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Ongoing Confusion over Foreigners’ Inclusion in China’s Social Security System

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.

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UK Debating Updates to Social Care System

This week, the Commission on Funding of Care and Support presented its long-awaited findings to the British government in its landmark Fairer Care Funding Report. This commission, headed by economist Andrew Dilnot, was launched last year by the coalition government to present an independent review of the funding system for social support in Britain and to offer recommendations on how long-term care for the elderly and those on disability must be handled in the future.

The report first acknowledged widespread concerns surrounding the shortcomings of the current care system. At present, the British social care scheme provides support through a means-tested system, administered by local authorities. Under this system, council-funded in-house and nursing home services for the elderly and adults with disabilities are only offered to those who hold under £23,250 worth of assets. The social care system has been the only insurance system in the UK structured this way. In areas such as motor and housing coverage, Britons are encouraged to purchase private insurance to pool risks and cover themselves against potential exposure to high costs. In healthcare, the NHS pools risks through providing social insurance to everyone. For social care costs, however, the state does not provide a universal support system and thus people are unable to take out private protection. This has been the only major sector in Britain in which everyone still faces significant financial risk and yet no one has been able to protect themselves against it. This uncertainty manifests itself into a large national financial burden. The UK government currently spends £14.5 billion a year on adult social care in total, half of which is directed towards services for older citizens. A report from the OECD issued earlier this year confirmed that aging populations will cause global spending on long-term care to double or even triple by 2050. This is indeed a national problem that needs to be confronted promptly.

The current social care framework, which has been in place for 70 years, has not properly taken into account the rise in living expenses, medical inflation and demand which has left many Britons exposed to potentially very high care costs without state support. Seniors with assets just above the value threshold are often unable to protect themselves without leveraging their income and estate – a situation the general public has widely viewed as unfair. The report calculates that a quarter of all UK residents aged 65 and over will need to spend relatively little on care for the rest of their lives. Half of UK residents could have long-term-care costs of up to £20,000, but over 10 percent will likely incur costs of over £100,000 and for some many times over. There is no true way of predicting in advance what the long-term-care costs might be for any one individual and the current system leaves too many households at risk.

To address this problem and protect people from extreme healthcare costs later in life, the commission has recommended capping the lifetime contribution to adult social care costs that any individual in Britain would need to make at around £35,000. Those with care costs exceeding the cap would become eligible for full financial support from the state. A cap on contributions is thought to benefit the struggling middle classes as they pay far more towards their social care than those on lower incomes. The report also maintains that the asset threshold for means-tested state support for those in residential care should increase from the paltry £23,250 up to £100,000. The commission believes broadening the requirements will allow greater access to the state support system and could bring greater peace of mind to pensioners and reduce anxiety for both individuals and care professionals in Britain.

The Fairer Care Funding report broadly believes that care costs should not consume more than one third of a person’s assets. In addition to raising the means-test threshold four times over and updating the funding system, the commission has looked into addressing many of the more pervasive administrative concerns that continue in the UK care system. There have been frequent complaints about the high variation in eligibility for care across the country and of poor integration between different services and individuals. The report calls for all eligibility criteria to be finally standardized nationally to end the “postcode lottery” and improve transparency during the assessment process. Portability of care across localities would also be instituted to prevent citizens from needing to reapply for care if they change localities. Finally, the study recommends a significant promotion strategy to build awareness about upcoming changes to the care system, as well as a nationwide campaign to encourage citizens to put more towards savings to prepare for retirement related care costs.

Going by the commission projections, lifting the asset cap to £35,000 would cost the national purse £1.7bn in the first year, equivalent to just 0.22 percent of the country’s GDP. The cost would then increase to £3.6bn at current rates by 2015. This is all on top of a projected £22bn increase in costs due to Britain’s ageing population in the coming decade. The commission concludes the report claiming these resources and more will be necessary to institute the vital systemic reforms to update the British social care service for the 21st century: “We believe that our proposals are fairer than the current system. There is a clear, national offer, which should be backed up by better information and advice. The system facilitates choice and puts people in control. By focusing resources on those with the greatest need, while enhancing the well-being of everyone, it offers value for money. It is sustainable and resilient in the longer term. It is a better deal – one fit for today and for tomorrow.”

The Fairer Care Funding Report envisions a more robust partnership between the state support services and individuals whereby individual costs are capped while substantial risks would be covered by the government. It is hoped however, that the private insurance industry would step in and develop solutions that will help individuals meet a greater share of their care obligations. Social care insurance has yet to take off in the UK market, but now by defining the amount people will have to pay, insurers could offer viable savings plans (equity release on property, life, pension etc.) that enable policyholders to pay up the full contribution. The lessons learned from any profound changes to the UK social care infrastructure will no doubt influence what other industrialized nations attempt to do themselves.

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Sun Life Develops Long Term Care Plans

Canadian insurer, Sun Life Financial has launched a single premium, whole-life insurance product for its US-based clients with a new linked benefit rider that enables owners to contribute towards vital long-term care. The new policy, named Sun Care Whole Life, can be used to pay towards in-home/assisted-living care or nursing home facilities and will hope to address the substantial number of Americans who are finding themselves unready to cope with the costs of medical treatment after retirement.

