The recent annual conference of the UK risk-management association, Airmic, released news of a “10 fold” increase in enquiries regarding cyber insurance products, but trends in take-ups didn’t follow suit. The disparity between enquiries and the take-up of “cyber” products left many wondering when the cyber insurance market will go ‘boom’.
Though market practictioners hold that we will see such promising growth in two years, insurance for digital property is not a new phenomenon. We have already witnessed popular developments in this sector with regards to online gaming in some countries in Asia, such as China, among others. However absurd it may seem, there have been ambitious attempts by some to insure players of Blizzard’s massive multiplayer online role-playing game (MMORPG), World of Warcraft (WoW), when they experience laggy gameplay, long queues, or system downtime. Additionally, we have seen Beijing based Sunshine Insurance Group Corporation, in cooperation with the online game operator Gamebar, offer WoW players monetary compensation for loss or theft of virtual property in the game.
Apart from the realm of digital gaming, there have yet to be big strides in the commercial and strictly business areas of cyber insurance. Due to the ambiguity of such a market, risk factors have made investing in protection of cyber-information a very expensive gamble.
This week a survey was released which indicated that many potential policyholders, who would otherwise have an interest in various cyber-protection products, displayed a lack of knowledge in regard to digital coverage options. The results of this survey have prompted Airmic to begin encouraging communication between brokers, insurers, risk managers, and IT specialists to develop a comprehensive understanding of cyber products with consumers.
Airmic also released detailed research tracking the progression of the international cyber-risk market, during its annual conference in Liverpool this week.
The research revealed that every year, cyber-crime costs the UK economy EURO20 billion (USD31.09 billion), listing intellectual property theft, industrial espionage, extortion costs, and direct online theft as the causes of loss in a decreasing order of cost.
Regardless, Airmic’s technical director, Paul Hopkin, said that the association is happy with the direction of the cyber-risk insurance sector.
“When we took stock of how the market has changed, it was very reassuring to find the cyber-risk market has changed quite considerably and is now much more aligned with what we are looking for,” he said, “The communication issue is one we are focusing on and, hopefully, the market will continue to respond favourably.”
Additionally, Ben Beeson, executive director of global technology and privacy practice at Lockton Companies LLP, said European cyber-risk cover is growing, due to a number of factors beginning to drive the market forward.
Beeson noted that these factors include “legal and regulatory change in the EU and technology and business model change, with cloud computing and outsourcing risks.” He said that intellectual property theft from cyber-espionage, and losses from cyber-warfare are two particularly difficult aspects of the cyber insurance market.
Furthermore, one company to recently jump on the cyber-insurance train is the Bermudian insurer Argo, with a new cyber-liability insurance product. Argo believes that its product will mirror the extent to which businesses depend on information techonology.
The product’s launching tails the newly released data security disclosure obligations from the US Securities and Exchange Commission (SEC), which are expected to initiate expansion in the US cyber-liability insurance sector.
Distributed through Argo Pro, its latest product attempts to appeal to a variety of sectors, such as insurance brokers, motor dealers, retail businesses, and many more.
Argo also plans to combine NetDiligence, a data breach services and cyber risk-assessment company, to allow policyholders to access information regarding cyber losses prevention and support.
Senior vice-president of Argo Pro, Michael Carr, said that “Advances in information technology have revolutionised the ways businesses attract, retain, and interact with customers. Along with benefits in speed and efficiency, these changes have created a variety of new exposures to loss – from liability for content on corporate Facebook pages or YouTube channels to privacy fines to business interruption from systems compromises.”
The recently released information from the SEC targets public companies and their responsibility to inform investors of cyber-risks.
Some speculate that the SEC changes are promoting interest in US cyber-liability insurance, but as with the current UK situation, it is not known whether the changes are effective in actually selling cyber related products.
In support, QBE Australian insurance disclosed data that showed UK companies to be unequipped to deal with cyber-crime. QBE’s survey results indicated that 46 percent of UK companies don’t even have a documented procedure in the event of a security breach.
While the cyber-insurance market is still young and emerging, clients and insurance companies have begun to recognize the importance of such a sector in a world where information technology is one of the fastest growing industries. In the near future, we are bound to see global insurers invent and innovate in the cyber-risk sector, to better provide customers and businesses with truly comprehensive security.
Insurance Companies Mentioned
Argo Insurance Group
Argo Group International Holdings provides specialty insurance and reinsurance products within the property and casualty line on an international scale. All of Argo Group’s insurance subsidiaries maintain an A.M. Best’s “A” rating, and an Standard & Poor’s “A-” rating, both with stable outlooks.
QBE Insurance Group
Sydney, Australia QBE Insurance Group is in the top 20 global insurers and reinsurers by net earned premiums. QBE provides general insurance cover for personal and commercial risks, with offices in 52 different countries.
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.
China’s insurance companies could soon be given greater investment opportunities and simplified approval procedures after the country’s insurance regulator claimed it would consider such procedures in a bid to improve the industry’s overall contribution to the nation’ economic growth and development going forward.
In a statement released online last week, the China Insurance Regulatory Commission (CIRC) claimed they will begin to gradually increase both the type and scale of unsecured corporate bonds that domestic insurers can invest with this year. As these investment restrictions lift, the regulator will then also work to adjust percentage ceilings on different asset classes within company portfolios, all in order to tighten CIRC supervision over the market and ensure that insurers still maintain their capacity to settle claims. This release was based on remarks made by CIRC Chairman Xiang Junbo during his routine trip to Wenzhou in eastern Zhejiang province over the past week.Read the rest of the Insurers in China Given Increased Investment Range article.
China is heading towards an aging demographic disaster. By 2050, the powerful Asian nation is projected to be the oldest BRIC economy, with the number of senior citizens far outstripping the actual working age population. A new study out this week by the Boston Consulting Group (BCG) and Swiss Re argues that insurance companies could prove integral in addressing this aging issue, and that they should be actively planning on how they will capitalize on both the challenges and opportunities the graying Chinese population presents going forward.Read the rest of the China’s Elderly are an Opportunity for Insurers article.
