China Insurance PWC

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Foreign insurance companies in C

hinaS

eptember 2010

Insurance

Foreign insurance companies in ChinaSeptember 2010

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Table of contents

Foreword 1

Executive summary 2

Market environment 11

Human capital 37

Risk management 47

Competition and positioning 50

Products and market segments 63

Market expansion 72

Regulation 79

Peer review 88

Appendices 98

• Methodology 100

• Participants 101

• Premium income for domestic life insurance companies, June 2010 102

• Premium income for foreign life insurance companies, June 2010 103

• Premium income for domestic property and casualty insurance companies, June 2010 104

• Premium income for foreign property and casualty insurance companies, June 2010 105

• Background comments on participants 106

• American Chamber of Commerce in China White Paper – Insurance Section 2010 112

Partners in success 117

Foreign insurance companies in China 2010PricewaterhouseCoopers 1

Foreword

Welcome to the fourth PricewaterhouseCoopers1 survey on foreign insurance companies in China. This year we have increased the participation in our survey from 29 companies last year to 31 foreign insurers currently active in China. We would like to thank the chief executive officers and senior executives who participated in this survey for their time and effort in making this publication possible. We would also like to thank Dr Brian Metcalfe for his research and analyses.

The objectives of the survey continue to be:

• Find out how the companies see the market issues facing them in China;

• Get a consensus view on industry trends;

• Understand the thinking of chief executive officers in China’s insurance industry;

• Provoke discussion and debate on the best options open to foreign insurance companies to capitalise on current trends;

• Provide industry views on how insurance in China may evolve over the next three years.

The survey includes observations on changes in China’s marketplace, the risks, the development of the regulatory environment, future opportunities and how the participants in the survey view their competitors.

2010 is proving to be a year of unprecedented change for foreign insurance companies in China. As we launch this report, several foreign insurers have announced plans to reduce their shareholdings in their joint ventures. A number of new entrants have also emerged from Asia.

Shu-Yen LiuActuarial Practice Leader, Asia

Peter WhalleyInsurance Industry Leader,Hong Kong

1 “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Our respondents’ outlook for China over the coming three years is that they expect the same share of a much larger pie. From a positive standpoint, there are increasing expectations of overall market growth in China, with most of our respondents anticipating a doubling of policyholders by 2013. However, over the next three years, our respondents do not anticipate any increase in the foreign players’ existing 5% share of the life market. This is a big contrast from our survey in 2008 where the respondents were more optimistic. Then, they were expecting a 10% market share by 2011.

Nevertheless, foreign insurers’ commitment levels to China still remain strong, and in some cases, are even increasing. However, this strong commitment will not necessarily preclude certain foreign players from making significant changes to the manner of their participation in the China market.

Many foreign players are taking a fresh look at their business models and are re-examining their China positions. Some that have been in the market for several years, and were unable to generate satisfactory profits/growth, are now taking a long hard look at the future feasibility of their relationships with local partners. In some cases, some foreign insurers are reducing their shareholdings so that their investee company could achieve domestic status. The move by Chinese banks into the insurance space is also fuelling the domestication trend.


Executive summary


This survey focuses on the strategic and emerging issues surrounding foreign insurance companies in China. It attempts to bring together diverse viewpoints and offer insights into this fast changing investment market.

The survey is based on interviews with CEOs and senior executives of 31 foreign insurance companies operating in China. Confidentiality is protected by not identifying individual responses. The interviews were undertaken in April and May 2010, and were approximately one hour in length. They were conducted in Beijing, Chengdu, Chongqing, Guangzhou, Hong Kong and Shanghai.

Background

Life insurance companies (21)

• AEGON-CNOOC Life Insurance

• Allianz China Life Insurance

• American International Assurance

• Aviva-COFCO Life Insurance

• AXA-Minmetals Assurance

• CIGNA & CMC Life Insurance

• CITIC-Prudential Life Insurance

• Generali China Life Insurance

• Great Eastern Life Assurance

• Haier New York Life Insurance

• Heng An Standard Life Insurance

• HSBC Life Insurance

• Huatai Life Insurance

• Manulife-Sinochem Life Insurance

• United MetLife Insurance

• Pacific Antai Life Insurance

• Samsung Air China Life Insurance

• Sino-French Insurance

• Sino-US MetLife Insurance

• Skandia Guodian

• Sun Life Everbright Life Insurance

Property and casualty insurance companies (10)

• Allianz Insurance

• AXA General Insurance

• Chartis Insurance

• Chubb Insurance

• Groupama

• Liberty Mutual Insurance

• Mitsui Sumitomo Insurance

• Royal & Sun Alliance Insurance (RSA)

• Tokio Marine & Nichido Fire Insurance

• Zurich Insurance Company

What counts as a foreign insurer?

As at 30 April 2010, the China Insurance Regulatory Commission (CIRC) listed 27 foreign life companies and 18 foreign property and casualty companies in China (see appendix for rankings based on premium income). Although a number of these companies have announced proposed changes to their shareholding structures, the new structures have not been given official regulatory approval. As a result, the companies invited to participate in this year’s survey were drawn from these lists.

It should also be noted that several foreign companies have significant shareholdings in domestic insurers. However, because the shareholdings are below 25%, they have not been included in this survey.

HSBC has a 19.9% stake in Ping An Insurance, China’s second largest insurer. AIG (Chartis) has held a 9.9% stake in PICC, the property and casualty insurer, since October 2003. And, ACE Group has a 22% holding in Huatai Insurance Company.


Overview

Market share remains stagnant2009 was defined as a difficult year for foreign insurers in China. When we reviewed the findings of this survey, which was undertaken in the first half of 2010, we found that while there are signs of optimism, there are also deep concerns across the sector from both large and small, foreign life and property and casualty companies.

The foreign players consider China to be a highly regulated environment, and they have struggled to try and gain traction and increase market share.

This year, the respondents expect their share of the Chinese market to remain stagnant over the next three years. The life companies believe their share to hover around the current 5%, while their property and casualty counterparts do not see their slice of the pie increasing in 2013 from 1% currently.

This is a dramatic lowering of expectations from our survey in 2008 in which participants had anticipated their market share to reach 10% by 2011.

Although individual company growth projections look encouraging, the foreign companies believe that the overall market share will continue to expand at a pace that is insufficient to grab share from the large- and medium-sized domestic insurers.

Domestication trendsRecognition of this trend may be behind the decisions of some foreign partners to dilute their shareholdings and follow the path to domestication.

Significant shifts in expectationsThere have also been other significant shifts in expectations. For example, projections by 19 life insurers predict a doubling in policyholders to 15.8 million by 2013 (the three year projection in 2009 was an increase of 74%).

The life participants expect a 60% upsurge in employment by 2013 (in 2009, they projected a 31% increase by 2012), and the number of agents is expected to grow by 134% to over 250,000 by 2013 (a projection of 125% by 2012 was recorded in 2009).

The property and casualty companies are operating from a narrower base, but still envisage a 37% employment increase, and policyholder growth from 225,000 to 299,000 over the next three years.

Direction of bancassuranceThe respondents expressed concerns over the direction of bancassurance as major banks enter the market as manufacturers, especially the impact on their bank distribution channel.

The foreign insurers see their domestic counterparts as their major competitors. The large domestic insurers are a major force, while the new smaller domestic insurers have been aggressive in their geographic expansion, and have increased their efforts to gain a critical mass at a faster pace than the foreign joint ventures (JVs).

In response to some of these threats, foreign life insurers are taking a hard look at their future distribution strategies. Some larger foreign players place great hope on the agency system and are investing heavily in this channel.


Bank Joint venture insurance company

Bank of China Heng An Standard Life. In August 2010, the CIRC gave its approval for Bank of China to take over BoC Insurance from Bank of China Group Insurance Company. It has been reported in the media that Bank of China will inject significant capital into BoC Insurance, which will then invest in Heng An Standard Life, and convert it to a domestic insurance company.

Bank of Beijing Bank of Beijing, China’s leading city commercial bank by market value, has been given approval to buy 50% of ING Capital Life. ING owns 19.9% of Bank of Beijing. Its new name from July 2010: ING-BoB Life Insurance Company Ltd.

Bank of Communications China Life-CMG renamed BoCom Life (BoCom purchased the 51% stake previously owned by China Life Group).

China Construction Bank Pacific Antai Life (CCB bought ING’s 50% stake).

China Everbright Bank Sun Life Everbright Life (Sun Life received regulatory approval to reduce its stake in July 2010).

The move by Chinese banks into the insurance sector has led to a trend towards increased domestication of the foreign JV partnerships. The above table documents the domestic banks that have announced plans to invest for the first time, or increase their shareholdings, in the JV companies.

Distribution channels

There is a dramatic turnover each year in the agent network, and some foreign insurers have aggressive plans to recruit and increase training and skills in this channel. They are pursuing a belief that as the bank channel becomes more commodity-oriented, opportunities will arise for skilled agents to go out and sell to a growing mass affluent market. At the same time, foreign insurers are hoping to ride the bancassurance wave by leveraging on their bank partnerships.

Other foreign insurers, meanwhile, continue to keep all their options open and adopt a multi-distribution channel strategy.

Untapped potential

China remains an underinsured market with huge upside potential. However, insurance continues to be viewed primarily as an investment rather than protection, function despite the increasing efforts of the CIRC and the insurance industry to promote the latter.

New accounting standards

The new accounting standards represent a sea change in the marketplace for both foreign and domestic companies.

For example, changes to the rules concerning provisions will permit some companies to report larger profits and higher net assets.


As a result, significant changes in market share among the larger domestic companies are expected, and the product mix will undoubtedly change as well.

Some respondents suggest these new rules may be good for foreign life companies, specifically those that struggled to explain to their non-insurance local partners the “long term” nature of the business, and their inability to deliver a healthier bottom line after seven, or more years, of operation.

Strong commitment

But there are also glimmers of hope. Commitment to the China market remains firm and, in some cases, is increasing. Premium growth projections look very buoyant relative to other more developed markets.

Highly regulated environment

While more regulatory changes are predicted, there is also a feeling, expressed by a few, that there might be dramatic changes by the opening up of the market with respect to selected product lines. One example of this might be a willingness by the CIRC to allow entry into the enormous, but profit challenged, auto insurance sector.

Human resource management

One of the most difficult obstacles for foreign insurers to negotiate over the next few years will be human resources.

Recruiting and retaining good personnel ranked at the top of the list of what foreign players find to be the most difficult aspect of the Chinese insurance industry. This can only get tougher as banks and domestic insurers, both large and small, continue to grow.

Some of the changes in shareholders represent a significant strategic shift in how some foreign insurers view the market and its future.

While many of the survey’s participants expressed great optimism surrounding the changes, other foreign insurers who continue to operate on their existing structures remain sceptical.

They often question the loss of management control under the new arrangements. In addition, they commented on the narrow product margins that might accompany the dramatic increase in volumes of the new operating models.


Main findings

Global financial crisis fades

Foreign insurance companies in China say they remain strongly committed to the Chinese market as the global financial crisis fades.

Only two life companies contended that the crisis had a negative impact on their China operations. Eighteen companies said there had been a more positive stance towards China from their head offices in the post-crisis environment.

Overall, China is viewed as a growth opportunity in global terms.

In 2010, 17 life insurers that responded recorded a commitment score of eight out of 10 or greater. Looking forward to 2013, the numbers are higher, whereby 16 companies anticipate scores of nine or above.

Nine property and casualty companies scored above seven out of 10 in the commitment scale, and four of these registered the maximum score of 10 out of 10 (in 2009, only one company had this high score).

Domestic insurers represent the greatest threat

The foreign insurers strongly believe that the established domestic insurers represent the greatest competitive threat. Under the new accounting standards, it is predicted that the market share for China Life Insurance will rise from 36.2% to over 40% — eight times the size of all the foreign life insurers combined.

Other foreign insurers and new bank subsidiaries were also seen as

major concerns. The life companies feel under more imminent threat than their property and casualty counterparts.

Drivers of change

The survey found that the big three drivers of change in China’s insurance industry were regulatory changes, banks’ entry into the insurance space and the rising influence of existing domestic insurers.

Pressing issues

Although the survey found that the most pressing issue was improving premium growth, the fifth ranked concern was profit performance. Although many companies continue to pursue top line growth, underlying the quest for growth is the need to be profitable.

Recruiting and training competent staff is in second spot. Forming partnership relationships is also considered crucial. Many foreign insurers, both life and property and casualty, stressed the need to develop effective partnerships as a way to expand business.

Channel diversity

The report found that 11 life companies distribute 50% or more of their products through the bancassurance channel. Tied agents are considered very important to eight foreign life companies, and many of them plan on strengthening this channel in the future.

The following findings are based on interviews with 31 foreign insurance companies2 which are considered to provide a valid representation of the 45, or more, foreign insurance companies currently active in the Chinese market.