A recent study conducted by Sun Life found that almost two thirds of Americans currently do not feel financially prepared to meet the growing costs of late-in-life healthcare (regarding either in-home help, assisted living, or nursing care options) with only 16 percent of respondents actually confident they could handle these financial burdens. According to the study, the most consistent problem mentioned when preparing for late-in-life care has been the lack of understanding most Americans have about what the true costs of said care will be. Even accounting for the most conservative estimates of inflation over the next 30 years, the average cost of long term care calculated was more than double of what respondents were expecting. Medical inflation can be between 2 to 4 times the general inflation in any given country and this was reflected in the results. According to the Consumer Price Index, the current nursing home rate for a private room is US$85,000 and the projected rate by 2030 is US$190,000, not the mere 56 percent rise to US$125,000 most respondents anticipated. The figures also reveal that 24/7 in-home care rate will currently cost US$184,000 a year, and an estimated US$272,000 by 2030 and 40 hour a week in-home care runs US$44,000 a year, rising to $65,000 by 2030. An OECD report issued earlier this year confirmed that aging populations will cause global spending on long-term care to double or even triple by 2050.

Despite the continued development of assisted living and nursing homes in America into more reverent and autonomous healthcare institutions for seniors, the vast majority of those surveyed still wanted to live out their lives in their own homes. Most (83 percent) would prefer to be cared for by their families if the financial burden wasn’t too great, and would object to staying in long-term care facilities even if this option prolonged their life.

Janet Whitehouse, VP and general manager of Sun Life’s Individual Life Insurance Division, explained in a press statement that the insurer had used these interesting statistics about the financial preparedness of many Americans to develop a new type of insurance program. According to the 2008 report from the U.S. Department of Health and Human Services, around 70 percent of American citizens over 65 will eventually require some form of long-term care, often for such necessary daily activities as eating, washing or getting dressed. “We want to help people prepare, so if they ever need long-term care, they have more freedom to pick the level of care that suits their needs, and the costs don’t have to erode their retirement savings or estate assets,” Mrs. Whitehouse, said in the statement.

Through the new Sun Care Whole Life policy, users pay premiums like any other insurance plan, but the collected funds can then be allocated towards either late-in-life care (through assisted living options, nursing homes or in-house care health plans), or the benefits can all be passed on to selected beneficiaries income-tax free once the policyholder passes away. For an additional fee, the whole life policy provides an optional ‘return-of-premium’ feature, which allows holders to recoup the value of their original premium. The plan is currently available in 39 US states.

Sun Life officials assert that the Sun Care Whole Life policyholders and their beneficiaries will get sizeable value out of the contract. The plan estimates to provide long-term care benefit between three to seven times the initial value of the premium, dependent on factors such as riders selected, age, gender and the smoking status of the policyholder. Bob Klein, VP of strategic planning for Sun Life’s Individual Life Insurance Division, detailed that “once the policy owner pays the single premium, the policy is guaranteed to provide a benefit, either to the individual or the beneficiaries.”

This is an improvement over traditional long-term-care or similar life insurance plans, which don’t benefit the holder unless he or she makes a long-term-care claim, require unending premiums or provide no death benefit if a holder never needed long-term care amenities. Making benefit options available while alive gives policyholders’ greater flexibility to act on healthcare bills and assess whether they are eroding planned estate savings.

Bob Klein concluded the statement, encouraging Americans to plan, not panic. “Since being a family caregiver can exact a huge toll, and given average annual nursing home rates projected to rise to $190,000 by 2030, you raise your odds of getting excellent long-term care by planning for it,” he said.

This past week, Sun Life also involved itself in long-term-care issues in the Philippines. The insurer is planning to expand into the country’s emerging retirement planning industry and is sounding out the prospective creation of a stand-alone trust corporation to accomplish this.

Currently only 2 percent of Filipino citizens are financially independent upon retirement. Most retirement plans are provided through employers and Sun Life recognizes the potential for growth in this sector. Without a trust license however, it would be difficult for the insurer to enter this sector because it would be unable to offer competitive returns without the same tax treatment enjoyed by entities with trust functions in the country. Recent regulatory revisions drawn up by the Filipino central bank will allow non-banking institutions to apply for a trust license and Sun Life would now be considering this option.

Sun Life is the second-largest insurance company operating in the Philippines in terms of assets and wants to continue being strong player in the market. In February, the company signed a deal to acquire a 49 percent stake of Filipino insurance business Grepalife Financial Inc., a unit of the Yuchengco Group, for an undisclosed amount, expanding Sunlife distribution network in the Philippines. The deal rebrands Grepalife into Sun Life Grepa Financial as soon as local regulatory approval has been settled. Sun Life’s existing share of the Philippine insurance market is estimated to be around 17-20 percent, but with the new partnership the Canadian insurer is aiming to increase that to more than 25 percent in the short to medium term.

In an interview last week Sun Life CEO Donald Stewart, was upbeat about the company’s business in Asia and described the Philippines in particular as a country with “enormous potential,” remaining among its priority markets for long term success. “We want to make sure we commit to markets where we can succeed in and the Philippines is very much one of these markets,” he added.

Insurance Company Mentioned

Sun Life Financial

Sun Life Financial is an international financial services organization providing a range of protection and wealth accumulation products and services to individuals and corporate customers.