China’s life insurance sector has endured a mixed start to the 2012 business year, with many companies now posting lower premium growth after rapid expansion in recent times.
A new research document out by Deutsche Bank reveals how the country’s top four life insurers ranged quite considerably in their operating performances during the first-quarter reporting period. Life insurance premium revenues varied from a 7.5 percent decline to an increase of 16 percent during the first three months of the year, compared to the corresponding period in 2011, for the companies Deutsche Bank tracks.
China Life Insurance Co, the nation’s biggest insurer, reported that their premium income for the three months ended March 31 was CNY113.8 billion (US$18.1 billion), which was a considerable 7.5 drop on the CNY123 billion (US$19.5 billion) recorded during the corresponding period a year ago. This decline was felt most astutely in March where the CNY 34.4 billion (US$5.46 billion) in premium revenue represented a 10.4 percent decline on 2011’s figures. China Life’s premium revenues for the first two months only dipped by 6.15 percent year-on-year, by comparison. The Beijing-headquartered life insurer’s decline has been attributed to a steep fall in premiums collected from new individual insurance policies in particular. This has likely resulted from a structural adjustment the company underwent last year, a move which has also affected their bancassurance distribution platform.
China Pacific was the other domestic life insurer to post a drop in revenue during the first quarter. Citing a company filing, the insurer’s premiums totaled CNY48.44 billion (US$7.69 billion) for the first three months of the year, which represented a slight 0.62 percent dip on the same period last year. Ping An Insurance, the country’s second largest insurer, meanwhile recorded a marginal 1.7 percent increase in premium revenue, with CNY32.1 billion (US$5.1 billion) collected during the first three months of the year. New China Life, which went public last December, has seen its premium levels rise the fastest in 2012, growing by 16 percent on the year to CNY35.1 billion (US$5.57 billion). Insurers have blamed both equity market volatility and changes made to bancassurance for their more lackluster performances so far this year. Bank sales took a hit last year after the authorities tightened rules on insurance sales made by banks with effect from November 2010. At the same time, banks have been aggressive in attracting customers to save with them and competing with the insurance companies they once partnered with.
Deutsche Bank noted however that while new business growth would remain challenging for Chinese life insurers throughout the first half of the year, many of the concerns these companies are facing have now been documented and priced accordingly into their share values, in anticipation of a rebound in investor confidence. Indeed the share prices of both China Life and Ping An had fallen by more than 16 percent and 13 percent, respectively, in March, which was double the Hang Seng index average at the time. Contrast that to this month where China Life is up 4.5 percent to HK$21.20 (US$2.73) and Ping An is up 8.4 percent to HK$64.15 (US$8.27), outpacing the Hong Kong benchmark’s 1.5 percent rise. China Pacific Insurance meanwhile has added 3.8 per cent to HK$26.15 (US$3.37) and in Shanghai shares of New China Life has jumped 8.4 per cent to CNY33.50 (US$5.32). China’s stocks across the board have risen this past week on renewed speculation that the Mainland government will ease monetary policy (increase the float on its currency) to boost economic growth and introduce other measures to spur domestic consumption of property, insurance and other financial services.
It will of course take more than stable economic growth to continue the development of China’s insurance trade, important internal reforms must be made and the country’s authorities are beginning to act on that. Speaking at an event in Shanghai on Sunday, Chinese Vice Premier Wang Qishan noted that the domestic insurance sector still had great business potential due to the continued industrialization and urbanization of China and the growth opportunities that would provide. However, Wang warned that further reform and market innovation was now required to ensure that the industry develops in a stable fashion and that more Chinese citizens have access to appropriate protection, savings and investment products going forward.
China expects to strengthen its supervision over the domestic insurance industry during the next three to five years in a bid to better guarantee the ability of its insurers to pay their obligations and compete in the international market. New mechanisms have and will be brought in to boost insurers’ capital adequacy supervision, their risk management capacity to guard against systematic risks, and information disclosure to ensure they maintain good financial conditions and can pay off insurance claims on time. According to a Xinhua report, the Mainland government is particularly keen to accelerate reforms that would stimulate the state’s pension, medical and liability insurance sectors. Insurance services related to agriculture, shipping and other technology-based businesses have also been prioritized to help Chinese firms compete on both a domestic and international scale.
Shanghai may introduce a tax-deferred pension plan following Wang Qishan’s remarks on insurance industry reform. The state-run Shanghai Securities News reported on Tuesday that a pilot scheme targeting the city’s residents may start this year in a bid to give the local insurance sector a boost. According to the report, people enrolled in this scheme will be allowed to defer CNY500 (US$79) to CNY1,000 (US$160) in income tax each month if they spend that money instead on buying pension products from insurance companies. China Life, Ping An, China Pacific and New China Life have already been selected to participate in this scheme, which is forecast to generate CNY10 billion (US$1.6 billion) in premiums for the companies’ Shanghai-based branches.
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.
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.
Important new details surrounding China’s ambitious plans to improve their national healthcare and insurance systems are beginning to emerge. A circular issued by the State Council General Office on Wednesday outlines several of the Mainland government’s reform objectives for 2012, and how this could impact those involved in the state healthcare system over the coming year.
The rapid economic rise of China over the past few decades has brought many benefits to the country, lifting millions out of poverty and improving the overall health standards of their citizens greatly in tow. However, despite this notable progress, many structural health issues in China remain unresolved. The adverse health consequences of more urbanized, ageing, and increasingly quality-demanding populace have placed the communist state’s over-strained medical infrastructure and healthcare system under considerable pressure. There are also large disparities between the country’s more affluent urban dwellers and poor urban and rural inhabitants in terms of access to medical services, affordability and quality of care. China’s healthcare system has been described by critics as an overloaded 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. Many among the rural poor have limited their use of healthcare services for purely financial reasons, since the costs of treating a serious illness or injury could wipe out a family’s life savings.
