China State Insurers set for Increased Oversight

Posted on Mar 23, 2012 by Sergio Ulloa (G+)

Insurance companies in China could soon find themselves subject to increased regulatory supervision, with several high-profile senior management personnel changes at state-backed firms now expected to have a ripple effect across the entire industry.

Over the past few weeks the head chairmen from China’s four largest public insurers, China Life Insurance, People’s Insurance Company of China (PICC), China Taiping Insurance Group and the China Export and Credit Insurance Corp, have seen their positions improve within the CPC. According to local media sources, all four insurance giants have or will be promoted by the national government to vice-ministerial or deputy-ministerial level organizations from their previous positions as bureau level representatives. These promotions effectively put China’s largest insurance companies under the same administrative control as the country’s state-owned banks, and perhaps indicates that the position of the insurance industry has become more important in the world’s second largest economy. The most immediate result however is that these insurance companies will likely be subject to increased scrutiny going forward, as their personnel appointments are now supervised by the higher-level Organization Department of the Communist Party of China Central Committee instead of the China Insurance Regulatory Commission (CIRC), the country’s insurance regulator. The CIRC have abdicated their personnel appointment power over state-owned insurance groups and will instead now focus on their other industry oversight duties.

The most high profile of these appointments so far has seen former CIRC Vice President, Yang Mingsheng take over as head Chairman at China Life, the country and indeed the world’s largest life insurance firm by market value. Yang Mingsheng comes in at a crucial time for China Life. The Beijing-based insurer has seen its life insurance premiums drop from CNY1.05 trillion (US$170 billion) in 2010 to CNY956 billion (US$151.7 billion) last year. This sluggish performance has carried into 2012, with gross premium levels down by 6.1 percent year-on-year and 25 percent month-on-month during the first 2 months of the year. In accordance with this data and ongoing stock market volatility, China Life told investors earlier this month that its 2011 net profit may have fallen by 40 to 50 percent. Yang Mingsheng will replace Yuan Li who moves on to the Vice President position of China Development Bank.

On the same day that China Life announced the appointment of their new chairman, similar changes were also being made to senior management personnel at state-backed rivals China Pacific Insurance and People’s Insurance Company of China. While these insurers haven’t struggled quite as much as China Life this year, new leadership was sought by the CPC. According to their most recent company filings, PICC has recorded premium income of CNY29.9 billion (US$4.75 billion) during the first two months on 2012, while China Pacific Insurance posted premium income of CNY33 billion (US$5.24 billion). Both appointments were also made by the CPC’s Organization Department of the Central Committee, instead of the CIRC.

The promotion and personnel changes currently underway at China’s four public insurers are thought to be part of an overarching Chinese government plan to consolidate various state organizations and establish a unified regulatory body tasked with managing the country’s tremendous financial assets. According to the People’s Bank of China, Chinese financial institutions held CNY105.7 trillion (US$16.78 billion) in assets as of September 2011. Adding this figure to a further CNY2.2 trillion (US$350 billion) held in securities and CNY4.9 trillion (US$780 billion) held by insurers and others, takes the value of state-controlled financial assets in China to over CNY150 trillion (US$23.7 trillion). At present these assets are supervised by an assortment of different oversight bodies in China, including the Ministry of Finance, the Chinese Central Bank and the China Banking Regulatory Commission. This system has been cited for creating a confusing business environment, with too many supervisors accountable for differing classes of funds. China’s Finance Minister Xie Xuren explained in a press conference this month that the State Council is now looking to address these issues by establishing a “state-owned financial assets supervision and administration commission”.

While personnel changes are no longer be part of their remit, the CIRC still has a substantial role to play in guiding the Chinese insurance market forwards. Speaking at conference this past week CIRC Chairman Xiang Junbo told attendees that the regulator was looking to set up a new industry group responsible for developing the country’s second generation insurer solvency regulatory system. The CIRC has been trying to improve the way it oversees domestic insurance solvency levels in the aftermath of the 2008 global financial crisis. This new system, expected to be implemented within 3 to 5 years, will work to better identify and quantify risks, enhance the local market’s risk management capability, and perhaps put China more in line with international insurance standards.