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Potential in the Microinsurance Market

The global microinsurance market is estimated to be worth US$40 billion to the insurance industry according to a report by Zurich based Swiss Reinsurance.

Swiss Re has highlighted the huge potential in supplying the massive populations in countries in the emerging markets of Asia, Latin America and Africa, with low cost insurance products. The report identifies the scope to expand the range of products, which could be made available to low-income groups in these continents.

The historic reason for the under-development of insurance products to low income segments in emerging market economies has been the inability to find commercial solutions to the supply of products for this market. However, the Swiss Re report estimates that there are approximately 2.6 billion people worldwide – living on US$1.25 to US$4 a day – requiring low cost insurance protection, which could be made available on a commercial basis; the potential earnings from this market is estimated to be US$33 billion.

Additionally, it is estimated that a market – totalling 1.4 billion people and US$7 billion in premium value – exists to supply insurance to individuals living on less than US$1.25 per day, with help from government support / international aid.

The author of the new sigma study, Amit Kalra, said: “For insurers, microinsurance creates an opportunity to tap into new markets and build a strong brand value that can be used for selling conventional insurance products in the future.”

The largely untapped microinsuance market provides global insurers with new opportunities to grow, and create a new source of premium income driven by the volume of sales involved. With the global economic conditions remaining challenging for multinational insurers – partly stemming from the demands in the mature insurance markets in Europe and Northern America being static – insurers recognize the opportunities presented with access to under-developed insurance markets.

The economies in Asian countries such as China, India and Indonesia have been able to buck the global trend of low growth by strengthening economic activity, and represent the optimum potential for microinsurance; the populations in China and India top 2.6 billion people.

In addition to the immediate commercial benefits mircoinsurance provides for insurers, there would potentially be longer term scope for business growth as new customers become accustomed to the benefits of insurance protection and saving schemes and expand the purchase of new products.

Amit Kalra said: ”The Asia-Pacific region is the fastest growing and the largest microinsurance market. Microinsurance has also grown considerably in African and Latin American countries despite these being relatively smaller microinsurance markets at present.”

The largest selling segment in the micronisurance market currently is credit life – a mortality cover coupled with a mircrocredit element. However, the need for better quality and a broader choice of insurance protection – to meet demand in the agricultural, saving, life and health microinsurance market – is recognized.

There are challenges in the microinsurance market needing to be overcome before the sector can fully develop, with clearer regulatory standards and improved infrastructure to be installed. There is also inadequate historical information surrounding risks and claims insurers may face in these new markets.

Multinational insurers embarking on the provision of microinsurance are faced with the challenge of establishing strong local partnership to distribute micro products and suitable channels for policyholders to make claims. Insurers also need to take into account the cultural element of local communities to ensure services and products meet the specific requirements of potential policyholders.

In July this year, the China Insurance Regulatory Commission (CIRC) reported that the world’s largest insurer by market value – China Life Insurance – had written nearly 4 million microinsurance policies, generating US$20.2 billion. China Life recently received regulatory approval by the CIRC to expand its microinsurance business in rural regions of China, which include Jiangsu, Hunan, Tibet, Zhejiang and Xinjiang – helping the insurer towards its goal of generating US$38 million in microinsurance premium income in 2010.

Allianz, one the world’s largest insurers, has been active in the microinsurance market for years and operates in countries such as India, Indonesia, Colombia, Egypt, Senegal and Cameroon. Allianz Indonesia has set a target this year to achieve 1 million policyholders by 2012. In India – Allianz’s largest microinsurance market – the insurer offers savings, property, life and health micro products and expects the market to continue to grow.

Non Government Organizations (NGOs), governments and local communities have been working on programmes across regions of the world where vulnerable communities and individuals require protection for their livelihood and well-being. Organizations such as the International Finance Corporation (IFC) recently committed US$4.1 million in grants for mircoinsurance in Eastern Africa. With the Swiss Re report highlighting the potential benefits of mircoinsurance on a commercial basis, insurers have the opportunity to develop policies to meet the protection needs of the more venerable element of the world’s population.

The fundamental basis for microinsurance to work for the insurer is a high volume of policyholders, coupled with low cost margins. Also, insurers will benefit from working with local partners with close ties to local institutions and communities to help mircoinsurance providers to establish a market presence.

Insurance Companies Mentioned:

Swiss Re

Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life, health and special lines – such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.

Allianz

Allianz Group is one of the leading global services providers in insurance and asset management. With approximately 153,000 employees worldwide, the Allianz Group serves approximately 75 million customers in about 70 countries. On the insurance side, Allianz is the market leader in the German market and has a strong international presence.

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.

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US$4.1 Million Grant for Index Linked Insurance in Kenya and Rwanda

The International Finance Corporation (IFC) – a member of the World Bank Group – has awarded a US$4.1 million (€3.12 million) grant to support the provision of microinsurance in Eastern Africa. The grant will be awarded over the next three years to help 35,000 farmers and 5,000 livestock herders in Kenya and Rwanda.

The grants will be used to finance advisory services, building and infrastructure development and assistance to local insurance companies in the provision of index-based insurance products.

The agreement between the IFC and the regional grant partners is designed to expand access to insurance for Kenyan and Rwandan farmers and livestock herders in order to provide them with protection for their animals, crops and livelihoods against natural disasters and weather-related risks.

