CIRC Post Chinese Insurer Profits
By Marius | Published July 18, 2011
New data released this week by the China Insurance Regulatory Commission (CIRC) confirms what many industry analysts have already noted; that the Chinese market is fast becoming one of the most lucrative in the world and will continue to present distinct business opportunities.
According to the latest CIRC figures, the total premium income reported by Chinese insurance companies’ surpassed CNY 805.66 billion (US$123.95 billion) in the first half of the year, a 13 percent rise on last year’s figures. The largest increase in income in the first six months of 2011 came from the property insurance sector whose premiums surged 16.9 percent from a year previous to CNY 235.96 billion (US$36.49 billion). The total value of life insurance premium income meanwhile now stands at CNY 569.7 billion (US$ 88.1 billion).
These Chinese insurance firms overall have reported a 72.3 percent year-on-year rise in profits to CNY 49 billion ($7.6 billion) so far this year. The CIRC reported that these insurers cumulatively earned CNY103.11 billion (US$15.95 billion) off their investments in the first half of the year, an average return on investment of 2.1 percent. The total asset value of these companies in turn rose 7 percent to now account for CNY5.75 trillion (US$ 890 billion) collectively. These results could be further augmented by the planned IPOs of several prominent Chinese insurers. Around US$25 billion in share offerings in Hong Kong and China could be coming to the market over the next 12 months from insurance companies alone, Credit Suisse estimated in an analysis report last week.
The CIRC Chairman, Wu Dingfu, told Chinese media outlets that despite these promising figures, there remained a great many challenges to the insurance market in the midst of inflationary pressure and climbing interest rates. Insurance companies will need to adapt to changes in the Chinese macro economy and increase both equity investments and bank deposits all while maintaining a healthy solvency ratio, Wu Dingfu argued.
The Chinese insurance industry has experienced rapid growth within the past decade and still has much to look forward to. The development of the country’s insurance sector only truly began in 1979 when the People’s Insurance Company of China (PICC) resumed its operations, the only insurance company in China at the time. By the CIRC’s latest documentation, there are now a total of 121 insurance companies active in China, including 8 group companies and 10 asset-management firms. Of these 121 insurance companies, 69 are completely Chinese owned and 52 incorporate foreign investment. The Chinese companies include 34 property and casualty insurers (p&c), 32 life insurers and 3 reinsurance businesses. The foreign venture companies meanwhile involve 18 p&c insurers, 28 life insurers and six reinsurance firms.
Now, according to Swiss Re’s latest sigma study, China represents the sixth largest insurance market in the world and will become the second largest, behind America, within the next 10 years. The continued urbanization, increases in per capita income, an improved social security system, enhanced distribution reforms and service level optimization combined with stronger insurance awareness, are all positive factors contributing to the brisk development of the domestic Chinese insurance industry. As interest rates rise, profitability forecasts for insurance companies could also see further improvement. Total written premiums last year reached CNY 1,452.8 billion (US$221.4 billion), a year on year increase of 30.4 percent.
2011 marks the first year of the Chinese government’s twelfth Five?Year Plan and the country has considerable decisions to make in view of it’s future economic development. In the aftermath of the 2008 global financial crisis, China has continued to apply pragmatic fiscal and monetary policies in an effort to accentuate steady economic development throughout the country. The domestic insurance industry is looking to match these social and economic development trends in China with increased comprehensive insurance service capabilities. Thus the Chinese market is pivotal for global insurers to gain access to, not just for its absolute size and growth potential but also the high savings rate of its citizenry coupled with a financial environment in which life insurance remains a particularly attractive investment opportunity. China’s current insurance penetration rate (as a percentage of GDP) is only around 3.8 percent and is expected to increase by 18 percent within the next five years.
The leaders in the Chinese life insurance market remain China Life, Ping An Life and China Pacific, with market shares of 29, 13 and 8 percent respectively. The property market is similarly dominated by three state owned players, PICC, Ping An and China Pacific, who hold a combined market share of 64.22 percent. These entrenched companies have extensive strength in terms of branding and infrastructure and operate on a tremendous scale even by the standards of the multinational insurers originating from mature markets. There has been increased competition in recent years as local and multinational insurers attempt to strengthen their reach in the country. While the Chinese insurance market is technically open to foreign players, they are faced with more restrictions and a more active regulatory authority than in many other large countries. Foreign insurance companies thus tend to find success in China through investing and operating as joint venture partners with local Chinese insurance and financial conglomerates.
Major multinational Chinese insurance company joint ventures currently include the Sun Life Everbright and the Aviva-Cofco partnerships. Other notable foreign insurers with partnering agreements in China include Zurich and Generali, with associations involving both New China Life Insurance and China National Petroleum Corporation respectively.
Earlier this year, Goldman Sachs acquired a 12.02 percent stake in Taikang Life Insurance Co Ltd, China’s fifth-largest insurer by premiums. The acquisition gave the US Investment bank a long-sought-after foothold in the world’s largest insurance market. This was followed by Bermuda-based private insurance holding company, Starr International’s purchase of a 20 percent stake in the Chinese property insurer Dazhong Insurance Co Ltd.
Merger and acquisition activity throughout the rest of Asia is set to continue at a fervent pace throughout 2011 due to rebounding investor confidence in the various regional markets. The emerging insurance markets in Asia are now widely expected to outperform that of other more mature markets, with China leading the way.