China’s central government has taken some steps in addressing these problems. China launched a RMB 850 billion (US$125 billion) healthcare reform plan in 2009 and a far-reaching social insurance law last year. Important advances have been because of this investment, especially with regard to improved access and equality to medical services and insurance coverage across China. 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. However, despite these notable strides, medical costs have continued to rise as a share of total household expenditure in China. 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 onto their money for medical emergencies, to boost domestic consumption.
New insurance mechanisms are being implemented by the government to cover a significant portion of medical costs and to help lower the impact of high out-of-pocket payments. The Mainland government’s chief objective is to continue expanding their state medical care insurance plan until no less than 95 percent of the population are covered and have access to affordable public healthcare facilities. According to the circular, the government will work to achieve this target by administering an annual subsidy of CNY240 (US$40) per-capita that will cover some basic medical services for urban and rural residents starting this year.
A big obstacle to healthcare reform in China is 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. Chinese public hospital monopolies and their staff benefit from the current health system because they are allowed to make up for the lower government-set prices on 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. According to industry experts, this has helped foster a healthcare environment burdened by fraud where expensive drugs are over-prescribed and unnecessary diagnostic tests are frequently pushed on patients for kickbacks from pharmaceutical companies. As insurance coverage has extended throughout the country, these practices have in fact gotten worse. Public hospitals now use every means available to get money out of the patients themselves or the national insurance fund to cover their operational expenses.
The government has 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 circular stressed the importance of improving regulatory oversight with regards to pharmaceutical quality, compensation and distribution mechanisms in China over the next couple of years. As part of this arrangement, the government will soon release a list of which drugs will be made subsidized for Chinese citizens under the state’s medical insurance scheme. 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 so will the type and quality of drug. More specialty products, including those for common illness like cancer and cardiovascular disease, are expected to be added to the list soon. The government intends to take a more active role in negotiating better prices for patients and public hospitals.
These are all part of the effort to continue increasing the access and service capacity of grassroots medical facilities in rural areas across China in 2012. According to the circular, the 2012 reform plan includes a pilot program that will change how 300 county hospitals are funded for the year. County-level hospital were selected for the scheme as they generally receive a manageable number of rural patients and are under control of local health departments, which makes reform efforts easier. Instead of depending on drug sales, inducements and other kickbacks for income, these public hospitals will instead by financed by increased government subsidies and key adjustments made to staff salaries and medical service and supply pricing systems. The experience gained from this preliminary initiative will then be used when developing a similar reform agenda for the more trafficked and complex public hospitals in urban areas.
Speaking on the healthcare reform agenda outlined in the circular, Vice-Premier Li Keqiang told reporters that more work would be done to accelerate the development of the country’s medical insurance system, expand the coverage of the state healthcare network, lower drug prices, and raise healthcare subsidies for all Chinese citizens. To do this Li pledged that the state would separate medical services from pharmaceutical management, increase doctors’ income and restructure the funding equation between patients, hospitals and insurance providers. Crucial to this development too will be the input of the private healthcare and insurance sectors.
German insurance group ERGO announced Friday that they will finally be entering the Chinese insurance market after receiving the necessary start-up permissions from local regulators to launch a joint venture operation with a Mainland government-backed partner.
ERGO Insurance, a subsidiary of global reinsurance giant Munich Re, had first agreed to establish a public-private joint venture insurance company with Shandong’s State-owned Assets Investment Holding Company (SSAIH) back in January 2011. ERGO is currently Germany’s second largest primary insurer by market value, after Allianz SE. The financial investment unit of SSAIH is part of the provincial government of Shandong. In 2011, the company, which employs over 8,000 local staff, held assets worth around €2.7 billion (US$3.52 billion). Now that the regulatory approval for commencing the start-up has been given by the Chinese Insurance Regulatory Commission (CIRC), the two firms can begin to establish their distribution platform, recruitment mechanisms and overall market strategy under a preparatory license. As per the terms of the partnership, ERGO and SSAIH, which is part of the provincial government of Shandong’s asset manager, will each hold a 50 percent share in the venture and the headquarters will be located in Jinan city, the capital of Shandong province.
This new joint venture company, which yet has to be named, will primarily focus on selling life insurance and other savings-related products to retail customers across Shandong. Speaking on the significance of this bold new venture at the signing ceremony, ERGO Insurance Group Board of Management, Dr. Jochen Messemer explained that adding the Chinese market to their international operations portfolio would prove to be a strategic move going forward, despite regulatory hurdles. “China is one of the strongest growth regions in Asia. As a consequence, both private customers and companies have an increasing requirement for provident products and a safeguarding against risks,” Dr. Messemer said, adding that “by entering the Chinese insurance market, we are strengthening our position in the emerging Asian markets, which are a focal point of our international growth strategy.” The Chinese market will no doubt continue to offer enormous potential for further growth.
China’s insurance sector has proven durable in the aftermath of the global financial crisis, consistently delivering high growth rates in recent years as both the number and sophistication of insurance policies sold continue to rise in tow. ERGO has had a presence in China for several years through its’ representative office in Beijing and their new life insurance joint venture will enable them to position another office 250 miles further south in Jinan. ERGO has spent their time Beijing analyzing the Chinese insurance market and how, in particular, foreign insurers have fared once they’ve entered the market. The primary-insurer felt that the time was right to test the country’s life sector through a partnership with SSAIH. The decision to enter Shandong province was taken because the region plays an important role within the Chinese economy and has become the third largest domestic insurance market over the past few years. The province has a population of 96 million people, and this offers ERGO huge potential for sustainable premium growth alongside their Chinese public sector partners.
