwan Ratings Corp, expects stubbornly low interest rates and intense intra-market competition to constrain earnings growth for most local insurance companies this year. According to the report, titled “Taiwan Life Insurers’ Low Earnings Growth Hinders Capital Restoration,” the performance of the country’s life insurance market has in fact been subdued over the past two years, with unstable operating conditions and binding product adjustments proving particularly detrimental to recent premium growth.
Heading into 2012, Taiwan Ratings fear that volatile global stock markets could curb earnings growth further and delay local insurers’ attempts to recapitalize and turn around their performance. “Low operating performance and mediocre capitalization will remain the life insurance sector’s key rating weaknesses in 2012,” wrote credit analyst Serene Hsieh, “Nonetheless, we believe insurers’ adequate liquidity, continuous new business flows, and generally adequate investment asset quality will help protect their credit profiles from modest volatility.” Indeed, with the Mainland China market now made much more accessible, Taiwan life insurers can perhaps afford to take more risks with their investment strategies in order to both improve their competitiveness and maximize shareholder returns.
Taiwan’s Financial Supervisory Commission (FSC) was established on July 1st 2004 to promote and manage the interests of the country’s financial services sector. The FSC now works to supervise Taiwan’s banking, securities and insurance sectors, and acts as a single regulator for all of these industries.
Taiwan Ratings Corp
Taiwan Ratings Corp (TRC) is a leading provider of financial market intelligence in Taiwan and through its association with Standard & Poor’s Ratings Services offers first-rate financial news coverage and analysis across the global market.
China Life Insurance Co., the mainland’s and indeed the world’s largest life insurer by market value, made news this week in reporting a considerable 45.5 percent drop in 2011 full-year operating profit. The Chinese insurer acknowledged that slowing domestic business growth and weak stock market returns had adversely affected the company’s performance over the past year.
In a company statement filed to the Shanghai Stock Exchange on Monday, China Life revealed that it’s net profit for the year ending December 31 was CNY18.33 billion (US$2.9 billion), down from the CNY33.63 billion (US$5.35 billion) posted in 2010, while total revenues declined 3.9 percent year-on-year to CNY370.9 billion (US$59.8 billion). The statement further revealed that China Life’s net income amounted to CNY1.6 billion (US$250 million) during the most recent October to December reporting period, down 82 percent, which equated to the biggest quarterly drop in earnings in company history. The Beijing-based insurer had warned of a potential 40 to 50 percent drop in earnings earlier this month so while the year-end result was of course significant; it did not come as much of a surprise to most market analysts. These figures will be further discussed at China Life’s 2011 Annual Results Investors and Analysts Briefing & Press Conference in Hong Kong this week.
China Life has seen its premium growth rate stall due to increased competition in the mainland life insurance market. A rule introduced in March 2010 which now prevents life insurance companies from sending agents to sell policies at local banks, has had the subsequent effect of pushing more Chinese lenders into the bancassurance industry and driving up market competition. Banks and other insurers have been particularly effective in challenging China Life over high-yielding wealth-management products. As a result of this development, China Life noted that its first year premiums fell by 15.7 percent last year, while growth in one-year new business remained weak at 1.8 percent. Overall the state-owned company’s net premiums rose by only percent to CNY318.28 billion (US$50.6 billion) last year, according to their report. The insurer managed to post a 16 percent increase in net premiums in 2010.
Following the results, China Life announced plans to sell up to CNY 38 billion (US$6 billion) of subordinated bonds in the mainland and CNY8 billion (US$1.27 billion) worth of paper in the offshore market, in order to replenish its capital levels. The bond issue plan remains subject to shareholder and China Insurance Regulatory Commission (CIRC) approval. The life insurer has also proposed a cash dividend of CNY0.23 (US$0.04) per share for 2011, down from the CNY0.40 (US$0.06) per share offered in 2010.