2 A foreign insurance company refers to one based outside mainland China.


Partnership relationships

Eleven life companies answered a question on whether there was a divergence of views between themselves and their domestic partner in the joint venture. Nine said no, while two said yes, and a further nine companies declined to comment. A number of foreign companies said the relationship, particularly expectations of both parties had been carefully established from the outset.

It is clear, however, that there are also some times where relationships have not been so agreeable. In these situations, partners on both sides are taking a fresh look at the future viability of their relationship.

Human resources

Compared to 2009, the respondents expressed a higher level of concern over human resource management this year.

Salaries which had stabilised in 2009 are expected to track upwards in 2010. In fact, 26 companies that answered this question said they would increase salaries. The level of increase is expected to be in the 6% to 10% range.

Twelve companies said they would increase bonuses in 2010, while 16 said bonuses would remain at the 2009 level.

Staff turnover expected to rise again

Staff turnover rates in 2010 appear to return to pre-crisis levels. Half the group interviewed anticipate

turnover of 10% to 20%, while nine companies expect it to climb above 20%.

Those who expect the status quo to remain are, in general, companies that experienced major upheaval over the last year, whereby many have already seen significant turnover.

Personnel in demand

Staff functions that are expected to be in greatest demand in 2010 include retail insurance agents, corporate sales agents and legal and compliance personnel.

While sales personnel have always been very much in demand, the position of legal and compliance has been elevated in importance, reflecting the expanding regulatory framework.

Market share predictions

The stalled increase in market share for both life and property and casualty companies makes the participants’ future predictions particularly prescient.

The life companies think that market share will reside in the 4% to 6% range by 2013. It is around 5% in 2010. This suggests they expect no improvement going forward.

The same goes for the property and casualty side. Four companies predict market share to be at 1.5% in 2013. Only two companies think that their share will reach as high as 3%. The current market share for foreign property and casualty companies in China is just 1%.


Two factors may see a change in market share. On the life side, the new accounting standards are expected to see some re-alignments in share and product mix.

And, if there was to be a change allowing foreign companies to offer third party liability auto insurance, foreign property and casualty players may see their market share expanding.

At the time of this research, some respondents expressed optimism that the pending review of China’s progress under the accession to the World Trade Organisation (WTO) might result in some positive changes.

Contrasting opinions on market entrants and departures

About half of the respondents believe there will be no more than 10 new entrants into the Chinese insurance marketplace, taking the foreign insurer total to just under 60 companies. However, 10 respondents predicted the opposite scenario, envisaging a reduction through consolidations and market exits.

Products expected to be in higher demand by 2013

While the survey found that the global financial crisis had slowed the rollout and development of some products, foreign insurers expect an increased demand for a plethora of offerings at both the individual and group level by 2013.

Typical examples include participating products, universal life and investment-linked products, and health insurance. More commoditised products are expected to be sold through direct channels.

Growth at the group level is predicted for medical (and supplementary medical) insurance, embedded options, group annuities, together with a range of other pension offerings.

Meanwhile, travel, personal accident, homeowner and auto-insurance products are expected to be in demand for the property and casualty sector. At the corporate level, the respondents anticipate growth in various types of liability, marine and enterprise property insurance.

Premium growth

Four life companies expect their premium growth to double in size in 2010, while five expect growth to be in the 50% to 70% range. Only two companies expect less than 20% increase in their premiums.

For the property and casualty companies, expectations in premium growth are more modest. Most expect growth to fall below 30% over the next three years. One respondent, however, predicts a growth rate of 100% in both 2010 and 2013.


A summary of peer ranking (top three positions) of foreign insurance companies is shown in the table below. Peer rankings are based on the opinions of CEOs and senior executives that participated in this survey. Please refer to page 89 for full details.

Peer ranking summary

First Second Third

Life insurance — Traditional savings AIA Manulife-Sinochem CITIC-Prudential Life

Life insurance — Investment-linked CITIC-Prudential Life Allianz Life MetLife

Life insurance — Protection AIA Manulife-Sinochem Aviva-COFCO

Health insurance AIA Manulife-Sinochem CITIC-Prudential Life

Personal accident insurance AIA CIGNA Chartis (AIG)

Auto insurance Liberty Mutual Tokio Marine Samsung Fire & Marine

Homeowner insurance Chartis (AIG) Chubb Zurich

Enterprise property insurance Chartis (AIG) Zurich Tokio Marine

Cargo, transportation insurance Tokio Marine Mitsui Sumitomo Chartis (AIG)

Group life Generali AIA Aviva-COFCO

Group accident and health Generali AIA Aviva-COFCO

Customer relationships AIA Manulife-Sinochem Allianz Life

Geographic expansion Manulife-Sinochem CITIC-Prudential Life Aviva-COFCO

Innovation Chartis (AIG) Aviva-COFCO AIA

Distribution effectiveness CIGNA AIA Manulife-Sinochem

Marketing strategies Chartis (AIG) AIA Aviva-COFCO

Technically competent staff AIA Manulife-Sinochem Chartis (AIG)

Brand awareness AIA Chartis (AIG) CITIC-Prudential Life

Corporate social responsibility Allianz Life AIA AXA-Minmetals


Market environment


Number of employees

The 21 life companies currently employ 18,799 employees. This is expected to increase by 59.8% to 30,013 by 2013. This estimate includes one company that was unable to project forward (and the respondent average was applied) and one company where 2009 employment numbers were used.

The 59.8% projected increase is significantly more optimistic than the three year increase of 31.4% reported in last year’s report.

Five life companies expect increases of 100% or greater by 2013.

Nine companies in the group interviewed now have more than 1,000 employees.

Five companies expect their number of employees to grow by less than 20% over the next three years.

Overall the more buoyant employment growth projections mark a return to the levels predicted in previous reports. In 2008, the respondents anticipated a growth in employment of 69%.

Ten property and casualty companies employed 2,251 people in 2010. The number is expect to rise to 3,077 by 2013. This included a 2009 number for one company, and an industry average projection for another. The 36.7% increase projection is much more optimistic than last year’s

three year projection of 6.7%. Two companies project increases above 100% while only one company expects below 20%.

Once again, these are much more significant expected increases in comparison to 2009.

Non-PRC employees

The number of non-PRC employees in the 21 life companies was estimated to be 178. Applying industry projections to two companies that were unable to predict three years ahead, the total declines to 175. While many companies anticipate that the number will remain the same, one company predicted a significant drop.

Two property and casualty companies currently employ 108 non-PRC employees. This is expected to decline by 6% to 102 in 2013. This includes a 2013 estimate for one company.

One company expects to double its number of non-PRC employees but two companies expect significant reductions.

Number of branches and sub-branches and offices3

Twenty-one life companies projected an increase from 145 branches in 2010 to 242 branches by 2013, representing a 67% increase.

Background profile

Projected growth in employment by 2013

3 Under the CIRC regulations, a branch of a foreign insurance company can only conduct business within the territory of the province, autonomous region or municipality where the branch is located.

However, a foreign insurance company may also apply to establish a central sub-branch or sub-branch, operating office or marketing service office.


In 2009, the respondents indicated that they have 496 sub-branches and service centres. The composition of this year’s 21 respondents is slightly different. Together they have 598 sub-branches and service centres, and they expect this number to more than double by 2013, rising to 1,293.

The ten property and casualty companies have 17 branches in 2010. This is expected to more than double by 2013.

This is very similar to the projections made in last year’s report. Sub-branches and sales offices for eight of the participants total 31 in 2010 rising to 51 by 2013.

Number of agents

Eighteen of the 21 life companies provided estimates of the number of their agents. The 2010 total is expected to expand by 134% from 107,200 to 251,100 by 2013.

Nine companies expect to more than double the number of agents over the next three years. This expansion is in line with last year’s projection of 232,720 agents in 2012.

Nine companies anticipate more than 10,000 agents by 2013, and several of these expect significantly higher numbers.

Seven of the 10 property and casualty companies indicated that they expect the 2010 number of agents to grow by 75% to 2,065 in 2013.

Number of individual policyholders

Nineteen of the life insurers had 7.9 million policyholders in 2009, and this number is expected to double to 15.8 million by 2013. In the 2009 report, 20 life insurers estimated the individual policyholders to grow from 6.2 million to 10.8 million by 2012.

This year’s report expects a much higher growth rate. Eight life companies expect to increase by more than 100% by 2013.

Eight property and casualty companies provided individual policyholder data. One respondent was significantly larger than the other companies. The total in 2010 was 224,800 rising by 33% to 299,000 by 2013. In the 2009 report, the 2012 projection was 199,000 policyholders.

Number of corporate policyholders

Only 14 companies provided data which projected growth from 17,880 policyholders in 2010 to 38,000 in 2012.

One life insurer that has a bank partner was omitted from the group because the classification of corporate policyholders dramatically inflated the numbers.


Eight property and casualty respondents provided data. They predicted an increase of 86% from 34,000 in 2010 to 63,300 by 2013.

Assets under management

Nineteen life respondents indicated they currently have RMB 197.86 billion worth of assets under management, and projected an increase of just over 100% to RMB 401.8 billion by 2013. This is a much higher rate of growth than that predicted last year when the 2012 figure was expected to reach around RMB 200 billion.

Five property and casualty companies expect total assets of RMB 2.9 billion to expand by 19% to RMB 3.46 billion by 2013.

Gross premium income

Seventeen life companies indicated that gross premium income will grow by 70% from RMB 62.3 billion in 2010 to RMB 106 billion in 2013. The omission of four companies excluded two medium-sized companies and two small companies.

Nine of the 10 property and casualty companies provided data which predicted a doubling of gross premium income from RMB 3.2 billion in 2010 to RMB 6.6 billion by 2013. This is very similar to the projections made in 2009 for 2012.

Strong growth from indicators such as employment, branches, agents, premiums etc, and the inability of foreign insurers to increase market share

On the next page, the actual market share of the foreign insurance companies is displayed. Later in the report, the survey finds that participants expect little change in market share over the next three years. How can these two findings be satisfactorily reconciled?

As noted above, although life companies expect employment to increase by 69%, branches and sub-branches to expand by 67% and the number of agents to more than double, they still see little or no gains in market share. This suggests that, while they will increase in size and scope, the overall market will also expand significantly, and the domestic companies will maintain their momentum and dominance. This may explain the direction being chosen by a number of companies to dilute their shareholdings and become part of a larger and faster growing domestic entity.

The property and casualty companies have more modest growth ambitions. Market share is currently around 1%. It peaked at 1.5% in 2005, and only four of this year’s participants believe it will grow to between 2% and 3% by 2013. The property and casualty companies expect a 37% increase in employment by 2013. From a very small base, they also plan to double the number of agents. One regulatory reform that could dramatically change this would be the CIRC granting permission for foreign property and casualty insurers to enter the auto insurance market.


Market share of foreign life companies

Market share of property and casualty companies

The chart on the right illustrates the rise in foreign life companies’ market share to almost 9% in 2005, and their subsequent decline to 5.1% in the first half of 2010.

Market share for the foreign life companies has remained around 5% for the last two years.

The foreign property and casualty companies experienced their highest market share in 2005 at 1.3%. The market share remained at 1.2% between 2006 to 2008, fell to 1.1% in 2009, and to 1% in the first half of 2010.

Market share of foreign life and property and casualty companies in China between 2004 and 2010

China Regulator: To Open Insurance Market To Foreign Firms

The head of China’s insurance regulator said Saturday China will further open its markets to foreign competition, apparently addressing rising complaints among foreign financial institutions about their shrinking shares in China’s domestic market.

“China’s insurance market will become one of the world’s most important markets in the coming years, and provide huge development potential for foreign insurers,” Wu Dingfu, chairman of the China Insurance Regulatory Commission, said in a financial forum in Shanghai. Wu said he expects China’s insurance market, which is now the world’s sixth-largest insurance markets by premiums, to keep high growth rates in anticipation of a robust economy in the coming years.

“China will further open its insurance market to foreign companies, and let foreign insurers play a bigger role in the local market,” Wu said, without elaborating.

Source: www.dowjones.com, 25 June 2010

0

1

2

3

4

5

6

7

8

9

2010*200920082007200620052004

Marketshare

Source: CIRC* Relates to first half 2010

2.6%

8.9%

5.9%

8%

4.9%5.2% 5.1%

0.0

0.5

1.0

1.5

2.0

2010*200920082007200620052004

Marketshare

Source: CIRC* Relates to first half 2010

1.2%1.3%

1.2% 1.2% 1.2%1.1%

1.0%


Just over 20% of the respondents consider the investment-linked market to be intensively competitive, while almost 50% viewed it as moderate.

In 2009, 70% said it was intensely competitive. Only 10% of companies reported making fundamental changes.

The traditional savings segment of the life insurance market remains intensively competitive as categorised by over three quarters of the 21 respondents. It is also undergoing a product review, as almost half the group indicated they had made significant fundamental changes.