While the continued growth of China’s economy no doubt offers substantial business opportunities going forward, ERGO is well aware that the highly competitive and often duplicitous nature of their market environment has been particularly challenging for foreign insurance entrants, with some foreign invested joint venture companies already leaving the market in recent years, citing exorbitant claims figures, poor competitive positions and stifling industry regulations. Once again, Dr. Messemer assured shareholders that a German insurer could survive and thrive in China, saying that “we are confident that – based on our technical and risk management expertise and international know-how in setting-up life insurance operations – we will set strong foundations for being successful in China in the long run. We have chosen a focused approach for entering the market in the Shandong province.” ERGO plans on sharing its international insurance expertise in areas of sales, risk management and product development to hopefully impact and lift the business practices and customer service standards in the local market. Subject to final regulatory approval, the ERGO-SSAIH joint venture is expected to formally launch its business operations sometime during the first half of 2013.
Many multinational insurers are now shifting their focus away from stagnant western economies to the growth markets in Asia in order to capitalize on the increasing affluence in the region. 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.
Insurance Companies Mentioned
ERGO is a subsidiary of Munich Re and offers a wide spectrum of insurance provision and services across 30 countries; it currently has more than 40 million customers. ERGO has a strategic focus in Central and Eastern Europe and certain Asian markets. The German insurer has become one of the leading health and legal expenses insurance companies within Europe. In addition ERGO provides property and personal accident insurance in India. In 2011, ERGO recorded a premium income of 20 billion euros and paid out benefits to customers amounting to E17.5 billion.
Munich Re stands for exceptional solution-based expertise, consistent risk management, financial stability and client proximity. This is how Munich Re creates value for clients, shareholders and staff. It operates in all lines of insurance, with around 47,000 employees throughout the world. Especially when clients require solutions for complex risks, Munich Re is a much sought-after risk carrier. The primary insurance operations are mainly concentrated in the ERGO Insurance Group. ERGO is one of the largest insurance groups in Europe and Germany and 40 million clients in over 30 countries place their trust in the services and security it provides. In international healthcare business, Munich Re pools its insurance and reinsurance operations, as well as related services, under the Munich Health brand.
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.
China’s two-decade long rapid economic ascent has lifted over a hundred million people out of poverty and has now placed considerable pressure on the state to update it’s infrastructure and social care network in order to keep pace with the population’s remarkable growth in prosperity. The Chinese government has taken some notable steps on this front, introducing a far-reaching social insurance law last year, and now news has emerged that several of the country’s most populous cities have begun to update their own municipal maternity insurance programs, requiring local firms to take greater care of their female employees.
The need to upgrade, expand capacity and streamline Mainland China’s social safety net is a pressing economic and political issue for the national government. China’s enormous population is aging and growing increasingly anxious about future access to quality health care, maternity services and adequate pensions. Alleviating these concerns should also work to encourage Chinese consumers to spend more of their considerable savings, rather than holding on to it for emergencies, and drive the world’s second largest economy further forward. One of the issues China’s government looked to address in their broad social security reforms last July was the costs of maternity care in the country. The government wants domestic employers to take greater responsibility and contribute more towards their female employee’s maternity leave and childbirth expenses. While new guidelines were indeed set, implementation has been delayed, with many cities still needing time to revise regulations and work out details for the new maternity insurance plan.
Beijing has been one of the first cities in China to respond to the central government’s updated social insurance laws. According to a recent article in China Briefing, an Asian business magazine and daily news service, the capital city has expanded their maternity insurance cover network and revised their maternity allowance calculation method in the past month to comply with the new regulations and fill in certain coverage gaps. The Beijing Human Resources and Social Security Bureau (BHRSSB) outlined these plans in circular number 334 “On Adjusting the Municipal Maternity Insurance Policy for Employees,” which was released in December last year.
The most notable change in Beijing’s maternity insurance scheme is the improvement to maternity allowance, which is the amount of salary contribution given to a female employee for her maternity leave. Under the new insurance system, starting January 1 2012, maternity allowance for female employees in Beijing will be calculated according to the combined average monthly salary of all employees in a given company reported during the previous calendar year. This allowance will then be multiplied by the duration of maternity leave taken by said female employee.
The government circular further clarified that Beijing-based female employees will receive the same amount of maternity allowance from the new calculation method even if their actual monthly salary level is considerably lower than that the average company wage. Meanwhile, if a female employee’s monthly salary level is higher than the company standard, the employer will be required to make up the difference in the two amounts. According to the BHRSSB, this was done to alleviate concerns that senior-level employees could have ended up receiving fewer benefits for their maternity leave. In addition, if a female employee gives birth nine months after the new insurance law comes into effect, but has not made any maternity premium payments for at least nine months, the maternity compensation will be paid by her employer.
The city of Beijing’s maternity insurance system was in need of an overhaul. Prior to this updated ruling, maternity allowance was tied solely to the female employee’s individual average monthly salary and could only be applied within a one-month period surrounding the child birth in Beijing. This previous system simply could not guarantee enough resources for expecting Chinese mothers and often allowed employers to provide miserly allotments which could not keep up with the rising costs of maternity care. From January 2012 onwards, all Beijing-based employees tied to a local enterprise, government agency, institution, community group, foundation, firm or individual business will be required to participate in the city’s new maternity insurance scheme. Any employer that fails to register their staff and contribute to the social insurance fund accordingly will be subject to fines and further regulatory oversight.