Chinese life insurance companies typically invest around 10 percent of their assets into equities, with the rest held in bank deposits and bonds, and have thus been badly affected by the 22 percent domestic, yuan-denominated stock market slump last year. This stock market rout pushed China Life’s impairment losses past CNY12.94 billion (US$2.06 billion) during 2011, up from the CNY1.73 billion (US$280 million) reported in 2010, with the insurer’s investment yield falling to 3.5 percent from a ratio of 5.1 percent over the same period as well. China Life hope these pronounced investment losses are a one-time event, as recent moves made by China’s central bank to cut reserves and loosen the state’s monetary policy have already worked to lift share prices considerably this year. The Shanghai Composite Index has risen by 6.9 percent since the start of 2012, as concerns of economic contraction across the Asia Pacific fade, and this rebound in investor confidence is expected to help insurers recoup investment income and could boost the sales of savings-based insurance products going forward as well.
China Life’s performance relies heavily on investment income and thus the insurer is more sensitive to stock-market swings than some of its domestic rivals. Among these Chinese insurance rivals, Ping An Insurance, stood out by posting a considerable 12 percent gain in annual profits last week. The insurer said it made a net profit of CNY19.48 billion (US$310 billion) in 2011 and has been able to weather the country’s ongoing stock market volatility better through its strategy of increased business diversification. China Pacific Insurance has also managed to sustain itself with a 2.9 percent annual rise in 2011 net profits to CNY 8.31 billion (US$1.32 billion), according to a recent company filing. China Pacific further added that its market share was now 10.8 percent, with company revenue growing by 11 percent year-on-year to CNY154.9 billion (US$24.6 billion) in tow.
While they maintain their leading position for now, China Life saw its market share shrink to 33.3 percent last year from 37.2 percent in 2010, according to the filing China Life also managed to finish the year with a 170.12 percent solvency ratio, which although higher than China’s 150 percent statutory minimum requirement, was much lower than the 212 percent ratio the insurer recorded at the end of 2010. This sluggish performance has carried into 2012, with China Life reporting that gross premium levels have been down by 6.2 percent year-on-year and 25 percent month-on-month, to CNY79.4 billion (US$12.6 billion), during the first 2 months of the year. The Chinese central government has since used its power to appoint former CIRC Vice President Yang Mingsheng as new China Life chairman to hopefully right the ship. Going forward, low interest rates and national and global economic volatility will require China Life to be more disciplined than ever in their underwriting and investment decisions.
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 (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.
Ping An Insurance (Group) Co. of China Ltd.
Ping An Insurance is the first integrated financial services conglomerate in China that blends its core insurance operations into 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.
Insurance companies in China could soon find themselves subject to increased regulatory supervision, with several high-profile senior management personnel changes at state-backed firms now expected to have a ripple effect across the entire industry.
Over the past few weeks the head chairmen from China’s four largest public insurers, China Life Insurance, People’s Insurance Company of China (PICC), China Taiping Insurance Group and the China Export and Credit Insurance Corp, have seen their positions improve within the CPC. According to local media sources, all four insurance giants have or will be promoted by the national government to vice-ministerial or deputy-ministerial level organizations from their previous positions as bureau level representatives. These promotions effectively put China’s largest insurance companies under the same administrative control as the country’s state-owned banks, and perhaps indicates that the position of the insurance industry has become more important in the world’s second largest economy. The most immediate result however is that these insurance companies will likely be subject to increased scrutiny going forward, as their personnel appointments are now supervised by the higher-level Organization Department of the Communist Party of China Central Committee instead of the China Insurance Regulatory Commission (CIRC), the country’s insurance regulator. The CIRC have abdicated their personnel appointment power over state-owned insurance groups and will instead now focus on their other industry oversight duties.Read the rest of the China State Insurers set for Increased Oversight article.
Chinese government officials have reaffirmed their commitment to tackling skyrocketing domestic healthcare expenses following the discussion of several new state initiatives at the annual National People’s Congress in Beijing this past week.
China’s rapid economic ascension has seen them become the world’s second largest economy over the past two decades. While this certainly has brought many benefits to country and lifted over hundred million people out of poverty, the adverse health consequences of a now more urbanized, ageing, and increasingly quality-demanding populace have placed the communist state’s already over-strained medical infrastructure and healthcare system under considerable pressure. China’s healthcare system has been described as an over encumbered pay-as-you-go bureaucracy with medical services often proving too difficult to access, too expensive, and too variable in quality between various parts of the country, particularly in rural regions.