Life insurance — Traditional savings Intensive

Moderate

Light

None

Minor change

Significant operational and organisa-tional change

Fundamen-tal change in strategy and positioning

No change

Response

Com

petit

ion

23.8% 14.3% 28.6% 9.5%

9.5% 4.8% 4.8%

4.8%

Life insurance — Investment-linked product

Intensive

Moderate

Light

None

Minor change



No change

Response

Com

petit

ion

5.3% 10.5% 5.3%

10.5% 21.1% 15.8%

5.3% 10.5% 10.5% 5.3%

Note: Based on responses from 19 companiesShading represents greater than 20%


Intensive

Moderate

Light

None

Minor change



No change

Response

Com

petit

ion

10.0% 10.0%

40.0% 15.0% 10.0%

10.0% 5.0%


In last year’s report, it was acknowledged that the marketing of insurance to provide protection remains a challenge. Although a number of respondents commented that the CIRC would like to see more activity in this area, it is clear that protection continues to reflect lower levels of competition.

Overall, 65% of respondents said competition was moderate, and 15% light. Only two companies have made fundamental changes to their strategy.

Life insurance — Protection


Health insurance

8.7% 17.4% 8.7%

26.1% 21.7% 8.7% 4.3%

4.3%

Personal accident is one of the least competitive market segments for the foreign insurers. Almost one third of respondents classified the competition as light.

Most companies have made either no change or minor change to their strategies.

Competition has declined in this segment when compared to the results from last year’s survey.

Intensive

Moderate

Light

None

Minor change



No change

Response

Com

petit

ion


Around half the group consider health insurance to be intensely competitive. No companies claimed to have made fundamental changes over the last year.

Personal accident insurance

Intensive

Moderate

Light

None

Minor change



No change

Response

Com

petit

ion

5.3% 15.8% 31.6%

5.3% 31.6% 5.3%

5.3%



There appears to be increased levels of competition in group life in 2010.

Twelve of the 16 respondents reported intensive competition.

Around a third of the companies have made significant or fundamental changes.

Group lifeIntensive

Moderate

Light

None

Minor change



No change

Response

Com

petit

ion

12.5% 31.3% 12.5% 18.8%

12.5% 12.5%


A similar pattern is found with group accident and health.

Over 70% of respondents now categorise it as intensively competitive and a third have made significant or fundamental changes.

Group accident and healthIntensive

Moderate

Light

None

Minor change



No change

Response

Com

petit

ion

19.0% 28.6% 14.3% 9.5%

14.3% 9.5% 4.8%


Homeowner insurance In 2009, five companies responded to this question. In 2010, the number expanded to nine companies.

Only one company said it was intensively competitive, while five contended competition was light.

Intensive

Moderate

Light

None

Minor change



No change

Response

Com

petit

ion

11.1%

22.2% 11.1%

33.3% 11.1% 11.1%

Note: Based on responses from nine companiesShading represents greater than 20%


Auto insurance

Enterprise property insurance25.0% 50.0% 12.5% 12.5%

Although only eight companies provided a response to property insurance, they unanimously agreed that competition was intensive in this sector. This matches the response given in the 2009 report.

Intensive

Moderate

Light

None

Minor change



No change

Response

Com

petit

ion

Note: Based on responses from eight companiesShading represents greater than 20%

The cargo and transportation insurance market remains highly competitive. Eight companies viewed it as intensive and two companies moderate.

The slowdown in exports in 2009 added to the challenges in this sector.

Intensive

Moderate

Light

None

Minor change



No change

Response

Com

petit

ion

10.0% 60.0% 10.0%

10.0% 10.0%


Auto insurance remains on the sidelines for foreign insurance companies. Several companies participate “indirectly” in the sector, and three commented that the sector was intensively competitive. Foreign players continue to be denied access to the mandatory third party liability (MTPL) market. Several respondents suggested that restrictions concerning entry to this market might be relaxed in the future as China addresses progress made under accession to the World Trade Organisation (WTO).

Intensive

Moderate

Light

None

Minor change



No change

Response

Com

petit

ion

66.7% 33.3%


Cargo, transportation insurance


Q Can you identify three major concerns of the Chinese insurance business at present?

New capital requirements

Investments — one respondent posed the question where do you place capital to generate yield without having risk management concerns?

Quality people

Future growth plans are based on being able to hire good quality people, and this is increasingly an issue. One property and casualty company commented that all the talent was ex-AIG, and that companies did not invest enough in developing quality talents.

There is also a severe shortage of skilled marine underwriters. The respondents also expressed difficulties in retaining good quality staff.

The future direction of bancassurance

As more banks enter the insurance space, foreign insurers are concerned about the impact that this would have on their bank distribution channel.

Absence of a capital market

Limited choice for different types of investments.

Lack of profitability

One property and casualty company said only a few foreign companies were making a profit if expenses were fully allocated.

Many companies are looking for market share and top line growth

Underinsured market

The market is still very much underinsured, and people view insurance as an investment function rather than protection.

Breakeven pricing

A life company said that China pricing is just breakeven, particularly in the bank channel.

Highly regulated environment

One participant asked, “How deeply involved is the CIRC going to be in our business”?

Sales force turnover

Turnover in the agent sales force has a major impact on customer satisfaction.

Differences between large and small companies

Divergence between large domestic companies which are becoming more professional than their smaller counterparts.

International standards are not as widely used as in the past

P&C companies’ dependence on export for success

Some of the property and casualty companies’ profits are very tied to the export market.


Q What are the most important changes taking place in China’s financial market?

New accounting standards*

The participants believe the new accounting standards will affect the calculation of provisions, and permit insurance companies in general to report higher net assets and profits at the time of the change. The new standards will also cause some changes in market shares.

Regulatory Changes

Respondents anticipate more regulatory developments, including an increased focus on innovation, risk management and more inspections.

Consolidation

The participants expect consolidation particularly amongst the domestic insurance companies.

Arrival of the banks

China has been gradually permitting banks to break into the insurance sector. Bank of Communications has a joint venture with Commonwealth Bank of Australia (the previous company was called China Life CMG), while Bank of Beijing agreed to take over Beijing Capital Group’s 50% stake in ING Capital Insurance early this year. China Construction Bank will take ING’s 50% share in Pacific Antai Life Insurance’s joint venture with China Pacific Insurance. And, Bank of China has agreed to buy 25% in Heng An Standard Life.

In the past, both Bank of Communications and Bank of China had established insurance companies in Hong Kong. Other

players such as ICBC, Agricultural Bank and the Postal Savings Bank might also choose to enter the insurance business and leverage their extensive branch networks.

The arrival of the banks in the insurance sector is expected to create further pressures on human resources and skills development.

Expansion of the domestic companies

The rapid growth and geographic expansion of the small and medium sized insurance companies was identified as a major change.

Localisation of shareholdings and management style

Several references were made to the need to improve understanding of the needs of the local market in order to effectively adapt products more effectively. They also believed this could be facilitated by more PRC nationals assuming more senior management positions.

Impact of WTO review

Several property and casualty companies implied that a pending review of the progress, or lack of progress, of foreign insurers was behind CIRC’s move to open up the market.

There was a feeling that branch expansion controls had been relaxed. A few companies even speculated that the current prohibition of foreign insurers to provide compulsory third party liability insurance may be relaxed or lifted.

*The CIRC and the Ministry of Finance (MOF) jointly issued new accounting standards to be used in the preparation of companies’ 2009 reports. Under these rules, insurance-related risks under a mixed insurance and non-insurance policy need to be recorded separately from non-insurance related risks. As a result, income from non-insurance risks will cease to be treated as premium income. The rules also calculate provisions differently, thus allowing most insurers to report larger profits and higher net assets.


Q What does your insurance company find the most/least difficult aspects of the Chinese insurance industry?

Respondents were asked to score the level of difficulty associated with a range of activities within the insurance industry. They scored each factor on a scale of one to five. The chart below indicates scores above three on the right side of the axis, and below three on the left side. All the factors listed scored above three, and therefore, reflect different levels of difficulty.

The most difficult component of the insurance industry was identified as the regulatory environment, followed by competition from

domestic insurers and finding and retaining good personnel. Ownership restrictions continue to be a challenge for the joint venture life insurance companies. The property and casualty companies recorded higher scores with regard to the economy, finding profitable clients, brand name recognition and risk management. Neither group recorded a score above three for bank insurance companies. This is because most participants noted that these companies have yet to become active in the market.

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5

Identifying profitable clients

Economy and market volatility

Taxation

Risk management

Brand name recognition

Accounting policy changes

Corporate governance

Ownership restrictions*

Innovative product/service offerings

Product/revenue diversification

Building a customer base

Finding and retaining good personnel

Increasingly difficult

Based on responses from 31 companies both Life and P&C* Answered by the 21 Life companies only


Participants were asked to provide some insight and explanation regarding the recent proposed changes in shareholdings by foreign insurers such as Standard Life and Sun Life, and the reported breakup of the Haier New York Life joint venture.

There was a general feeling that a number of companies were disappointed that they had failed to gain traction in the market. They concluded that they could not make a meaningful impact in the market in their present form, saying radical changes are needed.

One life company suggested that there had been some mismatches in partners, and that local partners had become frustrated with their lack of profits and growth in comparison to their own core businesses.

Another company noted that both Sun Life and Standard Life had bank partners, and this review had occurred simultaneously with the opening up of the market to bank subsidiaries. Others commented that in the first quarter of 2010, both these companies had experienced rapid growth, although they raised the issue of margins on this new business. Finally, one participant rationalised they were seeking a smaller piece of a bigger pie, but asked “are they just becoming investors with no management control?”

It seemed clear that going forward, more foreign insurers would seek creative approaches to the market and that further departures are possible.

Q Have there been any significant strategic shifts by foreign insurers over the last year? For example, Sun Life Everbright Life and Heng An Standard Life


Although respondents viewed regulatory changes as the most important driver of change in 2010, two other drivers were considered as very important – banks’ entry into manufacturing of insurance and the influence of domestic insurers.

Following these top three drivers are six drivers that have very similar scores. In order of importance, they are new domestic entrants,

capital requirements, economies of scale, mergers/consolidation capital markets and the economic cycle.

Existing foreign insurers was placed in 14th position, while new foreign entrants was in ninth position.

Q What are the major drivers of change in the Chinese insurance business?

0

20

40

60

80

100

120

2010

Score

Fund

ing co

nstra

ints

Conve

rgen

ce

Liquid

ity

Existin

g for

eign i

nsur

ers

Globali

satio

n

Tech

nolog

y

Oth

er

Other

new en

trant

s

New fo

reign

entra

nts

Global

finan

cial c

risis

Econo

mic cy

cle

Capita

l mar

kets

Merg

ers/c

onso

lidati

on

Econo

mies of

scale

Capita

l requir

emen

ts

New d

omes

tic en

trant

s

Existin

g dom

estic

insu

rers

Banks

’ ent

ry int

o ins

uran

ce

Regula

tory

chan

ges

Based on responses from 31 companies in 2010


Q On a scale of 1 to 10 where 10 is maximum impact, can you score the impact of the Chinese accounting standards on your company?

The chart below shows that life companies anticipate the new Chinese accounting standards will have a greater impact on them compared to property and casualty companies. Seven life companies assigned scores of seven out of 10, or higher, versus one property and casualty company.

The one company that scored 10 out of 10 indicated there would be a very positive impact on profitability and that par products could be profitable in the first year. However, they also cautioned these moves would require higher levels of capital. Another company said they expected a major impact on tax. Others believed it

will influence the design and mix of products. These developments will link to sales agents, and one participant asked the question “will the agents be able to sell universal life correctly?”

The property and casualty companies made the following comments:

• impact on compliance

• allows our competition to look profitable without being profitable

• will not have a big influence on the marine business

• A positive move, it increases standardisation

0

1

2

3

4

5

P&C companies

Life companies

12345678910

Based on responses from 20 Life companiesand 6 P&C companies

Number ofcompanies

increasing impact of new accounting standards


Most participants confirmed they have a strategy to target the mass affluent market.

One life insurer commented they have located branches in the affluent markets. With the expectation middle class income would double or triple in the next five years, they predicted significant growth potential. They contended that the issue was about distribution, and not segmentation. Another life company said they were targeting this group, and is making financial planning tools available.

A number of participants linked a discussion on the mass affluent to the bancassurance model.

Responses were less uniform among the property and casualty insurers. Several indicated they have a more wholesale focus and were not interested in this market at the moment.

One property and casualty insurer viewed health insurance as a key product for the affluent segment.

Again, the property and casualty insurers suggested collaboration with banks provides a good targeting opportunity, for example, in the SME sector, they believe banks could help them gain access to successful entrepreneurs.

If the foreign property and casualty companies are permitted entry to the auto insurance sector, this may also provide new access opportunities into the affluent market.

Q Do you have a strategy to address the growing mass affluent market? Can you expand on this?


Q What are the most pressing issues you face? Can you rate them 1 to 5?