Beijing is not the only city interested in revising its social care network. Hangzhou, the capital city of Zhejian Province, has also decided to raise the maternity insurance contribution rates to assist female employees within its borders. The Hangzhou local government has introduced new measures which will lift the employer contribution rate for maternity insurance within Hangzhou City to 1.2 percent of a company’s total wage bill, a 30 percent rise on the 0.8 percent required previously. Meanwhile, companies based outside the city limits, in rural and suburban areas, will have their maternity allowance contribution limits set either by local district government or county-level municipalities. While the wage base for the maternity insurance scheme across Zhejian Province will remain unchanged, local Hangzhou companies will be required to tabulate the monthly salary of all of its employees and use that as the base for future maternity insurance payments. The Hangzhou government authorities further stipulated that if the monthly wage of a female employee is below 60 percent or above 300 percent of a company’s average monthly salary structure, her wage base for maternity insurance shall be capped at either 60 percent (for low salary staff) or 300 percent (for the high salary staff) of Zhejiang province’s average monthly wage for the previous calendar year. Additional contributions involving specific childbirth outcomes has also being discussed, and will likely vary depending on the pregnancy term, surgeries required (such as a caesarean section), as well as whether multiple births are involved. While these measures officially took effect last year, local Hangzhou authorities are still waiting for details on how to implement the new allowance contribution system.
Revising China’s maternity insurance system certainly is timely. According to the Chinese zodiac, 2012 is a year of the dragon and is widely expected to lead to a baby boom on the Mainland due to the belief that children born now will be endowed with good luck and have a prosperous life. Failure to adequately address the country’s maternity care system will not only impact the lives and outcomes for Mainland mothers, but likely those in neighboring Hong Kong as well. Hong Kong has proven to be a popular destination for expecting Mainland mothers as the city is exempt from China’s one-child population control rule, and Chinese children born within their borders are entitled to local residency and access to superior social services. According to the Hong Kong government, the city-state’s maternity facilities were put under serious pressure last year after 40,648 Mainland mothers gave birth in local hospitals, which was equal to roughly 45 percent of the city-state’s 88,000 total births in 2010. With no end to Mainland China’s population controls expected, this surge in cross-border maternity tourism activity will continue to be a hot button issue going forward. Addressing the gaps in Mainland China’s maternal safety net will likely prove to be one of the most effective measures in persuading Mainland moms to have their baby on the Mainland.
China’s fast-growing insurance sector could be subject to further regulatory reforms this quarter, after the nation’s industry regulator unveiled a raft of new initiatives on their website.
The China Insurance Regulatory Commission (CIRC) released a statement this week outlining several new restrictions on property investments for domestic insurance groups. Under the proposed regulatory requirements, the combined book value of a given insurance company’s fixed-assets and property investments would be capped at 50 percent of their net asset value. In addition, domestic insurers could be forced to place their self-use property assets and those used for construction and investment into separate asset management accounts. The CIRC has been looking to strengthen its oversight over insurer’s financial positions in China to diminish the threat of risk spreading from the insurance industry to the banking sector and vice versa during this period of ongoing global financial market volatility. The South China Morning Post noted that such moves would be necessary to ensure that insurer’s core business interests and, most importantly, their policyholders are protected from additional property market risks.
The CIRC also announced new limits on insurance company banking activity. According to the regulator’s statement, Chinese life insurance groups with total assets of at least CNY10 billion (US$1.59 billion) or more will no longer be allowed to deposit more than 20 percent of their holding capital into any individual non-national bank. For the country non-life and reinsurance sectors, the asset value cap on companies is set at CNY2 billion (US$320 million). These measures are aimed at diversifying the risks of insurers capital and to strengthen supervision of operations. The CIRC are confident that these moves will also work to lower the default risk present in the domestic insurance industry, and prevent contagion between the banking and financial services sector. Encouraging larger insurance companies to diversify their capital holdings across multiple institutions is intended to reduce risk and will strengthen operational oversight as well, the CIRC advised. Higher reserves could also help companies survive unexpected catastrophe losses, a pressing issue given 2011 record disaster losses, and give them more leeway in their margins to better protect and serve their existing policyholders
In addition to increased financial regulatory oversight, the CIRC plan to revise insurance agent accreditations in China to better conform with best international business practices. The regulator is currently in the process of drafting new rules to better regulate insurance sales personnel behaviour in China. These new reforms will likely include lifting entry requirements for insurance agent licenses and tightening the regulations governing insurance companies responsibilities in monitoring and curbing the miss-selling of their policies by sales personnel. The CIRC remains concerned about certain domestic insurance companies and their struggle to make payments to policyholders on time and are exploring ways to help them replenish their capital base, including reforms geared at engaging the offshore yuan market in Hong Kong for supplementary funds.
Increasing supervision over China’s contentious insurance intermediary market has become a key goal for the CIRC in 2012. Addressing the sector’s poor service standards and ethics has been at the forefront of the regulator’s planning, with claims settlement difficulty and mis-sold insurance policies accounting for over 90 percent of overall consumer complaints that the CIRC has received over the past five years. There have also been problems with sales management mechanisms as most of the sales persons in the industry remain under qualified for their positions. Newly appointed CIRC chairman Xiang Junbo made special mention of this in his annual address, saying that unprofessional business practices had become the key concern for the industry and that the regulator needed to shift its focus from gross premium growth in 2011 to improving overall service quality and promoting agriculture and catastrophe insurance this year. According to Xiang, the Chinese insurance industry’s pre-eminent focus on expansion has come at the expense of improved management structures and service innovation, and this has failed to satisfy customer demand. Xiang further explained that increased professionalism and product innovation within the industry would be the best way to address these challenges, otherwise Chinese insurers will be unable to keep pace with the profound changes in the market going forward.
Reforming China’s insurance sales models will also enable the regulator to gradually reduce the entrenched multi-tier insurance sales system, which segregates markets and product lines almost arbitrarily in some parts of the country. CIRC furthermore plans to give insurers more scope to establish exclusive sales networks and will encourage domestic companies to explore new distribution channels such as internet sales, tele-marketing sales and cross-marketing bancassurance schemes, according to their 2012 prospectus. Overall, the regulator may acknowledge that relaxing certain insurance restrictions may work to promote new channels of business growth in China. Amongst these upcoming regulatory changes will likely be the introduction of foreign insurers into the country’s motor insurance market, lending their international expertise to a large but claims-heavy market for the first time.