The IFC led programme – through the Global Index Insurance Facility (GIIF) – was established in 2009 to help in the development of index-linked insurance facilities in countries which currently have limited insurance resources available. The IFC grant, totaling roughly US$4.1 million (€3.12 million), will be shared between three schemes which include: MicroEnsure weather index insurance project in Rwanda; the Syngenta Foundation for Sustainable Agriculture/UAP Insurance weather index insurance initiative in Kenya and the International Livestock Research Institute (ILRI) Livestock index insurance project in northern Kenya.

The expected breakdown of the grant will see the Syngenta Foundation for Sustainable Agriculture receiving up to US$2.4 million (€1.8 million), which is planned to assist 20,000 farmers in Kenya with insurance protection over the next three years. US$154,000 (€117,540) of the IFC grant will be for the ILRI to help roughly 5,000 households in northern Kenya over the next two years and up to US$1.6 million (€1.2 million) will be for MicroEnsure to cover 15,000 farmers over the next three years in Rwanda.

IFC’s director for Eastern and Southern Africa, Jean Philippe Prosper said: “These partnerships highlight IFC’s commitment to expanding insurance and other financial products where they are needed most in Africa. The Global Index Insurance Facility will facilitate farmers’ access to credit, leading to increased productivity, improved livelihoods and greater food security. We are grateful to the donors that have generously provided funding and to our partners for supporting this programme.”

The establishment of the GIIF is designed to aid the development of local insurance companies and create capacity to provide index-based insurance products. Index-based insurance is designed to protect against catastrophic events taking into account the severity of the events such as droughts, flooding and wind storms and the damage they can cause. The significance of the form of index-linked insurance products proposed is that it will enable the verification of claims on a large scale rather than on an individual basis. This will lower transaction costs, making products and services more accessible in rural and remote regions.

The first donor to commit to the GIIF Trust Fund was the European Union (EU) which donated US$32 million(€24.5 million). Additional donations have been received from Japan’s Ministry of Finance with an initial offering of US$2 million (€1.5 million) and the Dutch Ministry of Foreign Affairs; these funds have been used to finance the initial project and establish the facilities required.

The IFC is the largest global development institution founded to focus on private sector involvement in developing countries. The IFC looks at ways to create opportunities for people to escape poverty and improve their lives. The global institution provides capital for businesses to assist employment and supply needed services by using funding from sponsoring parties. The IFC will also offer advisory services to ensure projects are developed effectively.

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Protection and Health Business Feature In AXA Growth Plan

Insurance giant AXA SA highlighted its 5 year strategy for growth at their autumn investor seminar held in Paris on the 16th of November 2010. The French insurer AXA gave investors a preview of plans to expand operations in emerging markets and to concentrate on high-margin protection policies to ensure future growth.

As one of Europe’s largest insurers, AXA’s strategic plan is to make the company more efficient by creating international growth. Part of the five year action plan proposed by AXA is to review the way the group manages its operational capital to facilitate and accelerate long term values.

“We want to implement a more aggressive allocation of capital towards emerging markets and towards specific segments, such as protection and health. We want also to increase our focus on free cash flow generation.” Henri de Castries, Chairman and CEO of AXA said at the investor seminar.

AXA aims to increase the amount of premiums generated through its protection and health business in the coming years by growing new business sales. AXA stated that the protection and health business typically returns a 40 percent profit margin compared to its life insurance sector which generates around a 20 percent return. Additionally, AXA see scope for opportunities in the investment and saving segment, alongside possibilities open in the property and casualty sectors.

The increasing activities within continental Europe’s investment and saving business was specifically mentioned, highlighting the opportunities present in satisfying European pension shortfalls which are estimated at US$2.6 trillion (€1.9 trillion). AXA’s British-based insurance rival Aviva has recently stated that it will also be engaged within continental Europe in order to take advantage of future saving needs in this insurance sector.

Emerging markets – especially in the Asian region – have become a focal point for global insurers recognizing the financial stability now being enjoyed in this part of the world, with AXA consolidating its position in China through a deal struck with ICBC to acquire a majority stake in the French insurer’s joint venture AXA-Minimetals. The strength of the Asian market has become even more apparent over the last few years as China’s economy has evolved to become the second largest in the world, with other Asian countries also experiencing economical prosperity in the wake of the financial crisis. The Asian region has emerged from the 2007 world financial crisis largely unscathed – compared to Western Europe and the USA – leading international insurers to grasp opportunities for corporate growth – particularly as the more established, mature insurance markets have offered multi-national insurers less scope for new premium returns.

As part of AXA’s focus on expansion in Asian markets, it has launched a joint bid with Australian financial services group AMP for AXA Asian Pacific Holdings Ltd; this amounts to approximately US$13.1 billion (€9.7 billion). If the takeover of AXA Asian Pacific Holdings Ltd is successful, AMP will acquire the Australia and New Zealand operations, with AXA SA taking control of all Asian networks.

If the French insurer’s bid is completed, it will result in their increased presence in nascent Asian insurance market such as China, India, Thailand, Indonesia and the Philippines. Also, AXA will gain increased access to the mature Singapore and Hong Kong markets, which have been generating profitable returns for insurers as the markets stabilize. The insurance markets in China and India offer insurers such as AXA fantastic opportunities to expand and increase revenue due to the vast and increasingly wealthy populations in these countries.