The most pressing issue in 2010 was improving premium growth, the same as in 2009. This was followed by recruiting competent staff and partnership relationships. The latter issue was introduced tor the first time this year, reflecting the

growing importance of forming and leveraging partnerships for foreign insurers. Although premium growth was recognised as critical, profit performance was placed in fifth position.

In the adjacent chart, the axis is based on a scale of the respondents’ rating of 1 to 5, where five is most pressing. The central spine of the chart is “0” which reflects a score of 3 on the 1 to five scale. As a result, 2.0 represents five and -2.0 represents 1 on the scale.

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

AIDSEpidemics (H1N1)Availability of reinsuranceGlobalisationConsolidation of financial industry Asset liability management*

Data security Regulated solvency requirements

Internet security risks Business continuationHigh dependence on new technology

Brand awarenessLitigator risk

Transparency of fees & commissions

Natural disastersManaging customers expectations Guaranteed returns in products

Appropriate staff incentive schemesIFRS

Market volatilityGlobal economic downturn

Currency-related issuesImpact on rates of global catastrophes

Targeting previously uninsured marketFraud levels

Financial reporting methodology*Risk management

China economic downturnRetaining existing customers

Quality of insurance books (lapse risk)Head office expectations*Building a customer base

Cost reductionGovernment intervention

Recruiting/training in distribution channelsProfit performance (margin)

Increasing regulatory demandsPartnership relationships*

Recruiting/training competent staffImproving premium growth

Increasingly pressing issue

Based on responses from 20 companies in 2010, both Life and P&C*New issues in 2010

2008

2009

2010


The most important issue for foreign life insurers in 2009 was recruiting and training in the distribution channels. This factor slipped to joint third position in 2010.

The property and casualty insurers recorded relatively higher scores than their life company partners in areas such as increasing regulatory demands, cost reductions and quality of insurance books.

Pressing issues: Differences between life companies and property and casualty companies

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5

AIDSEpidemics (H1N1)

GlobalisationAvailability of reinsuranceConsolidation of financial industry

High dependence on technologyLitigator risk

Internet security risks Natural disasters

Regulated solvency requirements

Brand awarenessBusiness continuation

Transparency of fees & commissions Data security

Asset liability management*

Impact on rates of global catastrophesManaging customers expectations

Appropriate staff incentive schemesTargeting previously uninsured market

Guaranteed returns in productsGlobal economic downturn

Market volatilityFraud levels

China’s economic downturnCurrency-related issues

Risk managementRetaining existing customers

IFRS

Financial reporting methodology*Quality of insurance books (lapse risk)

Building a customer baseHead office expectations*

Cost reduction Increasing regulatory demands

Government interventionProfit performance (margin)

Recruiting/training in distribution channelsRecruiting/training competent staff

Partnership relationships*Improving premium growth

Increasingly pressing issue

Based on responses from 14 Life and 6 P&C companies*New issues in 2010

Life companies

P&C companies


Q From the perspective of your head office, has the agenda for your China operation changed following the global financial crisis?

The global financial crisis has not had a negative impact on the strong commitment of foreign insurance companies towards China.

In 2009, 18 companies said there had been a positive change towards China, and the number remains exactly the same in 2010.

Only two companies believe the crisis had a negative impact on their Chinese operations. Both are life companies.

Several property and casualty companies emphasised the growth potential in China. For example, one noted exports were picking up, another commented on the lack of growth in their home market, while a third made a comparison with India saying that they believe China offers better opportunities.

The life companies also emphasised or the growth opportunities and scalability in China.

Positively

Based on responses from 30 companies in 2010and 29 companies in 2009

18 companiessaid positively

in 2010 and 2009

Neutral

Negatively

2009 2010


Respondents were asked to comment on relative movements in different distribution channels. In the case of the life companies, only telemarketing received 100% recognition of a movement towards this channel.

Greater than 50% towards scores were recorded for the internet, direct sales, brokers, bancassurance and affinity schemes.

Two categories recorded responses suggesting “an away from” trend. One was tied agents, (40% of responses) and bancassurance (5% of responses).

Q What changes do you see in the distribution channels (i.e. moving towards or away from their use)?

0 20 40 60 80 100

No change

Away from

Towards

Post office

Affinity schemes

Internet

Brokers

Independent financial advisors

Insurance agents (tied)

Telemarketing

Direct sales (promotional)

Bancassurance

Based on responses from 20 Life companies


As the chart below shows, property and casualty companies anticipate movement towards most channels. Only tied agents and direct sales (promotional) record some opinions where there may be movement

away from these channels. The three channels that are expected to experience significant growth in usage are telemarketing, brokers and the internet.

Q What changes do you see in distribution channels (i.e. moving towards, or away, from their use)?

Property and casualty companies

Results for the actual volume of business flowing through the different channels was provided by 19 life companies. To protect their individual identity, these respondents are not shown by name. The significant role played by the bancassurance channel is reflected in the fact that 11 companies distribute 50% or more products through this channel. Eight life companies also indicated that the

tied agent channel accounts for 30% or more of their product distribution.

The ten property and casualty respondents recorded strong movements toward bancassurance (70%), telemarketing (80%), brokers (80%), the internet (80%) and affinity schemes (60%).

Distribution of new premiums by channel (see next page)

0 20 40 60 80 100

No change

Away from

Towards

Post office

Affinity schemes

Internet

Brokers

Independent financial advisors

Insurance agents (tied)

Telemarketing

Direct sales (promotional)

Bancassurance

Based on responses from 10 P&C companies


Bancassurance Direct sales TelemarketingInsurance agents (tied)

Independent financial advisors Brokers Internet Others

Life 1 35% 0% 20% 10% 0% 35% 0% 0%

Life 2 15% 0% 10% 70% 0% 5% 0% 0%

Life 3 60% 0% 5% 30% 0% 4% 1% 0%

Life 4 40% 0% 15% 20% 0% 20% 0% 5%

Life 5 30% 0% 0% 40% 0% 0% 0% 30%

Life 6 40% 0% 3% 42% 0% 15% 0% 0%

Life 7 65% 0% 0% 20% 0% 15% 0% 0%

Life 8 80% 0% 0% 20% 0% 0% 0% 0%

Life 9 0% 0% 50% 50% 0% 0% 0% 0%

Life 10 50% 5% 5% 35% 0% 5% 0% 0%

Life 11 80% 0% 0% 20% 0% 0% 0% 0%

Life 12 70% 0% 10% 0% 0% 20% 0% 0%

Life 13 0% 0% 0% 100% 0% 0% 0% 0%

Life 14 50% 0% 40% 10% 0% 0% 0% 0%

Life 15 100% 0% 0% 0% 0% 0% 0% 0%

Life 16 60% 0% 0% 40% 0% 0% 0% 0%

Life 17 75% 0% 5% 10% 0% 0% 0% 10%

Life 18 45% 0% 40% 10% 0% 0% 0% 5%

Life 19 90% 0% 2% 8% 0% 0% 0% 0%

P&C 1 10% 44% 5% 10% 0% 30% 1% 0%

P&C 2 0% 30% 0% 0% 0% 70% 0% 0%

P&C 3 5% 10% 0% 25% 0% 60% 0% 0%

P&C 4 25% 33% 0% 0% 0% 9% 0% 33%

P&C 5 0% 60% 0% 20% 0% 20% 0% 0%

P&C 6 10% 0% 0% 25% 0% 60% 0% 5%

P&C 7 0% 50% 0% 0% 0% 50% 0% 0%

P&C 8 0% 80% 0% 8% 0% 12% 0% 0%

P&C 9 0% 0% 0% 0% 0% 70% 0% 30%Based on responses from 28 companies

They indicated that two channels, direct sales (promotional) (30%) and tied insurance agents (30%) might expect a movement away. The significantly less important involvement by the property and casualty companies in the bancassurance channel was demonstrated by only four companies confirming distribution

of product through this channel. One company recorded 25%, two companies recorded 10%, and one recorded 5%. Brokers are clearly very important to the property and casualty players alongside direct sales. Two companies also attached importance (around 30%) to the affinity channel.

Distribution of new premiums by channel (continued)


Q Some have suggested there is a growing trend in the life sector that domestic joint venture partners would like to leave the relationship. Do you agree or disagree?

Sixteen of the 21 participating life companies agreed there was evidence that some domestic (Chinese) joint venture partners would like to leave the relationship. In the 2009 report, 13 foreign insurers expressed this view.

Foreign insurers that have announced shareholding changes include Sun Life Everbright Life Insurance, Heng An Standard Life Insurance, Skandia-BSAM Life Insurance (Skandia Guodian), Pacific Antai Life Insurance, ING Capital Life, BoCom Life and Sino-US Met Life Insurance.

The most radical change which has been reported in the media is Haier New York Life. Reports in March 2010 suggested Haier was unhappy with the joint venture’s performance over the last seven years.

Mr Zhang Li, Vice President of Haier New York Life, was quoted as saying that Haier Group’s 50 million home appliance consumers in China gave it an outstanding advantage and that this market remains largely untapped.

(Source: www.cb.com.cn, 30 March 2010)

No comment

No

Yes


16 companiessaid that, in general,

they believedomestic partners

would like to leave therelationships Yes


Q Can you expand on the emergence of Shanghai as a global financial centre?

The general consensus among respondents was Shanghai would emerge as a global financial centre.

However, they expressed frustration with the limitations imposed on foreign financial institutions, and portrayed these as real impediments to the pace and scope of the transition.

Respondents believe China will be able to support multiple financial centres including Shanghai, Beijing and Shenzhen.

Q What developments would you like to see occur?

Necessary developments to encourage transition:

• Free currency exchange

• Free capital movement

• Incentives to attract talent: personal taxation levels competitive with Hong Kong and Singapore

• Greater transparency

• Tax incentives for insurance products

• Favourable tax incentives in the Shanghai Maritime Economic Zone


Shanghai as a global financial and shipping centre

China draws roadmap for global financial, shipping centers in Shanghai

China elaborated on plans to build Shanghai into an international financial and shipping center, with pledges to gradually allow foreign companies to list in Shanghai and let overseas firms issue yuan-denominated bonds. The country was aiming to make Shanghai an international financial center in accordance with the country’s economic strength and the international status of its currency by 2020, according to plans published on the central government’s website by the State Council.

The nation would develop a multi-functional and multi-layer financial market in Shanghai with the introduction of more financial products, instruments, derivatives and futures, according to the plans. China would not hesitate to introduce new financial products and services, or flinch from

financial innovations, despite the global financial meltdown, Liu Tienan, deputy head of the National Development and Reform Commission (NDRC), said at a press conference in Shanghai.

However, the security and stability of the financial system would be prerequisites for such innovation efforts and reforms, he added. The country would gradually increase yuan-denominated bond issues by international development agencies, according to the plans.

In addition, it would steadily work to allow foreign companies to issue yuan-denominated bonds in Shanghai, and would let some foreign firms list in Shanghai “at a suitable time.”

Liu stressed that the goal was to build an international financial center in Shanghai that matched the status of its economic strength and its currency.

Source: www.chinaview.cn, 29 April 2010


Quotes from the Lujiazui Forum in Shanghai, May 2010

Quotes from the Lujiazui Forum in Shanghai, May 2010

Zhou Xiaochuan, Governor of People’s Bank of China said “China’s financial hubs should look at global development. Shanghai and Hong Kong should cooperate and coordinate with each other to boost overall financial development. China’s voting power in the IMF should increase again in 2011. China is also expected to play an important role in making up the new rules of the game in the post-financial crisis era.”

Shang Fulin, Chairman of China Securities Regulatory Commission said “China’s capital market should gradually improve market mechanisms, act as an economic boost, and push ahead with structural adjustments. It should also support the development of small and medium sized firms.”

Liu Mingkang, Chairman of China Banking Regulatory Commission said “Innovation is an inevitable choice for China’s financial sector to combat the financial crisis. All financial institutions need to enhance innovation of risk management. Financial institutions in Shanghai should focus on optimizing products and services, increasing productivity and efficiency and reforming the salary system.”

Wu Dingfu, Chairman of China Insurance Regulatory Commission said “We are aiming to make Shanghai into an innovation and R&D center for insurance products, and an insurance management and back-up service center, as well as a pilot city for insurance capital reforms.”

Source: www.CCTV.cn, 18 May 2010


Human capital


Some of the cost controls imposed during the financial crisis will be lifted by the foreign insurers.

In 2009, 18 companies indicated they would increase salaries. This year, that number rises to 26 of the 29 companies that answered this question. Two life companies and one property and casualty company said salaries would remain the same. One life company that predicted a salary increase noted that domestic insurers were more stable and provided a better benefits package than their foreign counterparts.

Seventeen companies anticipate an increase of between 6% and 10% in 2010, significantly above the 2009 figure of six companies.

Q In 2010 will base salaries remain the same, increase or decrease?