According to the latest CIRC data, Chinese insurance companies reported CNY1.4 trillion (US$226 billion) in premiums last year, up by 10.4 percent on 2010’s results. Broken down by sector, the country’s general insurance sector recorded an 18.5 percent annual increase in premium income to CNY461.8 billion (US$73 billion), and the country’s life insurance market posted a 6.8 percent rise in premium income to CNY969 billion (US$153 billion). According to the CIRC, claims payments amounted to CNY391 billion (US$62 billion) in 2011. Total assets held by Chinese insurers meanwhile jumped to a record CNY5.9 trillion (US$930 billion), compared with the CNY5 trillion (US$790 billion) noted in 2010, while the number of insurers failing to meet solvency ratio requirements declined from seven to five.
Despite these strong growth figures, and considerable potential going forward, the Chinese insurance market still faces considerable obstacles, including inflationary pressure, intense internal competition and weak global capital markets. Insurance companies will need to adapt to changes in the Chinese, and indeed world, economy, and adjust their business models accordingly. The regulator meanwhile should remain principally concerned with keeping the domestic insurance industry healthy and closely monitoring the potential risks facing the sector’s sizeable assets on the horizon.
Starting January 1st 2012, visitors from Mainland China are allowed to travel to nearby Taiwan for the express purpose of medical tourism. The first application made by Chinese travelers seeking medical treatment has already been submitted to Taiwan’s National Immigration Agency and many more are now expected to come throughout the year to take advantage of the cross-strait healthcare advantages made available through this new initiative.
In the past, Mainland Chinese tourists bound for Taiwan were not allowed to officially declare that they would be visiting the Asian island nation solely for medical tourism reasons. Those who sought health checkups or elective surgery while already visiting the country would only have access to certain medical treatment as part of their individual or group travel itineraries. This system however didn’t work in practice and lead to widespread confusion with Chinese travelers using Taiwanese hospitals and clinics surreptitiously during their stay anyway, often overwhelming local medical facilities and immigration officials in the process. Taiwan’s private hospitals and clinics meanwhile want to capitalize on the business opportunity these Mainland Chinese patients present and instead are finding an increasing number of these clients travelling further afield to Malaysia, Singapore or the USA for expensive medical treatment.
In addressing these demands, the Taiwanese government announced on December 30th, 2011 that they had revised the country’s immigration rules specifically regarding permits for people arriving from Mainland China. Under the new rules, beginning in 2012, Chinese nationals can legally enter Taiwan specifically for the purpose of having health checkups, elective or non-urgent surgery, and cosmetic surgery procedures. These Mainland Chinese tourists are allowed to stay in Taiwan for up to 15 days, which includes a three day shopping and tourism allocation, in addition to their medical treatment days. Taiwanese private medical facilities that are qualified to provide these services meanwhile can apply to the National Immigration Agency (NIA) for visas on behalf of their prospective Chinese patients. According to Taiwanese officials, these applications will be given top priority for processing by the NIA and will take around five business days to review and approve, with potentially life-threatening cases put on a 4 hour fast track.
The response to this development has certainly been quick, with the first medical tourist visa from Mainland China filed only a day after the initiative came into force on January 1st. According to the NIA, the first cross-border medical tourist application was submitted by Shin Kong Wu Ho-Su Memorial Hospital. The Taipei-based hospital plans to host a 26-member group from the Chinese province of Liaoning in February. The first group of medical-visa tourists from Mainland China, composed of presidents from large domestic hospitals and officials from local governments, is expected to undergo several advanced health screening programs and learn more about Taiwan’s specific health checkups and cosmetic surgery practices during their expected six-day trip. How Shin Kong Wu Ho-Su Memorial Hospital’s premier medical tourist group fare could offer some interesting insights about the Taiwanese medical tourism industry going forward. There are currently over 30 hospitals and clinics in Taiwan with the appropriate qualifications to submit visa applications for and host medical tourists from Mainland China. These Taiwanese medical facilities include the National Taiwan University Hospital, Kaohsiung Medical University Chung-Ho Memorial, Cathay General, China Medical College Hospital and Taipei Veteran’s General Hospital, with many more small-scale hospitals and cosmetic surgery clinics expected to be added to the list of qualified institutions soon.
In addition to medical-visa revisions for local hospitals, the Taiwanese government is looking to invest in specialized medical zones near the country’s international airports to attract even more prospective medical tourists. Four of these zones are currently in development and are projected to pull in 40,000 tourists per annum once completed. Taiwan’s government is ultimately banking on these facilities, together with the country’s state-of-the-art health service technologies and low treatment costs, to take business away from the likes of India and Thailand.
Making Taiwan’s healthcare industry more attractive to international clientele within Asia’s highly competitive medical tourism market has become a priority for the national government. With a relatively modest 85,000 medical tourists visiting their facilities in 2011, Taiwan’s government and healthcare providers have had to take a more proactive and coordinated approach to recognize and develop areas of the international medical tourism market that they can more readily capitalize upon. One of these market segments is of course Mainland China, where Taiwan has an advantage over its regional competitors through shared language, similar culture and shorter travel distance. The number of outbound Chinese medical tourists has increased from just a few thousand at the start of the decade to nearly 60,000 annual travelers in 2010. An aging population and rising individual incomes have increased the demand for medical and healthcare products and services throughout the country in that time. Compared with China, Taiwan can provide higher quality medical services at more modest prices. Checkup fees for example are about NT$40,000 (US$1,320) in Taiwan, which is cheaper than the NT$60,000 (US$2,000) required on average in mainland China.