Along with the two economic powerhouses of China and India, Vietnam, Thailand, Indonesia and the Philippines have all shown growth and an appetite for insurance products in recent years. This has caused insurers such as AXA to prioritize efforts in the Asian insurance industry as established markets in the USA and Western Europe have suffered from more difficult trading conditions after the 2007-2008 financial crises.

An ambitious but failed bid by the British-based insurer Prudential for AIG’s Asian arm, AIA, earlier in 2010 emphasized the potential seen in the Asian insurance industry. Prudential aimed to takeover AIA in a bid to further expand its reach across the Asian region in order to take advantage of emerging premium returns in China, Indonesia and India. Global insurers Bupa and Zurich have also entered into joint ventures / partnership agreements in 2010 to gain access to the growing Asian markets. Bupa’s joint venture in India – MaxBupa – was established earlier this year, with the Bupa group enjoying significant growth as a result.

As life-styles change and personal wealth increases, demands for indemnity insurance grow – whether life, saving, motor or health insurance. As needs change, there is scope to develop products to suit demands regionally. In Asia, the products provided under the takaful and mircosurance ranges are proving particularly successful.

Speaking on the future of AXA, Henri de Castries said: “We will finalize it in the coming months and will present our deployment plan in the first semester of 2011. The aspirations and priorities we are sharing today are at the core of our ambition, which aims at better preparing AXA for the opportunities created by the growing needs for insurance and protection worldwide.”

As AXA enters a new phase of global operations, it is focusing on becoming a more profitable insurer by cutting costs, improving efficiency and taking a more aggressive approach with capital allocation. In order to become more competitive globally AXA – like other international insurance companies – is concentrating on expansion of its activities in Asia, with the French insurer taking serious action reflected in its US$13.1 billion (€9.7 billion) joint venture bid with AMP to acquire AXA Asian Pacific Holdings.

Insurance Companies Mentioned:

AXA

AXA Group is a worldwide leader in Financial Services. Headquartered in Paris, the AXA Group companies are engaged in life insurance, health insurance and asset management services among others. AXA’s operations are diverse geographically, with major operations in Europe, North America and the Asia/Pacific area.

Bupa

Bupa was established more than 60 years ago in the UK and is now has ten million customers in over 190 countries, and over 52,000 employees around the world. Bupa is a leading international healthcare provider, offering personal and corporate health insurance, workplace health services and health assessments. As a provident association Bupa has no shareholders, because of this it uses its profits to invest in healthcare and medical facilities around the world. Bupa has operations around the world, principally in the UK, Australia, Spain, New Zealand and the US, as well as Hong Kong, Thailand, Saudi Arabia, India, and China and across Latin America.

Zurich

Headquartered in Zurich, Switzerland, Zurich Financial Services Group is an insurance-based 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.

Aviva

Europe’s fourth largest insurance company, with more than 300 years of experience in the global insurance industry, Aviva is committed to the safety and satisfaction of its customers. They sell a broad range of insurance products including motor and property insurance, protection and health insurance, business insurance, life insurance and pensions.

Prudential

Prudential has been in the insurance and financial services business since 1848. Today they operate throughout the UK, US and Asia offering international health insurance and retirement planning services, supported by 27,000 employees worldwide. Prudential’s Asian operations include Hong Kong, India, Malaysia, Singapore, Indonesia and other Asian countries.

AIG

The American International Group is a leading international insurance organization with operations in more than 130 countries and jurisdictions globally.

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Chinese Bank ICBC Gains Access to Life Insurance Sector

Industrial and Commercial Bank of China (ICBC) has agreed to buy a major stake in the French-Chinese joint venture AXA-Minmetals Assurance Company. The move by the Chinese Bank ICBC will make them the majority shareholder and add to its non-banking revenue stream.

The initiative by ICBC to acquire the 60 percent share in AXA-Minmetals Assurance comes as the Chinese bank announced that it gained a 27 percent increase in profits during the third-quarter of 2010 with net income of 42.6 billion yuan (US$ 6.4 billion) up from 33.6 billion yuan (US$ 5.05 billion) in the previous year.

ICBC – the world’s largest bank by market value – will invest 1.2 billion yuan (US$180 million) for a 60 percent stake in the French joint venture company AXA-Minmetals Assurance. The deal will subsequently mean the company being named ICBC-AXA Life Insurance Company. The general management of the business will headed by the AXA-appointed president.

The deal struck by ICBC and AXA-Minmentals will strengthen the company’s presence in an ever developing insurance market. Henri de Castries, Chief Executive of AXA said “AXA has full confidence in the business growth opportunities in the Chinese market and this cooperation with ICBC is ideal to increase our respective interests and presence in the Chinese insurance market.”

The link with AXA-Minmetals will facilitate ICBC’s entry into the Chinese life insurance market and add to its non-banking business, gaining access to the health, retirement, education, children and wealth insurance products.

ICBC chairman Jiang Jianqing said regarding the deal: “ICBC boasts a strong customer base, complete service network and increasingly expanding influence in both domestic and global markets. ICBC’s investment in AXA-Minmetals is an important initiative to promote the comprehensive operation strategy and build core competitiveness. ICBC will fully leverage our leading advantages in banking industry to fully promote this strategic cooperation. We believe this strategic cooperation of ICBC with AXA and Minmetals will bring sound investment returns to the shareholders as well as quality and all-round financial services to customers.”