Remainthe same

Increase

Based on responses from 29 companies

26 companiessaid they

would increasesalaries

0

5

10

15

20

same

Not sp

ecifie

d

5% or

less

6% to

10%

11%

to 15

%

Based on responses from 31 companiesin 2010 and 19 companies in 2009

Number ofcompanies 2010

2009


Q In 2010, will bonuses increase, remain the same or decrease?

In 2009, ten companies said they would increase bonuses over the previous year. This year, that number increased to 12 companies with 16 recording that bonuses would remain the same.

Two life companies noted they performed well in 2009, and their bonus was performance-based. They expected increases of 60% and 50% respectively.

Only two of the eight property and casualty companies that responded, said they would increase their bonuses in 2010.

Two life companies said they plan a head count reduction in 2010. One of these plan to do this through natural attrition.

Remain the same

Increase


12 companiessaid they would increase bonuses


Q In your opinion as a foreign insurer, how effective is the current training offered by the CIRC?

As in 2009, the largest number of companies hold a neutral position on the effectiveness of the training offered by the CIRC. However in 2010, 10 companies categorised it as ineffective versus eight companies in 2009.

Only three companies labelled it as effective in 2010. This included two life companies and one property and casualty company. They contended that the training was useful on technical material. It helped attendees better understand

the needs of the regulator purposes and was beneficial for networking purposes.

Several companies mentioned the CIRC’s requirement that senior management be tested in Mandarin. Overall this was viewed negatively by the foreign companies who argued that it worked against the importation of foreign skill sets.

Interestingly, not all of the respondents had been required to submit to a Mandarin based test.

MetLife’s two China JVs merging

Sino-US MetLife Insurance Co., Ltd. and United MetLife Insurance Co., Ltd., MetLife’s two life insurance joint ventures in the Chinese market, have reached an agreement over a merger.

Sino-US MetLife will be merged by United MetLife and after the deal, the Shanghai-based insurer will own both assets and debts of the Beijing-based one. Both ventures announced the news on their websites recently and the deal now is subject to the China Insurance Regulatory Commission (CIRC), the top Chinese insurance regulator. The merged company will be renamed as Sino-US United MetLife Insurance Co., Ltd. The deal is expected to be completed before the end of this year.

Source: Insurance News Net, 6 June 2010

0

1

2

3

4

5

6

7

8

9

10

11

12

13

No com

ment

Very

ineffe

ctive

Ineffe

ctive

Neutra

l

Effecti

ve

Very

effec

tive

Number ofcompanies


2009

2010


Q Are you currently evaluating your agents’ effectiveness?

Q What percentage of agents will you terminate in 2010?

2010

2009

Twenty-three of the 31 participants said they were evaluating the effectiveness of their agents. The remainder did not provide a response.

Agents’ effectiveness

Percentages of agents’ terminationThe turnover rate among agents remains very high. For example, five companies anticipate shedding 50% of their agents in 2010 and one of these companies predicted the turnover rate could be as high as 80%. Eight companies fell in the 30% to 39% range.

The scale and turnover of the agency channel is evident in the responses to the number of new agents companies plan to recruit in 2010. While most life companies fall in the 1,000 agent range, several companies predicted in the 10,000 to 15,000 range, with one company predicting 20,000 new agents. Data provided by 18 life companies indicated they would collectively recruit 91,500 new agents in 2010.

No response

Yes


23 companiessaid they were

evaluatingagents’ effectiveness

Yes

60% to 69%

50% to 59%

40% to 49%

30% to 39%

20% to 29%

10% to 19%


80% to 89%

70% to 79%

50% to 59%

40% to 49%

30% to 39%

20% to 29%

10% to 19%

0% to 9%



Q What percentage of agents will the industry terminate in 2010?

Estimates on the industry termination rate for agents showed a wide variation.

It ranged from 20% to 70% with five companies in the 30% to 39% range, three companies in the 40% to 49% range and five companies in the 50% to 59% range.


70% to 79%

60% to 69%

50% to 59%

40% to 49%

30% to 39%

20% to 29%


Q How do you define an active agent?

Respondents were asked to explain how they defined an active agent. 18 of the 21 life company participants answered this question.

Thirteen companies stated active agents must sell one policy per month, while five had to sell a policy every three months to stay active. There are also some variations on these requirements. Some companies also require premium tests.

On the property and casualty side, one company indicated three submissions per week and one policy per month; another said four submissions and a productivity ratio of RMB 100,000 per annum.

Other performance measures mentioned included number of cold calls per month and specific product-based targets.

Defining an active agent

0

1

2

3

4

5

6

7

8

9

10

11

12

13

Other

s

Three

mon

ths

Two m

onth

s

One m

onth

Number ofcompanies

Required to sell a policy during the time period aboveBased on responses from 18 Life companies


Q What percentage of your agents fall into this category?

In a related question, respondents were asked to consider their agency sales force and to state the percentage of agents that were active based on the definition that they had just given.

One company indicated a level below 20%, but most fell in the 40% to 60% range. Two companies indicated 70%, one 80% and one 90% in terms of agents meeting their targets.

The challenge of constantly hiring new agents has already been mentioned. Clearly, part of this problem could be overcome if life companies increased the productivity of their existing teams. Given the scale and number of agents who fail to meet their targets, high agent turnover rates seem inevitable.


90% to 99%

80% to 89%

70% to 79%

60% to 69%

50% to 59%

40% to 49%

30% to 39%

20% to 29%

10% to 19%


Q What will your annual staff turnover rate be in 2010?

Respondents were asked to report on the level of turnover they experienced in 2009, and then to predict what it might be in 2010.

The 2009 chart shows that nine companies were below 10% and a further 11 companies were between 10% and 20%. As a result only eight companies in 2009 had a turnover rate greater than 20%. Only one of the eight reporting property and casualty companies was greater than 10% in 2009.

Predictions for 2010 show an increase in turnover rates.

Only five companies forecast turnover below 10% in 2010. Fourteen of the 28 reporting companies fall into the 10% to 20% range, while nine companies expect to be above 20%. While 13 companies expect turnover rates to rise in 2010, ten companies believe they will stay the same and five companies predict they will fall. The latter group are companies that have experienced significant change over the last year either through a strategic or shareholding realignment.

Annual staff turnover rate in 2009

Predicted staff turnover rate in 2010

Percentage

Nine companies were above 20%; 19 companies below 20% of which 5 companies below 10% Based on responses from 28 companies

20 to 29

10 to 19

0 to 9

30 to 39

20 to 29

10 to 19

0 to 9

Eight companies were above 20%; 21 companies below 20% of which 9 companies below 10% Based on responses from 29 companies

Percentage


Q Which staff functions have the highest hiring priority in 2010? Can you rank the “Top 3”?

The two most in demand staff functions in 2010 are the same as 2009. They relate to retail sales agents and corporate salespeople.

A number of other support functions also rank high – legal and compliance, underwriting, actuarial skills, operations and risk management. Both legal and compliance and actuarial experienced a significant increase over 2009.

Investment management and sales management have retreated in terms of priority.

However, a number of responses in the ‘other’ category may account for the decline in the sales management function. Respondents preferred to use terms such as:

• sub-branch management

• bancassurance head

• agency management and training

• distribution management and channel heads

• bank sales management

Earlier in the report the significant importance and on-going requirement to recruit new agents means that recruiting is also deemed an important function.

0 5 10 15 20 25 30

2009

2010

Tax/transfer pricing

Accounting

Capital management/treasury

Sales management

Product design

Finance

Investment management

Other

Risk management

Operations

Actuarial

Underwriting

Legal/compliance

Insurance salespeople-corporate

Insurance agents-retail

Based on responses from 31 companies in 2010and 29 companies in 2009 which have been prorated

Score


Risk management


The primary source of fraud for the life companies is the broker/intermediary channel.

This is consistent with the findings in both 2009 and 2008. This is followed by suppliers/providers and then policyholders.

In 2009, policyholder ranked ahead of suppliers/providers.

The leading source of fraud is also broker/intermediaries for the property and casualty companies. This is followed by policyholders and internal staff.

Q What are the major sources of fraud in your organisation? Please rank the following in order of greatest risk.

Life companies


0

10

20

30

40

50

Syndica

tes

Inter

nal s

taff

Other

Policy

holder

s

Supplie

rs/Pro

vider

s

Broke

rs/Int

ermed

iaries


Score

0

5

10

15

20

25

30

Supplie

rs/Pro

vider

s

Inter

nal s

taff

Policy

holder

s

Broke

rs/Int

ermed

iaries


Score


The majority of insurance companies do not believe that the risk management systems of their domestic counterparts are sufficiently robust.

The foreign insurers qualified this opinion on a number of different levels.

They differentiated between the very large insurers who they believe had quite robust systems and were much more critical of the smaller and more recently incorporated domestic companies.

In what one company referred to as the Tier 3 level, it was felt that they are very aggressive on marketing, were attracting unprofitable business and had weak risk management.

Paradoxically, one foreign life insurer noted that some foreign companies are not as good as some domestic companies on operational risk and compliance.

Q Do you believe the Chinese insurance companies’ risk management systems are sufficiently robust?

Don’t know

No

Yes



Competition and positioning


Q How much market share will the foreign life companies take up by 2013?

Eleven out of 20 life insurers that provided an estimate of the market share of the foreign life insurance companies by 2013 suggested it would reside between 4% and 6%. The market share in the first half of 2010 was 5.1%, a level which the foreign insurers have held for the last two years. As a result, more than half of the group does not expect movement in market share over the next three years.

Several companies predict modest increases from 8% to 10% while one company anticipates a large jump to 15%.

In 2009, market share predictions were more optimistic. At that time eight companies predicted 8% or higher by 2012. In 2010, only five companies predict 8% or higher by 2013, which indicates a lowering in expectations.

Q How much market share will the foreign property and casualty companies take up by 2013?

Property and casualty companiesTen companies provided an estimate of their market share. Four opted for 1.5% by 2013 and four other companies predicted it would climb up to 2% to 4%.

The market share in the first half of 2010 was 1%.

Market share for the foreign property and casualty companies peaked at 1.2% in 2005.

In 2009, eight companies predicted a 2% market share while one company thought it might rise to 4%. In 2010, four companies predicted a 2% to 3% market share by 2013. The property and casualty participants therefore, in sync with the life participants, also believe that while premiums, employment, policyholders and networks will continue to expand, they will not keep pace with the overall market’s expansion.

Life companies

0

1

2

3

4

15%10%9%8%7%6%5%4%3%

Number ofcompanies

Expected market share percentage by 2013Based on responses from 20 Life companies

0

1

2

3

4

3.0%2.5%2.0%1.5%1.0%less than1%

Number ofcompanies

Expected market share percentage by 2013Based on responses from 10 P&C companies


Q In your opinion, which institutions represent the most significant competitive threat to your organisation over the next five years?

For both life and property and casualty companies, the domestic insurance companies represent the greatest competitive threat. Similarly, the second greatest competitive threat posed to both types of companies are other foreign insurance companies.

In third position for the life companies are the new bank insurance subsidiaries. This may be because they are at a nascent stage of development. The property and casualty companies scored niche players above the bank subsidiaries. Finally, some of the life insurers

chose the new start up financial institutions. These new players have launched very aggressive marketing, pricing and distribution strategies.

As the article on the following page indicates, under the new accounting standards, the market share of China Life will rise to over 40% from 36.2% while China Pacific Life and New China Life will increase to around 9% each. Under the new rules, the market shares of Ping An Insurance and Taikang Life Insurance are expected to fall to around 11% and 5% respectively.

0

10

20

30

40

50

P&C

Life

Other

Forei

gn in

surer

s ent

ering

the

marke

t for

the f

irst t

ime

Niche p

layer

s

Start-u

p insti

tutio

ns

Bank s

ubsid

iaries

Forei

gn in

surer

s alre

ady

competi

ng in

your

mar

ket

Establis

hed d

omes

tic

insur

ance

compan

ies

Score



New Accounting Standards to Widen Share Gap of Life Insurers

China Insurance Regulatory Commission (CIRC), the top Chinese insurance regulator, is set to unveil premium revenue life insurers in China gained last year under the new accounting standards.

According to the new standards, premium insurers in the market captured in 2009 will consist of premium revenue and premium deposits; and premium deposits indicate the part they obtained via universal life insurance and investment-linked insurance investment accounts. Under the standards, their overall premium revenue size will drop, but the net profit and net assets will only be slightly affected as adjustments in reserve items will offset the impact the new standards may deliver on their net profit and net assets, said a senior official with the CIRC.

The premium affirmation ratio for them will be different due to different products they focus on but the average for last year is estimated by industry observers at about 83%. In detail, under the new accounting standards, the market share of the nation’s biggest life insurer China Life Insurance Co., Ltd. in domestic life insurance sector last year will rise to over 40 percent from 36.2 percent, followed by China Pacific Life Insurance Co., Ltd., the life insurance unit of China Pacific Insurance (Group) Co., Ltd., and New China Life Insurance Co., Ltd., with the shares each inching up by one percent to about nine percent.