While the mass of emerging middle class Mainland Chinese clients definitely presents profound opportunities for international healthcare providers, this group can also come with certain drawbacks as well. One factor that has become quite unique to Mainland Chinese health travelers has been the wave of expectant mothers leaving the country solely to give birth in a foreign country, a practice known as maternity tourism. Hong Kong has so far proven to be the most popular destination for expecting Mainland Chinese mothers. While the prosperous city-state is of course now part of the PRC, following the handover in 1997, it has been exempted from the Mainland government’s population control policies (the one child policy). What’s more, children born within HK’s borders are ensured local residency, and all accompanying rights to local social services. In 2010 this resulted in Hong Kong’s hospitals and maternity wards birthing 40,648 Mainland babies, almost half of the city’s 88,000 total births for the year. This has now resulted in legislation from Hong Kong’s government that will cap the number of non-residents allowed to give birth in the city to 34,000 per annum, starting in 2012. With Mainland China’s population controls likely to continue, maternity tourism will no doubt continue to be an issue for Hong Kong, but one that can hopefully be ameliorated by the accompanying demand by Mainland Chinese clients for more advanced medical treatment options, both at home and abroad.
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.
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.
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 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.
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.
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. 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 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.
A new study out of the United States shows that action taken by the Chinese government over the past two decades to improve access to medical facilities may have in turn allowed overall health insurance coverage to increase throughout the country between 1997 and 2006, with particularly strident gains found in rural areas during this time.
The research was done by Brown University sociologist Susan Short and fellow alumnus Hongwei Xu, now at the University of Michigan, with the findings presented in the December issue of Health Affairs, a prominent medical policy journal. The study used data from the China Health and Nutrition Survey to analyze medical insurance coverage patterns in China over the past decade, with a particular focus on the diverging health behavior occurring among the country’s rural and urban inhabitants. China’s Health and Nutrition Survey tracks households across nine Chinese provinces that cumulatively represent over 40 percent of the country’s population, so the findings should be widely applicable to the country at large.
China’s rapid economic development over the past few decades has worked to lift millions of people out of poverty and improve the country’s overall health standards. This has manifested itself in an improved life expectancy at birth rate, which has risen from 69 years in 1990 to nearly 75 years by 2010 and a decrease in infant mortality, which declined from 37 per 1,000 live births in 1990 to 17 in 2009, amongst other favorable indicators. Despite this noted progress, however, many health issues in China remain unresolved. Chief amongst them are the large disparities that persist between the country’s more affluent urban dwellers and poor urban and rural inhabitants in terms of access to medical services and quality of care. Many among the poor have limited their use of medical services for purely financial reasons, since the costs of treating a serious illness could wipe out a family’s life savings. To address this problem, new insurance mechanisms are being implemented by the government to cover a significant portion of medical costs and to help lower the impact of high out-of-pocket payments.
Xu and Short’s report found that, overall, the number of Chinese citizens with some form of insurance policy increased moderately at the turn of the century, moving from 24 percent of the survey sample size in 1997 up to 28 percent by 2004. Over the past few years however the changes have been more dramatic, with insured individuals already representing 49 percent of all survey respondents by 2006. Moreover, since then, the gap between the rates of insured Chinese people between rural and urban areas has narrowed greatly. In the report, Xu and Short, both credit this as perhaps the most profound development occurring in Chinese healthcare over the past ten years, referring to the rise in rural health insurance coverage as “nothing short of dramatic.” While the predicted probability of having health insurance improved in China between 2004 and 2006 for all locations in the nine provinces studied, rural areas had the most to gain. Susan Short wrote that millions of rural Chinese residents have likely benefited from increased coverage options so far. “There’s been great concern about increasing inequality in China, and particularly urban-rural inequalities. This work shows that at least in one sphere, health insurance coverage, urban-rural inequality may be decreasing,” Short added.
Historically, location has been one of the defining factors over access to healthcare and cover in China. Xu and Short’s analysis confirmed that the levels and trends regarding health insurance cover have been markedly different depending on whether the survey respondents were living in urban or rural areas in China at the time of the poll. The report found that coverage rates in rural villages fell from 1997 to 2000, while at the same time, the country’s suburbs, cities and towns observed no such change. It was during this period, the report notes, that the Beijing government’s new rural insurance system was still in undergoing its pilot phase and had not yet begun providing financial subsidies outside of a few select rural communities. After 2000 however, the level of health insurance coverage in rural areas rose sharply, from 17.9 percent in 2004 to 51 percent of all survey respondents by 2006, almost tripling the insurance penetration rate in the process. Survey data showed that coverage rates also rose quite significantly in smaller towns and suburbs at the same time, but changed little in China’s now burgeoning cities.
This remarkable rise in rural coverage rates has, according to the study, coincided with improved efforts by the Chinese government to develop more robust insurance initiatives and greater subsidies for the country’s rural inhabitants. “It is especially impressive to see this pattern in data such as these, that follow the same individuals over time,” Short said, adding that the changes now apparent in rural village coverage rates are surprising. “We are witnessing real change in many people’s lives in the way that urban, and especially rural, individuals experience health insurance coverage.”
Despite the considerable increase in individual coverage that has occurred throughout China, the report notes that many disparities between rural and urban consumers still persist, particularly as it concerns reimbursement rates and overall quality of care. Xu and Short’s analysis determined that urban residents in China continue to receive greater compensation on both their inpatient and outpatient claims, than their insured contemporaries from rural areas. However, the authors noted that these results should be interpreted with some caution due to a considerable number of incomplete self-reported reimbursement rates in the dataset. In his conclusion, Hongwei Xu, remarked that considerable progress has been made in the Chinese insurance industry. “The findings from this research highlight the recovery in health insurance coverage in general, and more importantly the significant reduction in the rural-urban inequality in the coverage in particular, largely due to the great efforts by the Chinese government, in a quite short time period,” Xu said, adding that the advantage insured urban residents continue to hold over insured rural residents, shows that more work needs to done. “On the other hand, the suggestive finding of continued rural disadvantage in terms of health insurance benefits suggests we should not overestimate the success of the policy interventions.”