ICBC’s substantial stake in AXA-Minmetals will provide a sound basis for the newly formed company to penetrate the expanding insurance market in China, which has seen company consolidations in 2010, and will enable it to compete with dominant domestic players such as Ping An and China Life in order to gain market share.

China’s second largest insurer Ping An announced plans to merge with the Shenzhen Development Bank in September 2010. This will increase Ping An Insurance’s presence across the country linking with Shenzhen Development Bank’s outlets, expanding the reach of Ping An Insurance and improving prospects for market growth.

ICBC continues the trend of large corporations investing in the Chinese insurance industry reflecting the value of the market which is estimated to be worth US$100 billion. Businesses have been keen to bolster their presence in the world’s second largest economy which is set to continue to grow. Since the onset of the 2007-2008 financial tsunami and the adverse impact on global markets – followed by the subsequent partial recovery – international insurers, banks and finance institutions have been looking for new avenues to develop income growth; China has emerged at the forefront of business opportunities in this direction.

In the same week, ZURICH Financial Services (Zurich) announced that it will maintain a 20 percent stake in New China Life Insurance (NCI) worth US$420 million – a move justified in order to keep a foothold in China’s fast-growing insurance sector. Also Taiwanese based Fubon Life has agreed to enter into a joint venture with China based Nanjing Zijin Investment to create a life insurance company.

Insurers have been particularly active in 2010 looking for opportunities to increase their presence in the Chinese insurance market. This recognizes the prospects derived from a country with a population exceeding 1.3 billion people, composed of an increasingly more prosperous middle-class sector looking for financial and life protection as their personal wealth increases. Also, the Chinese economy has been confirmed as the second largest in the world in 2010, providing global insurers with a large degree of confidence that ventures into this market is justified.

Since tight restrictions on financial trading where lifted in September 2009, the Chinese financial services market has opened up, leading to an influx of international and domestic investment transactions, with global players spearheading business ventures.

The AIA Group, through its pan-Asian life assurance subsidiary AIG, plans to target middle class citizens in China by opening up offices in second and third tier cities to capitalize on sales. This follows their much published floatation on the Hong Kong Stock Exchange.

In 2010, insurers already established in China have boosted their paid up-capital; this includes Allianz China General Insurance – a subsidiary of multi-national Allianz – and the joint venture between ING and Bank of Beijing. These moves by insurers are in anticipation of the Chinese insurance market offering a scope for premium increase.

Domestic China insurers – China Life Insurance (CLI), Ping An Insurance Group of China (PAIGC) and China Pacific Insurance Corporation (CPIC) – have continued to be robust this year, although the market has been more competitive with new entrants to the Chinese insurance industry. The China Insurance Regulatory Commission (CIRC) has also granted existing insurers in China permission to expand operations in different provinces. This has benefitted the likes of Taiping Life, Liberty Insurance Company Limited (LICL), Manulife-Sinochem, MetLife, Chubb and other established insurers enabling them to improve the disposition of their operations and reach across China.

Since the Chinese Financial Regulator’s lifting of restrictions on banks from investing in the insurance sector in September 2009, there has been a surge in business activities in the insurance market in China. This has been lead by Chinese banks, looking to gain access to this lucrative and expanding sector. Notable transactions include the Bank of Beijing acquiring a 50 percent stake in ING Capital Life and Bank of China agreeing terms for a 51 percent stake in Heng An Standard Life.

The Government of the People’s Republic of China has eased restrictions and regulations within the country’s financial markets, with the aim of liberalizing the market in order to facilitate the country becoming a leading world financial hub. As a result, direct foreign investment is expected to continue to be attracted to the Chinese insurance markets.

Companies Mentioned:

AXA-Minmetals Assurance

AXA-Minmetals Assurance is the first Sino-French insurance company in China and also the first life insurer approved by China Insurance Regulatory Commission. Established in Shanghai in May 1999, the company has boasted stable and sustainable development with its ambition of Becoming the Preferred Company. In September 2010, AXA-Minmetals has achieved a total premium income of RMB 830 million, increased by 54% compared to the same period of last year and its new business volumes have also increased by 75%.

ICBC

By the end of 2008, ICBC had altogether 385,609 employees and 16,386 domestic and overseas branches, providing extensive and high-quality financial products and services to 190 million personal clients and 3.1 million corporate clients.

Zurich

Headquartered in Zurich, Switzerland, Zurich Financial Services Group is an insurance-based 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.

Allianz

Allianz Group is one of the leading global services providers in insurance and asset management. With approximately 153,000 employees worldwide, the Allianz Group serves approximately 75 million customers in about 70 countries. On the insurance side, Allianz is the market leader in the German market and has a strong international presence.

AIG

The American International Group is a leading international insurance organization with operations in more than 130 countries and jurisdictions globally.

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Microinsurance Will It Satisfy Global Demand

The purpose of microinsurance is to provide basic, low cost insurance cover to individuals on low incomes requiring protection for typical risks including the affects of serious weather conditions, healthcare, life and non-life products. Microinsurance offers security for individuals who need insurance protection but until now have been unable to afford the relatively high cost of cover.