Whereas, that captured by Ping An Life Insurance Company of China, Ltd., the life insurance of Ping An Insurance (Group) Company of China, Ltd, and Taikang Life Insurance Co., Ltd. will dropped to about 11 percent and five percent from 16 percent and eight percent, respectively.

“China Life, which focuses on participating insurance, will benefit much from the new standards as almost all revenue it gained from such insurance will be counted in its premium revenue,” said some securities brokers, “its net assets for 2009 is expected to be lifted by 40 percent to 60 percent, with the net profit to be raised by about 30 percent, too. The net profit of Ping An is predicted to surge about 20 percent and that of CPIC will climb, too.

Driven by the new accounting standards, life insurers in the market attach more importance to participating insurance this year, with the premium revenue obtained from such insurance surging 53 percent year on year in the first quarter of 2010 and accounting for 75.5 percent of the total they captured during the three months, up six percentage points from the end of last year.

Source: www.insurancenewsnet.com, 1 June 2010


Q How many foreign insurance companies will be operating in the Chinese market in 2013?

The respondents predicted a modest increase in the number of new foreign insurance companies over the next three years. Fifteen of the 31 companies forecasted about 50-59 companies in total. Ten companies predicted an overall reduction through consolidation and market withdrawal, while six predicted more significant increases.

Those who predicted a noticeable rise in foreign companies suggested the entrance of more Taiwanese, Japanese and Korean companies. Some of the companies mentioned included Sony Life, US Prudential, Korean Life, XL Insurance, etc.

Based on responses from 31 companies in 2010

70 to 79

60 to 69

50 to 59

40 to 49

30 to 39

Predicted a reduction

Predicted a modest increase

Predicted a significantincrease

Based on responses from 31 companies in 2010, 29 companies in 2009, 26 companies in 2008 and 24 companies in 2007

70 to 79

60 to 69

50 to 59

40 to 49

30 to 39

80 or more

20 to 29

2008

2007

20092010


While the majority of respondents predicted more new entrants, almost all of them (91%) predicted that the market will experience consolidation.

One scenario envisaged foreign life insurers being permitted by the CIRC to acquire smaller life insurers that had grown too quickly and had developed problems. This would serve the dual purpose of solving a domestic problem and at the same time allowing the foreign insurers to move forward.

Q Might there be consolidation?

WellPoint scouts for JV partner

WellPoint Inc, the US largest health benefits provider by membership volume, is scouting for a joint venture partner to set up a health insurance firm in China, the company’s top executive said on Tuesday. Angela Braly, WellPoint’s president and CEO, came to China for discussions with potential partners and the industry regulator, but she declined to disclose their names.

“The joint-venture partner should have the same vision as us but need not necessarily be an insurance company,” said Braly. “If everything moves on smoothly, we are targeting 2011 for offering health insurance services through the venture.”

The company set up its Beijing representative office in 2007, and established a third-party administrator in Shanghai in 2008. Though the China Insurance Regulatory Commission (CIRC) encourages insurers to have a stake in quality medical service providers to better prevent potential risks, WellPoint does not intend to go down that route, said John Domeika, president and CEO of WellPoint China.

As China’s health reforms move forward, private health insurance is increasingly becoming an important complement to government insurance programs, thereby offering a huge market for foreign insurers.

DKV Deutsche Krankenversicherung AG, a German-based private health insurer, in 2004 took a 19.9 percent take in the country’s first health insurer, the PICC Health Insurance Co.

South African health insurer Discovery Group last December signed a deal with Ping An Health Insurance Co., Ltd. to purchase a 24.99 percent stake in its health insurer subsidiary.

“Compared with other players, we attach more attention to communications with patients and health service providers, thus offering them better access to quality services at a more affordable price,” said Braly.

China’s health insurance premiums totaled 10.95 billion yuan ($1.6 billion) in the first two months of this year, according to the CIRC, the industry watchdog. The figure represented an increase of 34 percent over the same period last year.

Source: China Daily, 14 April 2010

Based on responses from 23 companies in 2010, 29 companies in 2009, 23 companies in 2008 and 20 companies in 2007

Yes

2007

2008

2009

2010

91%Yes


China’s Bancassurance Market Needs Better Partnership Development

According to the report “Bancassurance in China: Reaching the Next Level,” by Boston Consulting Group and Swiss Re, banks are already the dominant sales channel for life insurance in China and are driving the country’s rapid growth in premium volume. The report said China’s regulators are working on bancassurance reform in order to promote better integration of banks and insurers, as wholly exclusive bancassurance partnerships have not yet appeared in China. In November, the China Banking Regulatory Commission published rules allowing for equity participation of banks in insurance companies. Both Boston Consulting and Swiss Re believe this initiative of regulatory change will “guide China’s market in the direction of mature bancassurance markets like Europe and the United States.”

However, the consultants said the current Chinese bancassurance market structure, with banks selling multiple insurance brands, has “reached its peak,” while the “breadth and sophistication” of currently available products and the overall quality of customer service “lag far behind” bancassurance activities in many other countries.

Before the new policy was introduced in November, China’s banking and insurance regulators had already allowed banks to sell multiple brands of insurance, but the consultants said this situation has resulted in banks often selling relatively “unsophisticated” savings-type products in an “untargeted” way, which a structure they called “many-to-many.” Another problem that has blocked insurers from developing better-tailored products and services for the bank channel is that there is little incentive for insurers to train banking staffs in product details and advanced sales techniques to sell their competitors’ products, said the report. The report said insurers already pay generous commissions to banks for “shelf space,” damaging their own profitability and ability to invest in product innovation. In the long run, the many-to-many model is “not sustainable,” the report said.

“The Lack of product diversity and sales know-how resulting from the current system is starting to impact demand for insurance products sold through banks,” noted the report. Although overall insurance penetration in China is still low, the consultants expect both domestic life and nonlife premiums to “continue to grow annually by double digits” with support from broader macro trends.

The growth of bancassurers will be weakened or taken over by other insurance distributors, such as agents and brokers, if they are unable to take a larger market share by “upgrading product lines, increasing customer service and brand loyalty through money and time management investments. Through a partnership, banks can “dramatically” increase cross-selling potential and fee revenue, earning attractive margins from a whole new range of products, while insurers can “solidify” their brand reputation and customer loyalty when most consumers are still uncommitted with a relatively low insurance penetration and limited competitor offerings, said the report. A partnership can also allow insurers quick access to widespread bank branch networks, especially in provinces where insurance penetration is low relative to the banking infrastructure in China. Meanwhile, joining forces with a local bank may help insurers “speed up” the licensing process in new areas, according to the consultants.

Extracts from the story “China’s Bancassurance Market Needs Better Partnership Development”.

Source: www.insurancenet.com, 22 December 2009


Q Can you rate the magnitude of the competitive threat of the banks entering the insurance market over the next three years?

Respondents were asked to score how threatening the entrance of bank-owned insurance companies are to the market.

Life companies

The level of threat for the life companies remains very similar to that of 2009. In 2009, 11 companies scored the threat as seven or greater, while in 2010, 12 companies assigned scores of seven or greater. In both 2010 and 2009, five companies scored five out of five and three companies scored below five.

The life insurers held contrasting positions on the magnitude of the threat. One large insurer commented that it would take Bank of China 20 years to compete directly. Another said that not all banks will choose to set up manufacturing capabilities.

One company suggested that if the move had the full support of the regulators (CIRC and CBRC), then the threat would be nine out of 10. If on the other hand, there is no support, the threat would only be three out of 10.

In contrast, one life company described bancassurance as a huge threat and that the banks were expanding rapidly. One life insurer took a more extreme position. They said that banks do not know how to produce insurance and the move would be a disaster. They recommended that the banks should stay with distribution where they command attractive commissions. This company suggested that insurance companies should consider bank ownership.

Number

2010

2009

of companies

increasing threat from banks

Based on responses from 21 Life companies in 2010 and 19 Life companies in 2009

0

1

2

3

4

5

6

7

8

12345678910



The threat level appears to be lowered for the property and casualty companies and the scores have dropped since 2009. In 2010, three companies scored seven or above; whereas in 2009, six companies fell into this category.

In 2010, six companies were five or below. In 2009 three companies were below five.

The property and casualty companies believed the banks could pose a threat in select lines such as auto, travel and health. However, in general, there was a need to sell property and casualty insurance.

One property and casualty company suggested that the joint effort of Ping An Insurance and Ping An Bank would represent a good case study.

Q Can you rate the magnitude of the competitive threat of the banks entering the insurance market over the next three years? (continued)

Number

2010

2009

of companies

0

1

2

3

4

12345678910

increasing threat from banks

Based on responses from 9 P&C companies in both 2010 and 2009


Q How would you characterise the commitment of your foreign parent to the Chinese market in comparison to other markets around the world on a scale of one to 10 where one represents no commitment and 10 is an extremely aggressive commitment to the market?

Life companies foreign partner’s commitment

Life companies foreign partner’s commitment in 2013 vs. 2010

Foreign parents’ commitment to their Chinese joint ventures remains steadfast. In 2010, 17 of the 20 life companies that answered this question scored the commitment as eight out of 10 or above.

Nine companies attributed the maximum score of 10 out of 10. That maximum score matches the level recorded in 2009 but remains below that in 2008.

One company commented that there was tremendous focus on China, from the very top of the company. Three life companies also recorded more modest levels of commitment. For the first time a score of five was submitted.

Looking forward to 2013, the commitment rises to even higher levels.

Ten companies anticipated a maximum commitment level while those scoring nine out of 10, rise by two more companies to six. This means that 16 of the 20 respondents anticipate commitment levels of nine or above by 2013.

Number of companies

Based on responses from 20 companies in 2010 and 2009 and 19 companies in 2008

0

2

4

6

8

10

12

10 9 8 7 6 5

2009

2008

2010

Number of companies

2010

2013


0

2

4

6

8

10

10 9 8 7 6 5


Life companies domestic partner’s commitment 2010 vs. 2008

When it comes to the commitment of the domestic partners to the joint venture life companies, six companies were allocated the maximum score of 10 out of 10.

One company awarded its domestic partner nine out of 10 while seven companies scored eight out of 10. Strong commitment levels were therefore attributed to 14 companies.

In 2010, one company was assigned a lukewarm commitment of five out of 10 while one company scored the minimum one out of 10.

Q Do the objectives and goals of your Chinese partner contrast that of your own company? Can you explain?

Comments from individual life companies ranged from “they are very aligned” and “they are more ambitious than us” to “they have no idea about insurance” and “they want quick earnings while we want steady growth.”

Several respondents commented that the new accounting standards may improve relationships between domestic and foreign partners.

This viewpoint is based on the grounds that the new standards will improve short term profit performance.

Number of companies

2009

2008

2010

Based on responses from 19 companies in 2010, 18 companies in 2009 and 8 companies in 2008

0

1

2

3

4

5

6

7

8

10 9 8 7 6 5 4 3 2 1


Property and casualty companies’ commitment

In 2009, only one property and casualty company assigned the maximum score of 10. Three more companies joined this company in 2010.

This was followed by three companies at eight out of 10, two companies at seven out of 10 and just one at six out of 10.

The increased level of commitment by three companies to 10 out of 10 in 2010 represents a very positive development.

Q How would you characterise the commitment of your parent company to the Chinese market in comparison to other markets around the world on a scale of one to 10?

Property and casualty companies’ foreign partner’s commitment in 2013 vs. 2010

In 2013, four of the same property and casualty companies stay with the maximum score while three companies move up to nine out of 10.

Furthermore, three companies move into the eight out of 10 space leaving no companies at the lower scores.

By 2013, all 10 companies anticipated that they would be at a level of eight out of 10 or above.

Number

10 9 8 7 6 5 4

of companies

0

1

2

3

4

2009

2008

2010

Based on responses from 10 companies in 2010, 9 companies in 2009 and 8 companies in 2008

Based on responses from 10 companies for 2010 and 2013

Number

10 9 8 7 6 5

2013

2010

4

of companies

0

1

2

3

4


Q In your opinion, how serious a problem on a scale of one to 10, where 10 represents the maximum, are the following issues at the retail level?

To gauge the concerns that the foreign insurers have in the distribution and selling of insurance products, they were asked to consider the magnitude of problems associated with the following three issues:

Lack of expertise

The level of expertise demonstrated by sales staff appeared to be an issue in the agency, bank and telemarketing channels. Less evidence of this is seen in the broker channel, particularly on the property and casualty side.

Mis-selling of products

Agency and bank channels recorded scores of six or above on the index for mis-selling. The score approached eight for agents for property and casualty, and banks for life products.

Distribution control

The enforcement of controls appears most challenging for life products in the bank channel. The more tightly-managed telemarketing channel recorded a score below five. Overall, the telemarketing channel, perhaps because staff adhere to a right script and are supervised, recorded the lowest scores.