The national government has taken some notable steps in addressing these issues, launching a RMB 850 billion (US$125 billion) healthcare reform plan in 2009 and a far-reaching social insurance law last year. While important advances have definitely been made in the interim period, especially with regard to improved access and equality to medical services and insurance coverage across China, medical costs have continued to rise as a share of total household expenditure. Alleviating these cost concerns thus remains a pressing concern for the Chinese government, as it needs citizens to start spending more of their considerable savings, rather than holding on for medical emergencies, to boost domestic consumption.
Speaking at Fifth Session of the 11th National People’s Congress in Beijing, China’s Health Minister Dr Chen Zhu heralded the progress the country’s healthcare system has made since 2009. According to government statistics, around 96 percent of the Chinese population are now covered by some basic form of medical insurance, compared to just around 15 percent a decade ago. The country’s infant mortality rate meanwhile has fallen to under 12 per thousand from 15 per thousand over the past three years, while the rate of mothers dying in childbirth falling to 26 per 10,000 from 34 during that period as well. Despite this considerable progress, Wen acknowledged that more certainly needs to be done through the Chinese government’s next three-year plan as the country’s medical services were still far from meeting the general public’s expectations.
Interestingly, the greatest obstacle to further healthcare reform in China could be the state’s public hospital system, which has long been the country’s predominant treatment network due to the continued lack of primary care facilities and other options. A report from the Wall Street Journal this past week highlights how Chinese public hospital monopolies and their staff have benefited tremendously from the current health system because they are allowed to make up for the lower government-set prices on hospital beds, nursing care, surgery and other medical services by charging their own higher prices on patients for drugs and diagnostic tests. These public hospitals have come to rely on the non-subsidized services for a big chunk of their revenues. This has helped foster a healthcare environment laden with fraud whereby expensive drugs are often over-prescribed and unnecessary diagnostic tests are frequently pushed on patients for kickbacks. What’s more, as insurance coverage has extended throughout the country these practices have perhaps gotten worse, as public hospitals, which are for-profit institutions, use every means available to get money out of the patients themselves or the national insurance fund to cover their increased operational expenses.
China’s central government have taken note of this development and are apparently determined to drive down healthcare costs despite facing numerous challenges from vested hospital interests that see reform as a threat, both to their for-profit status and to the income of practicing doctors and hospital administrators. The first item on the agenda will be to extend drug-price cuts by increasing the number of medications on China’s essential pharmaceutical list from just over 300 to about 800. The drugs on this list have their prices kept artificially low as part of the government’s plan to contain out-of-pocket costs for Chinese patients. Not only will the number of essential pharmaceuticals increase but also the type and caliber of drug, with more specialty products, including those for cancer and cardiovascular disease, expected to be added to the list soon. The government also expects to take a more active role in negotiating better prices and possibly oversight, as drug procurement will now occur at the provincial level rather than by individual hospitals.
Another key issue going forward will be addressing the funding balance between patients, hospitals and insurance providers. Health Minister Dr Chen Zhu explained that the workload for Chinese doctors has almost doubled at public hospitals over the past three years as more and more people get health insurance and then begin seeking medical care. In the government’s next three-year reform strategy, the Health Ministry plan on protecting doctors’ salaries and reducing graft by increasing government subsidies in public hospitals and relying more on medical insurance companies to make up the difference. Breaking down China’s current health expenditure levels reveals that around 28 percent of the net is paid for by the government, 35 percent is covered by individual patients, and the remainder by employers. By the end of 2015, the Chinese government has set a moderate goal to increase their contribution to about 33 percent of all health spending and to reduce individuals’ out-of-pocket expenses to 30 percent or less.
In doing this, China’s net healthcare spend is expected to rise from 5 percent of GDP at present to around 6 or 7 percent of GDP within the next three years. This added expenditure will no doubt fuel further efforts to extend health insurance coverage as well as tackle the increased prevalence of chronic diseases like lung cancer, stroke, heart disease and diabetes occurring throughout the country. Thus going forward China needs to set up an effective healthcare and insurance system, where both insurers and hospital groups are given the proper incentives to push for lower medical costs for patients while, or course, maintaining prudent underwriting discipline.