Insurers are seizing the opportunity to cooperate with international agencies in providing microinsurance to populations in less developed countries, with further scope for providing insurance cover to the less affluent citizens in the more wealthy trading nations. The potential for provision of this type of insurance – by exploiting the scope for attracting high numbers of contributors making regular payments into a fund – is considered to be vast.

It is estimated that there are three billion low income individuals globally who would reap benefits and comfort from low cost insurance. The scale of the market clearly represents a tremendous commercial opportunity for local and multi-national insurers, and, at the same time, it will enable the companies to make a significant ethical contribution to social needs.

Global poverty and the recession will be the key drivers in the growth of the microinsurance business, which is already estimated to be used by 135 million people worldwide. The demand for affordable indemnities is on the rise with insurers in regions such as Africa and South East Asia taking steps to initiate microinsurance programmes.

The challenge insurers, aid agencies and governments face are promoting the concept of insurance to communities which have no or little previous knowledge of commercial and personal protection. Insurers also need to consider the commercial aspects of providing insurance for low level premiums and the trade-off on the volume of potential customers taking out indemnities.

In addition to the sale of microinsurance to new markets, the impact of the 2007/8 financial collapse, the global recession and the imposition of austerity measures in major western hemisphere countries is expected to open up additional opportunities for the sale of microinsurance; a notional estimate portrays the prospect of 50-90 million low income people being plunged into poverty in developing countries. The question then posed is whether more micro policy providers will be needed.

Recessionary pressures and economic factors will undoubtedly influence the size of the microinsurance market, but a number of other variables will contribute to this including climate change and its impact on flooding and droughts.

The provision of international microinsurance is already taking shape. In Indonesia, Allianz has secured 230,000 new customers with microinsurance policies where premiums range from IDR 10,000 (US$1.23) to IDR 100,000 (US$11.2); in a country, with a population of 240 million people, the potential for an increase in business is tremendous and Allianz Indonesia intends to expand its sales force to 50,000 agents by 2015 in order to capitalise on this opportunity. These efforts are supported by the Indonesian government.

It is estimated that the micro insurance market in Africa could be worth US$25 billion driven by a potential customer base of 700 million people. Figures indicate that around 147 million African lives are currently covered by microinsurance polices, which generates approximately US$ 257 million in premiums for insurers. Countries such as Kenya has seen a small take-up of microinsurance, but it was reported by the Association of Kenya Insurers (AKI) that there is still scope for significant improvement – but it is predicted that it may take up to three years for the insurers to develop products to meet the needs of the low-earning population. Unlike emerging and developing Asian nations, countries in Africa generally show little sign of underlying prosperity and the insurers have been slow in seeking market penetration.

Microinsurance is already popular in the Philippines where there is significant exposure to natural disasters – Munich Reinsurance has been particularly active in providing indemnities for this category of risk in this nation. Also, the healthcare system in the Philippines is currently in the early stages of planning the reform of the public healthcare service, where out-of-pocket payments are currently a main contributor to overall funding. This causes a problem for many of the local inhabitants and the government is in the process of establishing the Philippine Health Insurance Corporation (PHIC) to give poorer Filipinos access to better quality healthcare. This is being run alongside the National Strategy and Regulatory Framework for Microinsurance, which is promoting growth of the insurance sector by providing scope for equal and fair access to affordable Philippine mircoinsurance products, thereby raise the general standard of health of the population this country.

Asian countries are keen to take advantage of the microinsurance sector and the issue was raised specially at the East Asian Insurance Congress held in Bali in October 2010; governments and insurers were in unison in recognising the benefits for residents with low levels of earnings requiring the complete range of insurance cover which could be made available.

The BRIC countries – Brazil, Russia, India and China – are recognised as economic powerhouses; however, there are sizeable elements of the very large populations not reaping the benefits of national prosperity. With a wide range of insurers present in these countries, it should be possible to develop insurance products to satisfy emerging demand. India has been at the forefront of developing the microinsurance sector, with large pockets of low income people spread across the country – about 70 percent of India’s 1.2 billion population live in rural areas – and companies such as Bajaj Allianz and Aviva are able to offer life protection policies starting at as little as US$0.50 per week.

Zurich Insurance has increased its focus on providing microinsurance products in Asia, Africa and Latin America and has established good relations with international aid organizations to ensure appropriate products are designed to cater for the needs of the disadvantaged populations in the regions. Latin America has a population of approximately 569 million people, with around a quarter of those people being on low incomes; it is therefore vitally important for all parties involved with the provision of microinsurance do so to meet the needs of this element of society.

Insurers and governments will play pivotal roles in the further development of the microinsurance sector on a worldwide basis. This will fulfill many benefits, firstly, by providing the less advantaged populations in many countries with valuable insurance cover and thus providing invaluable peace of mind to this element of society and, secondly, by providing a mechanism for expanding and improving the robustness of the insurance industry. Microinsurance is not about corporate benefits, it is a means of achieving social equality particularly in the healthcare sector where many countries are looking to reform the structure of health service provision and micro insurance will be an important step in enabling this to happen.