0

1

2

3

4

5

6

7

8 P&C

Life

TelemarketingBrokersBanksAgencies

Based on responses from 31 companiesLack of expertise by staff in selling particular products

Score out of 10

0

1

2

3

4

5

6

7

8

P&C

Life


Based on responses from 31 companiesMis-selling of certain products

Score out of 10

0

1

2

3

4

5

6

7

8

P&C

Life


Based on responses from 31 companiesEnforcement of controls in the distribution channels

Score out of 10


Products and market segments


Life Products

Individual level

At the individual level, respondents predicted an increase in demand for the following products. One company stressed that the CIRC was actively promoting protection products.

• Participating products (“par” products where the policyholder participates in the risk alongside the insurance provider)

• Investment-linked products with guarantees

• Health insurance, innovative health products, critical illness and major medical

• Traditional insurance products

• Many different forms of retirement products

• Simple commoditised products sold through direct channels

• Universal life products

Wholesale level

At the wholesale level the following products were mentioned:

• Group medical insurance

• Derivatives and other alternative investment classes

• Group annuities

• Supplementary medical

• Various pension-related products

Property and Casualty Products

Individual level

• Travel insurance, including direct channels such as the internet

• Personal accident insurance

• Homeowner insurance

• Auto insurance

Wholesale level

• Speciality liability insurance

• Environmental liability insurance (this was considered difficult to do in China)

• Suite of insurance products targeting the expatriate community through a wholesale channel

• D & O products

• Other liability products

• Marine insurance

• Property insurance (although currently dominated by domestic companies with over competitive pricing)

Q Which product areas do you see as becoming increasingly important in the Chinese insurance industry in the next three years?


The respondents were asked to mention new products and innovations that the foreign insurers have brought to the China market. Many foreign insurers have been in the market seven years or more and as the domestic insurance companies lift their game, it is interesting to reflect on the past contributions of the foreign insurers.

The life insurers believe they have provided the following innovations:

• The agency system (first attributed to AIA)

• Telemarketing and direct marketing to consumers

• Universal life products

• Unit linked products

• Variable annuities

• Risk management

• Corporate governance

• Dynamic solvency testing (DST)

The property and casualty insurers nominated the following products:

• D & O insurance

• Environmental liability

• Product liability

• Risk management

• IPO insurance

• Professional indemnity

• Financial kidnap and extortion insurance

Q What innovations have the foreign insurers brought to the market?


China’s liability insurance market is viewed by participants as a potential growth area

China’s liability insurance market Challenges: Low demand and high acquisition costs

There are two major roadblocks to liability insurance development in China. One is the low insurance demand from society at large, given the low awareness of insurance and non-litigious nature of Chinese society.The other is the limitation of insurers’ distribution channels which results in overly high acquisition costs when selling liability products to many individual customers.

It is difficult for insurers’ own sales forces to sell liability products because selling these products require higher technical skills and take more time to explain. As a result, sales people tend not to devote resources to selling liability products as it is easier and faster to sell simple motor insurance for potentially more premiums.

However, if there is strong government support, normally a local scheme or pool will be organised by the government to ensure extensive participation of insureds. A public bidding process will be used to select insurer participants who would be guaranteed a certain premium volume as an incentive for taking part in this process.

Hence, the stronger the government’s push, the better the development of a liability insurance product. Under the current circumstances, this is the most cost-effective way to develop liability business.

In summary, in order to develop new incomes from liability business, an insurer needs to work on two ends of the spectrum: one is to continuously create new products to differentiate itself from its competitors; and the other is to leverage government policies so as to capture liability business with the potential to grow scale in a cost-effective way.

Source: www.swissre.com, Feifei Ford, Swiss Re, Beijing, October 2009


Both the life and property and casualty companies continue to believe that the global financial crisis has impacted the roll-out of new products. In comparison to 2009, the property and casualty companies’ belief seems to have strengthened.

Commenting on the nature of the impact, the life companies made the following observations:

• Unit-linked products have been affected. In other markets, products have been designed to hedge the downside risk. This will eventually be permitted in China

• Foreign players have stopped selling unprofitable products

• If there had been no crisis, we would be offering variable annuity products with guarantees in Shanghai and Beijing

• Prior to the crisis, the CIRC thought foreign companies had more experience and insight – this has changed


• The decline in exports has affected cargo insurance and product liability insurance

• Several property and casualty companies also believe the economic slowdown has influenced the number of IPOs and this in turn has influenced insurance lines such as D & O

• Finally, a property and casualty company acknowledged that they had just started to offer credit insurance, and sales had been adversely affected by the global financial crisis

Q Will the global financial crisis have an impact on the roll-out of certain financial products in China?

2010

2009


Life companies11 Yes and 10 No

P&C companies7 Yes and 3 No

No

Yes


No

Yes

Life companies11 Yes and 9 No

P&C companies5 Yes and 4 No


Seven different markets were identified. If the participating foreign insurance companies had been active in a particular market, they scored their perceived levels of success on a scale of one to five where one was “very unsuccessful” and five was “very successful”. Scores exceeding three implies participants felt they have been generally successful in that particular market.

The chart indicates that the life insurance companies continue to

Q How successful has your foreign life insurance company been in penetrating the following markets in the last year?

claim only modest success in seven different market segments. While five of the seven segments display increased scores when compared to 2009, in most cases these increases have been marginal.

The most successful segments in 2010 were in order of importance: life insurance protection, life insurance traditional (i.e. savings based) and personal accident. The success score that increased most was the marketing of protection products.

1

2

3

4

Group-Accident & Health (14)

Group-Life (16)

Personal accident (18) Health insurance (18)

Life insurance-Protection (20)

Life insurance-ILP (19)

Life insurance-Traditional (20)

Figures in brackets represent the number of respondents in 2010

20102009


To identify the markets that the foreign insurance companies believe will be of greatest importance over the next three years, the 19 participants ranked the following seven markets on a scale of one to five. A score of one indicates little or no importance while a score of five can be considered very important.

Average scores should exceed three for the market to be considered important.

Q How important are the following markets for your foreign life insurance company over the next three years?

The scores are notably higher when it comes to the importance of these seven segments over the next three years. All segments fall outside the average score of three out of five. Both the traditional life insurance category and the protection only category score above four out of five.

In 2009, health insurance and personal accident scored above four but fell back to 3.7 and 3.5 in 2010.

1

2

3Group-Accident & Health (18)

Group-Life (18)

Personal accident (19) Health insurance (19)

Life insurance-Protection (20)

Life insurance-ILP (20)

Life insurance-Traditional (20)


2013

4


There have been some notable shifts in a number of product lines for the property and casualty insurers in 2010 versus 2009.

Areas where higher levels of success are evident are D & O (4.5), products liability (4.2), cargo and transportation (3.8) and professional indemnity (3.5).

There have also been significant areas of improvement in lines such as group accident and health and health insurance. Homeowners insurance and personal accident as in 2009, continue to display low levels of success.

Q How successful has your foreign property and casualty insurance company been in penetrating the following markets in the last year?

1

2

3

4D&O (4)

Professional indemnity (4)

Public liability (5)

Products liability (5)

Employers liability (7)

Group Accident & Health (3)

Cargo, Transportation (9)

Homeowners (6)

Enterprise property (7)

Auto insurance (4)

Personal accident (2)

Health insurance (2)


20102009


The chart below displays just how important each of the 12 lines of business will be by 2013. With the exception of homeowners insurance, all the lines recorded values above 3.5 out of five.

Seven lines scored above four. They were health insurance (5), cargo and transportation (4.6), D & O (4.25), group accident and health (4.2), personal accident (4), public liability (4) and professional indemnity (4).

The chart provides strong evidence that the property and casualty insurers intend to push forward aggressively on a series of different personal and commercial lines.

Q How important are the following markets for your foreign property and casualty insurance company over the next three years?

1

2

3

4D&O (4)

Professional indemnity (4)

Public liability (8)

Products liability (8)

Employers liability (9)

Group Accident & Health (5)

Cargo, Transportation (10)

Homeowners (9)

Enterprise property (8)

Auto insurance (8)

Personal accident (7)

Health insurance (2)


2013


Market expansion


The 21 life companies identified organic growth as their first choice with two exceptions. Both companies that made this selection have bank partners.

As expected they hope that their alliance with their bank partners will accelerate future growth.

In 2009 all 20 life companies selected organic growth as their primary expansion option.

The 10 property and casualty companies also overwhelmingly selected the organic growth option.

The two exceptions chose acquisition as their primary means of future growth.

In 2009 five companies selected the organic growth option.

Q What is your insurance company’s primary method of expansion in China?


With a bank partner

Organic growth


Acquisition Organic growth


0 10 20 30 40 50 60 70 80 90 1001101201301400

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Based on responses of 21 Life companies

Three at 30/25

Two at 40/40

Two at 50/50

400% in 2010 and 25% in 2013

200% in 2010 and 50% in 2013

Expected annual growth rate in 2013

Q What is your estimate of the annual growth in premiums of your business in life insurance for 2010 and over the next three years?

In 2010, four companies anticipate growth above 100% and one of these plans to continue growing annually by 100% and two of three companies predict 2013 growth of 50%. At the opposite end of the scale, only two life companies expect growth below 20% in 2010.

Five companies fall in the 50% to 70% range in 2010 and expect to

maintain this sales momentum. Another seven companies are in the 30% to 45% range.

Visual comparison with 2009 shows that two companies anticipate growth above 100%. Ten companies expected 2009 growth of 20% or lower. Four companies were in the 50% to 70% range and just two companies in the 30% to 45% range.

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2010


Q What is your estimate of the annual growth in premiums of the life insurance industry for 2010 and over the next three years?

At an industry wide level, the respondents predicted lower levels of growth. The highest anticipated growth for the industry in 2010 was 50% and this dropped to 30% industry growth by 2013.

Many companies predicted in the region of 20/20, 20% in 2010 and 20% annual growth in 2013.


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Q What is your estimate of the annual growth in premiums of your business in property and casualty insurance for 2010 and over the next three years?

As in previous reports the predictions for premium growth in the property and casualty market are well below those in the life insurance market.

In 2010, only one company predicted growth above 40% at 100%. The same respondent anticipated 2013 growth to continue at 100%.

Several companies selected on-going growth of 20%, 30% or 40%. This was very much in line with predictions made last year for 2009.

Predictions for 2013 appear to have improved slightly this year versus those made in last year’s report for 2012. For instance, in 2009 four companies predicted 2009/2012 growth of 15/15. In 2010 an equal number predicted 20/20. Two companies came up with the highest level of growth for 2010 at 25% and by 2013 only one respondent predicted growth as high as 25%.

20092010


Q What is your estimate of the annual growth in premiums of the property and casualty insurance industry for 2010 and over the next three years?

Four of the 10 property and casualty companies believe that the industry will grow at 20% per annum in both 2010 and 2013.

A further three participants believe industry growth will fall below 20% in 2010.

Only two companies predicted industry growth of 25% in 2010. Again industry level projections fall below individual company projections.



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Q Has there been a change in emphasis in the industry in 2010 away from sales growth?

Pursuit of new sales continues to be the goal of the majority of life companies. Thirteen companies endorsed this approach.

Several respondents, however, acknowledged that there has been a shift away from unprofitable business. One large insurer commented that sales growth came first, followed by profitability and then risk.

One foreign insurer noted that the foreign companies tend to be more influenced by profitability than their domestic counterparts.

Given that many joint venture life insurers have now been in the market for seven years by which time they promised breakeven, there has been an increased emphasis on profits.

On the property and casualty side, seven companies also believed that profits had become more important than sales. Several respondents mentioned the aggressive pursuit by domestic companies of the auto-insurance business which is deemed to be unprofitable.

Life companies



No Yes

13 life companies said no change away from sales growth


No Yes

7 P&C companies said yes a change

away fromsales growth


Regulation


Q How significant will the change, in terms of regulation of the foreign insurance companies in China, be as a result of the global financial crisis?

Both the life and property and casualty companies believe that there will be significant or very significant changes to regulation. On the life company side, 11 companies indicated significant and four companies very significant for 2010 (nine and six in 2009) and on the property and casualty side, six companies said significant and three very significant (four and three in 2009).

None of the respondents believed that going forward regulatory change would be considered as insignificant.

Commenting on the likelihood of change, one life company noted that the sector was highly controlled, while another suggested that the regulator will always instill more regulations.

On a similar theme, a property and casualty company stated that there had been 700 new regulations last year and that their company was required to respond to the vast majority of these new regulations. The company also indicated that the CIRC’s introduction of “cash before cover” had been very detailed and required initiation of a new IT project. Another property and casualty company said that while the CIRC was expected to make significant regulatory changes, this should be seen as a positive development.

Based on responses from 31 companies in 2010 and 29 companies in 2009

0

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Life companies

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2009

2010

2009


The respondents volunteered a host of suggestions on the scope of future regulations.

