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China Insurance Report Q4 2010
Business Monitor International, Aug 2010, Pages: 86
China Insurance Report provides industry professionals and strategists, corporate analysts, insurance associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on China's insurance industry.
China’s insurance sector stands out from other countries’ in a number of respects. First is its absolute size, second is the absolute growth potential. Few other countries combine a high savings rate with a financial environment in which life insurance stands out as a particularly attractive investment opportunity compared to other asset classes. Bank deposits offer negative real interest rates. Despite the Chinese stock markets’ recovery in the first half of 2009, too many individual households have suffered losses as a result of the brutal bear market, which would have occurred in the absence of the global financial crisis, of the previous year. Although real estate has given good returns over the last five-10 years in most major markets in China, recent years have been more challenging.
China’s insurance sector stands out for arguably negative reasons. Although many foreign insurers are present in the non-life and life segments, almost invariably as joint venture partners with a Chinese organisation, they are often confined by their licences to particular lines of business and/or to particular geographic territories. Former state-owned near-monopolies such as PICC and China Life are established players with huge strengths in terms of branding and branch networks. Unlike their peers in other countries, however, they also have enormous scale even by the standards of large multinational insurance companies that are based in developed countries. The government, mainly through the China Insurance Regulatory Commission (CIRC), is more active in providing strategic direction for the sector than are its counterparts in most other countries.
As was the case in Q310, we provide a ranking of the major players in each of the two main segments, as they are seen by the organisation providing the data, which in practice is usually the regulator or the trade association). In China the three largest non-life companies in H109 in terms of gross written premiums were PICC, China Pacific and Ping An, whose market shares were 42%, 12% and 12% respectively. In the life segment, the leaders were China Life, Ping An Life and China Pacific, whose market shares were 39%, 17% and 8% respectively. Over time, we hope to derive insights from observing how market shares change. We emphasise that a decline in share of gross written premiums is not automatically a bad thing and is often the result of a corporate decision to focus on more profitable business lines. We also provide a breakdown of the insurance sector by line from the point of view of the regulator or the trade association.
Writing in August 2010, we have been able to ensure that the report includes actual data for 2009. We have generally been able to use data published in 2010 to adjust our forecasts for the year as a whole. Total premiums in 2009 were CNY1,106,760mn. This comprises non-life premiums of CNY374,707mn and life premiums of CNY732,053mn. In 2014 the corresponding figures should be CNY1,754,656mn, CNY690,762mn and CNY1,063,894mn. In terms of the key drivers that underpin our forecasts, we expect non-life penetration to grow from 1.00% in 2009 to 1.31% in 2014, and for life density to rise from US$44 to US$123. The proprietary insurance business environment rating for China is 62.8 out of 100. In H110 CIRC’s figures showed that non-life and life premiums had increased to CNY201,784mn and CNY598,071mn respectively. We expect growth in the non-life segment to slow to high single digits in 2010, which should be a year of consolidation after massive expansion over 2007-2009. More crucially, the numbers suggest that life premiums are on track to achieve growth that is well in excess of 25% in 2010. If achieved, this will represent a major appreciation. Over the last five years or so, premiums have more than doubled, although much of the growth occurred in 2008 when life insurance represented a particularly attractive opportunity compared to other asset classes.
Issues to Watch
AIA The local subsidiary of troubled giant AIG stands out as a rare foreign-owned insurer that is not structured as a joint venture. AIA is the largest foreign-owned player in the non-life segment and, by quite a margin, the life segment. Following of the failure of the shareholders of Prudential to support that UK insurance company’s plans to buy AIA (essentially the life insurance operations of AIG in the Asia- Pacific outside Japan) it is likely that AIG and the US Government, its major shareholder, will pursue alternative courses of action to raise the money to reduce AIG’s borrowings. If another deal is initiated (eg: a listing of AIA by way of an IPO, perhaps on the Hong Kong exchange), it could have significant ramifications for the Chinese insurance sector. For example, it would provide the Chinese insurers with an opportunity to expand into the rest of the Asia Pacific region. Depending on the details released by AIA, the IPO could clarify how major international insurance companies see opportunities in China. Blurring Distinctions Between Insurance And Other Parts Of Financial Services Industry
The major Chinese insurers are well placed to benefit from any official measures to reform social security or healthcare by increasing individuals’ provision for their own needs. The largest companies are expanding beyond the segments in which they already have dominant positions, with PICC, for example, having already established a very substantial life business. However, in exploiting these opportunities insurance companies also face mounting competition from the major Chinese banks.
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