Insurance Companies Mentioned:

Allianz

Allianz Group is one of the leading global services providers in insurance and asset management. With approximately 153,000 employees worldwide, the Allianz Group serves approximately 75 million customers in about 70 countries. On the insurance side, Allianz is the market leader in the German market and has a strong international presence.

Zurich

Headquartered in Zurich, Switzerland, Zurich Financial Services Group is an insurance-based 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.

Aviva

Europe’s fourth largest insurance company, with more than 300 years of experience in the global insurance industry, Aviva is committed to the safety and satisfaction of its customers. They sell a broad range of insurance products including motor and property insurance, protection and health insurance, business insurance, life insurance and pensions.

Munich Re

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.

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Zurich International Life Releases New Product in the Middle East

Zurich International Life, based in the Middle East, has recently announced the launch of a new life insurance product called Protected Equity Plus (PEP). PEP is a single-premium, investment-linked insurance plan, which offers a guaranteed return upon maturity, even in the event of a stock market collapse in the Middle East.

Some of the characteristics of PEP are that it offers access to equity markets in geographical regions specifically chosen by the Insurer, with the possibility of switching on a quarterly basis free of charge, and the ability to make withdrawals. The guaranteed return of PEP is paid upon the 10th anniversary of the investment, deducting from the total return any prior withdrawals made under the policy.

For investors in the Middle East, PEP offers a rare combination of investment protection and potential for growth; which makes it appealing as a potential safety-net, in addition to providing general peace of mind and value for money on the part of the policyholder. Furthermore, the guaranteed returns are increased when the initial investment amount has grown by at least 10 percent on the 5th anniversary of the plan.

The simplicity of PEP makes it easy for investors in the Middle East to invest their money and frees them from the requirements of having to constantly monitor the performance of their investment. PEP will be launched by Zurich International Life intermediaries within the next few weeks through a series of road-shows across the UAE, Bahrain and Qatar.

The regional director of Zurich International Life in the Middle East, Graham Morrall, said of the Protected Equity Plus plan, “we have seen an encouraging response from our intermediaries so far and they have been particularly impressed with the simplicity of the product’s structure. Our recent Zurich Community Research results showed that many of our investors are still feeling risk-averse, so we are not at all surprised by the majority of respondents’ positive feedback about PEP and its guaranteed element.”

Insurance company mentioned:

Zurich International Life

Zurich International Life (ZIL) offers life assurance, investment and protection solutions throughout the world* with licensed offices in the United Arab Emirates, Hong Kong, Bahrain, Qatar, Singapore and Taiwan. As part of the Zurich Financial Services Group, ZIL can offer innovative and individual financial solutions. With tailored products and services that meet the requirements of local markets for many years, ZIL ensures to offer truly flexible and portable financial solutions. As part of one of the world’s leading providers of international insurance and investment products, ZIL has a reputation for excellent performance and commitment to the customer. * Not all products are available in all regions.

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Manulife Life Japan Changes Strategy to Tap Market

Manulife Life Insurance Co. plans to launch newly developed products, supported by a diversified distribution strategy to match the changing dynamics of the mature insurance market in Japan. The ageing population and weak stock market are perceived by Manulife as having potential for offering life insurance products, which are backed up by the ability to create protection for wealth management and long-term savings.

Ageing populations tend to have an increased demand for insurance products that can accumulate, preserve and transfer wealth. The current economic, socio-economic and demographic trends present in Japan present new opportunities to the life insurance sector.

For the past two decades, the Japanese stock market has had a low performance and the interest rates remained close to zero during the past 10 years. Consumers in Japan have been turning towards fixed and variable yield annuities supported by an underlying guarantee as an alternative form of investment. Likewise, consumers are buying medical insurance as the means to satisfy the ever growing need for healthcare.

Manulife Japan is a subsidiary of Canada-based Manulife Life Financial Group. Their strategy for the future is to provide a wider diversity of insurance products through multiple sales channels, which will complement the recently launched foreign-denominated fixed annuities offered to the financial institutions.

According to recent reports, Bancassurance in Japan shares the vision of Manulife and foresees significant opportunities ahead, due to the steady shift in focus of banks and security firms towards a more diversified range of products, departing from the tradition of primarily offering variable annuities.

Towards the end of last month Manulife Japan launched a new annuity product { http://www.globalsurance.com/blog/new-annuity-product-launched-by-manulife-in-japan-153220.html }, at a time when fixed annuity products denominated in yen and other foreign currencies continue having a positive reception. Although declining in comparison to previous years, the number of life insurance companies offering variable annuities continue offering their products to the Japanese market.

Manulife Japan was established in 1999. They now operate through approximately 120 local sales offices and eight regional offices with more than 3,000 tied agents. Back in the year 2002 Manulife Japan started to offer over-the-counter sales of individual annuity products through financial institutions, followed by the sale of insurance products in 2009. At present, the company has sales alliances with more than 40 banks and securities firms.

Insurance Company mentioned:

Manulife

Manulife Life Insurance Company, Japan. Manulife Financial was one of the first foreign life insurance companies to establish operations in Japan, entering the market in 1901. Manulife re-entered Japan in 1999, laying the foundation for the establishment of Manulife Life Insurance Company (Manulife Japan). The vision of Manulife Japan is to be the most professional life insurance company in Japan, providing leading financial protection and wealth management products and services, and learning from and quickly adapting to its customers‟ changing needs.