China’s healthcare system going forward must tackle these challenges and more to continue to improve the quality of health care for the population at large. If insurers, both local and international, can work to effectively match the insurance demands of the Chinese people, cover against holes in the social safety net, and further encourage people to invest their considerable savings back into the market, they can share in this potential prosperity as well.
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.
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.
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.Read the rest of the China Insurance IPO On the Horizon article.
A statement released this month by Korea Life Insurance Ltd confirms that South Korea’s second largest life insurance company has now received the appropriate regulatory approval from the Chinese authorities to establish a joint venture business in China with a local partner, and begin providing it’s insurance services and expertise in the world’s second largest economy.
The China Insurance Regulatory Commission (CIRC) has now signed off on a 50-50 joint venture life insurance business between Korea Life and Zehjiang International Business Group, a state government-owned asset management company, with operations scheduled to begin in 2012, according to the Seoul-based insurer. The new life insurance joint venture will have a total paid-up capital of CNY500 million (US$79 million), equally financed by Korea Life and Zheijang International, and will be headquartered in Hangzhou, the capitol city of Zhejiang province in eastern China. “With the insurance market potential and domestic economic growth in China, the joint venture is expected to begin its business in the Yangtze Delta region,” Korea Life said in the statement.
Korea Life will assume the overall business management responsibilities of the new joint venture, and will work to gradually localize their operations for the Chinese market with help from Zheijang International’s robust business network.
Korea Life has been looking for a way to enter into China’s fast-growing insurance market for a number of years. The Seoul-based life insurer first set up its representative office in Beijing back in August 2003. Then, in December 2009, Korea Life Insurance signed a memorandum of understanding agreement with Zhejiang International Business Group, which outlined their preliminary plans to partner together through an initial 45 billion Korean won (US$40 million) investment for establishing a joint venture life insurance operation in China. Now that the proper regulatory licenses have all been granted, Korea Life and their domestic partner can begin establishing their business presence in Zheijian province’s insurance market, one of China’s higher-income areas.
Expanding outside of their saturated home market has become increasingly important for Korean insurers. South Korea remains one of the world’s largest insurance markets by per capita premium levels, with a particularly high insurance-penetration rate in regards to life insurance products and services. In the aftermath of the 1998 Asian financial crisis, South Korea’s insurance industry has rapidly expanded on the back of regulatory developments, government support, economic growth and rising per capita income levels, to now become the seventh largest market globally in terms of market share. While the domestic insurance market has been open to multinational insurers since 1987, both the life and general insurance sectors are dominated by large domestic financial conglomerates, namely Samsung Life, Korea Life and Kyobo Life, which control over 60 percent of the life-insurance assets between them.
Despite this success at home however, in order to sustain their margins, South Korea’s most prominent insurance companies must now look towards expanding into other international markets. Local market analysts have long expressed concerns over the country’s alarmingly low birth rate and rapidly aging populace, and the effect this all has the insurance sector’s growth prospects if the prospective customer base continues to decline. At present, one in 10 Koreans is aged 65 or older, but the ratio is expected to rise to over 14 percent by 2018. These concerns are of course not unique to Korea. An OECD report issued earlier this year claimed that aging populations will cause global spending on long-term care to double or even triple by 2050, and this will have a considerable effect on insurance markets in tow, as the demand for health-care and retirement-related products continues to rise.
Founded in 1946, Korea Life Insurance is the Southeast Asian country’s first standalone insurance company. According to the Korea Life Insurance Association, the company reported over KRW 6.54 trillion (US$5.79 billion) in gross written premiums in 2010, and a 12 percent share of the life market. Korea Life has had to innovate in order to protect its position in the competitive local market. In March 2010, the Seoul-based company became the first Korean insurer to go public on the South Korea Stock Exchange. While that move has successfully raised capital for further development in their domestic life insurance operation, Korea Life is now looking to expand it’s footprint into more international markets. Currently the insurer’s global network feature offices in Tokyo, London and New York but more work needs to be done to develop a presence in emerging markets with real guarantees of sustainable premium growth. This was a sentiment shared by the company CEO and Vice Chairman, Shun Eun-Chul in an interim report filed earlier this year, saying “The local insurance market is becoming saturated, so advancement overseas is a must.” Overall, the company is putting itself on the forefront of Korea’s insurance industry as they all expand internationally.
Korea Life Insurance has already had some success in moving its operations into an overseas market. In April 2009, the company became the first Korean life insurer to enter Vietnam’s budding protection market, initially providing endowment policies and educated savings plans through a 2,000 strong agency force. In their first year, Korea Life took a 1.8 percent share of all new insurance sales in Vietnam, with over 10,000 new policyholders and premium income of US$3.3 million.
The company has now set an ambitious target to triple its manpower to 9,000 employees working across 22 branches in Vietnam, with projected annual premium income exceeding US$35 million by 2015. Korea Life is confident they can achieve these objectives due to the favorable market conditions in Vietnam versus Korea. The Vietnamese insurance industry is growing at average of 10 percent annually. When you combine these economic indicators with favorable demographics, as over 60 percent of the population is under 30, the potential for further insurance development becomes significant. After investing in and starting their operations in both Vietnam and now China, Korea Life Insurance is now considering making inroads into other emerging markets in the Asia Pacific region.
Insurance Company Mentioned
Korea Life Insurance
Korea Life Insurance is an insurance company specialized in providing life insurance business. The company offers a wide range of insurance products including whole life/term insurance, survival insurance, death insurance, group insurance, annuity insurance and many other services for both individual and corporate customers. Substantial loan services, credit options, fund products and risk management services are also offered. Korea Life Insurance was founded as Daehan Life Insurance in 1946. The company is headquartered in Seoul, South Korea with additional offices in Ho Chi Minh City and Hanoi, Vietnam.
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 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.