Life companies

• Sales practices, sales supervision

• Appointment of senior management

• Product design

• Pricing

• Risk management

• Compliance

• Distribution regulation

• Governance, independence of directors

• Investment class restrictions

• Solvency

• Branch inspections


• Consumer protection

• Branch approvals

• Profitability

• Restrictions on intermediaries

• Senior management examinations in Chinese, face to face interviews and reviews of qualifications

Q In which areas do you anticipate tighter regulation on foreign insurance companies?


Q Have there been disagreements between your insurance company and the Tax Bureau?

Nine companies indicated that they had disagreements with the Tax Bureau on business tax.

This included seven life companies and two property and casualty companies.

The life companies commented that there was a long standing argument about business tax and agents, and one company specifically referred to disagreement on business tax and unit linked products.

In 2009 five companies cited disagreements on business tax.

Five companies indicated that they had disagreements over income tax, although one of these related to personal income tax of an employee and another to expatriate costs.

In 2009, minor disagreements were recorded for both withholding tax and other tax issues. In 2010 no disagreements were voiced by respondents and these charts have been omitted this year.

Overall, the respondents complained about delays in receiving tax refunds and mentioned different interpretations of tax rules in different cities. Several respondents commented that they were unsure how the new accounting standards would affect tax calculations.

Business tax

Income tax


No comment

No

Yes2010

2009

Nine companies have had

disagreements


No comment

No

Yes

Five companieshave had

disagreements

2010

2009


Q Are there tax rules you would like to see changed?

Life companies continue to believe that changes in the tax rules would benefit business. However, the consensus suggests that any meaningful changes will not take place in the next three years.

Recommendations by life companies included:

• Tax incentives for pension annuities and life insurance products

• Elimination of the business tax

• Acceleration of refunds by the tax bureau

• Tax incentives on investment products in general

Given the future challenges in the Chinese pension market as the population ages, most respondents highly recommended the introduction of a “traditional 401K” type plan. These plans allow workers to save for retirement and have their savings invested while deferring incomes taxes on the savings and earnings until the time of withdrawal.

Recommendations by the property and casualty companies included:

Three of the property and casualty companies commented on high levels of personal taxation and suggested that there should be “senior management” tax incentives to locate in Pudong, Shanghai.

Several companies recommended that special tax incentives should be designed to help Shanghai develop as a global financial centre and compete more effectively with Hong Kong and Singapore.

Life companies



No comment

No

YesNo comment

No

2010

2009

17 life companies would like

tax changes

Based on responses from 10 companies in 2010and nine companies in 2009

No comment

No

Yes

2010

2009

4 P&C companies would like

tax changes


Q In your opinion has there been a relaxation over the last 12 months in the granting of new licenses?

There is strong evidence of a relaxation regarding the new branch licenses in 2010. Nine of the 31 respondents disagreed with the statement that there was a slowdown. This contrasted with 2009 when all 29 respondents held this opinion.

The respondents maintained that the slowdown which was widely applied in 2009 had begun to loosen up by November 2009.

One life company suggested that the CIRC is in the process of drafting new regulations regarding new operating licenses.

Another life companies said that new licenses were now being granted but acquiring pre-operation approval and scheduling inspections were still slow.

Several property and casualty companies contended that there had been an improvement and that the CIRC was under pressure not to be as restrictive on geographic expansion, given the small market share held by the property and casualty companies.

Based on responses from 31 companies in 2010 and 29 companies in 2009

YesNo

2010

2009


Q Would you like to see the 50% ownership restriction removed?

In 2009 the life companies unanimously supported the removal of 50% ownership restriction.

In 2010, four companies paradoxically indicated that they thought the 50% restriction should remain in place. The reason behind this position is competitive advantage.

Three companies were comfortable with their partners and believed they were positioned advantageously. One company is satisfied with its shareholding weighting and again does not seek an industry wide change.

The participants continue to believe that a relaxation of shareholding rules is at least five years away and that 10 years may be more realistic. Six companies believe that it may be more than 10 years in the future.

No comment

Based on responses from 21 Life companies in 2010 and 20 Life companies in 2009

Yes

No

No comment

16 Life companieswould like ownership

restrictionabolished

0 1 2 3 4 5 6 7

Beyond 10 years

Next 10 years

Next 5 years

Next 3 years

Based on responses from 19 life companies in 2010 and 20 life companies in 2009

Number of companies

2010

2009


The new CIRC regulations in 2008 and revisions to the Insurance Law in 2009 have resulted in a much stricter control of solvency management. Furthermore, in April 2010, the CIRC issued a circular requiring companies to submit reports on solvency and capital supplements.

While a number of respondents maintained that they had very adequate levels of capital, they indicated the CIRC’s new rules would require capital injections for some foreign companies. Several mentioned the CIRC’s classification into A, B, C and D companies based on their solvency ratio.

One participant suggested that there were 11 companies on the C/D list although the list has not been published by the CIRC.

Another participant contended that companies that fell in the 100% to 150% band were being asked to make capital injections and that a level above 150% was required to secure network expansion approval.

Solvency appeared to be less of an issue for the foreign property and casualty companies. One company, however, drew attention to their domestic counterparts’ pursuit of sales, using the example of 60% to 70% commission rates in the auto-insurance market.

Q Can you comment on solvency issues and how they are affecting your company?

“The next step in regulating insurers’ solvency...is through imposing more stringent regulatory measures against insurers which have (inadequate) solvency (levels)...and to strengthen our auditing and analysis on insurance companies’ reports on their solvency...”

Wu Dingfu, Chairman CIRC January 2010


Q Can you comment on the future of the agency system in China?

This report documents the high levels of agent turnover and the significant hiring goals of a number of foreign life insurance companies.

As a result, it would not be unexpected for the foreign insurers to have reservations about the agency system and its future viability.

The majority of participants acknowledge that the present agency system is highly inefficient, expensive and time consuming. They recognise that bancassurance is a powerful channel that may further increase in importance and they understand the continuing transition to a more direct marketing approach including the internet.

Despite these limitations, a solid core of participants hold a firm belief in the future of agents. One large life insurer commented “this is the way forward, performance levels will improve.” This sentiment was echoed by a number of other world class players. They believe in the adage that “insurance is sold not bought.”

These opinions are qualified by saying it will take a long time to occur and that regulations and the domestic partner arrangements work against the transition. Domestic partners seek a faster return on their capital and are frustrated by the slow build up through agent distribution.

One life insurer commented that the agency system is impeded by the tax structure. Agents must pay their business tax and personal income tax and because they are not employees they cannot enjoy company benefit schemes.

The looming presence of the banks and the already dominant role of bancassurance adds to the uncertainty across the sector.

As a result some life insurers may be stepping up their agency infrastructure in self-defence against the potential threat posed by the banks.

The CIRC reported that the number of insurance agents reach 2.9 million in 2009. This total includes 2.58 million life agents and 330,000 non-life agents.

Another commented that the current regulatory environment works against agents. By placing a cap on commissions the agents’ remuneration is restricted.

The property and casualty respondents noted that the agency system remains relatively under-developed.


Peer review


Q Can you name the top three foreign insurance companies in terms of success (performance, presence, momentum, etc.) across a variety of different markets?

A simple scoring method awarded three points to first place, two points to second and one point to third place. This allowed the foreign insurance companies to be ranked based on a total score. In the 2010 survey they were permitted to rank both domestic and foreign companies. This year ranking was restricted to foreign companies only.

Foreign insurance companies were asked not to record an opinion unless they were active in that segment and were comfortable in providing an accurate ranking in

Life insurance — Traditional savings

terms of success (performance, presence and momentum) as opposed to mere size.

They were not permitted to rank their own institution. Often foreign insurance companies would choose just to indicate first or second places.

These rankings are based on the views given by the senior executives in the foreign insurance companies. In contrast to previous surveys, the rankings included domestic companies.

First Second Third Score

AIA 8 2 1 29

Manulife-Sinochem 6 1 4 24

CITIC-Prudential Life 1 5 13

Aviva-COFCO 3 2 8

Huatai Life 1 1 4

Allianz Life 1 2 4

Sun Life Everbright Life 1 2Based on 16 foreign insurance companies


Life insurance — Investment-linked


CITIC-Prudential Life 5 15

Allianz Life 2 1 2 10

MetLife 2 1 1 9

Aviva-COFCO 2 1 8

AIA 1 2 7

Skandia Guodian 1 1 2 7

AEGON 2 4

Huatai Life 1 3

Manulife-Sinochem 1 3

ING 1 2

AXA-Minmetals 1 1



AIA 5 4 23

Manulife-Sinochem 7 1 23

Aviva-COFCO 3 1 7

MetLife 1 1 5

Allianz Life 1 1 4


AXA-Minmetals 1 2

Huatai Life 1 1


Life insurance — Protection


Health insurance First Second Third Score

AIA 6 3 24


CITIC-Prudential Life 1 1 2 7

Aviva-COFCO 1 1 1 6

Allianz Life 1 1 5

Generali 1 1 3

Chartis (AIG) 1 3

Chubb 1 3

AXA-Minmetals 1 2

CIGNA 1 2

AXA Winterthur 1 2

Huatai Life 1 1

Royal & Sun Alliance 1 1Based on 13 foreign insurance companies

Personal accident insurance First Second Third Score

AIA 7 3 27

CIGNA 5 15

Chartis (AIG) 4 12

Aviva-COFCO 3 6

MetLife 1 1 1 6

Allianz Life 1 2 5

AXA Winterthur 2 4



Huatai Life 1 1

AXA-Minmetals 1 1

Generali 1 1



Cargo, transportation insurance First Second Third Score

Tokio Marine 5 1 17

Mitsui Sumitomo 2 2 1 11

Chartis (AIG) 1 3 1 10

Chubb 1 1Based on eight foreign insurance companies

Auto insurance First Second Third Score

Liberty Mutual 3 9

Tokio Marine 1 3

Samsung Fire & Marine 1 2Based on 4 foreign insurance companies


Chartis (AIG) 2 1 1 9

Zurich 1 2 7

Tokio Marine 1 1 5

Generali 1 3

Chubb 1 3

Royal & Sun Alliance 1 1 3

Mitsui Sumitomo 1 1Based on six foreign insurance companies

Homeowner insurance First Second Third Score

Chartis (AIG) 1 3

Chubb 1 3

Zurich 1 3

AXA Winterthur 1 2Based on 3 foreign insurance companies

Enterprise property insurance


Group life First Second Third Score

Generali 9 2 2 33

AIA 4 3 18

Aviva-COFCO 1 2 7

AXA-Minmetals 1 3



Sun Life Everbright Life 1 2

Cathay Life 1 1

Heng An Standard 1 1Based on 15 foreign insurance companies

Group accident and health First Second Third Score

Generali 4 3 1 19

AIA 5 1 1 18

Aviva-COFCO 3 2 13

Chartis (AIG) 4 12


AXA-Minmetals 1 3

Chubb 1 3


Cathay Life 1 1Based on 13 foreign insurance companies


Geographic expansion First Second Third Score



Aviva-COFCO 2 1 1 9

Chartis (AIG) 3 9

AIA 2 6

Samsung Fire & Marine 2 6

Allianz Life 5 5

Huatai Life 1 1 5

Liberty Mutual 1 1 5

Mitsui Sumitomo 1 1 5

Sompo Japan 1 1 5

Sun Life Everbright Life 1 1 4

AEGON 1 3

Tokio Marine 1 1 3

Generali 1 2

MetLife 1 2Based on 22 foreign insurance companies

Customer relationships First Second Third Score

AIA 6 1 19


Allianz Life 1 1 5

Chartis (AIG) 1 1 5

Mitsui Sumitomo 2 4

Samsung Fire & Marine 1 1 4

Aviva-COFCO 1 3

AXA-Minmetals 1 3


Chubb 1 3

Tokio Marine 1 3

Zurich 1 3

Huatai Life 1 1Based on 14 foreign insurance companies


Innovation First Second Third Score

Chartis (AIG) 5 15

Aviva-COFCO 2 1 2 10

AIA 2 1 8

MetLife 2 1 8

Allianz Life 1 1 5

CIGNA 1 1 5

Chubb 1 1 5


Huatai 1 2

Generali 1 2

Manulife 1 1Based on 15 foreign insurance companies


CIGNA 6 1 1 21

AIA 4 3 1 19


Chartis (AIG) 4 12

Aviva-COFCO 1 1 2 7

MetLife 1 2 7

Huatai Life 1 3

Generali 1 1 3

Tokio Marine 1 3

AEGON 1 2

Allianz Life 1 2

Mitsui Sumitomo 1 2


Zurich 1 1Based on 22 foreign insurance companies

Distribution effectiveness


Marketing strategies


AIA 10 1 32


Chartis (AIG) 4 12

Zurich 2 6

Aviva-COFCO 1 1 5

AXA-Minmetals 1 1 4


Allianz Life 1 3

Generali 1 2

Chubb 1 2

CIGNA 1 1



Chartis (AIG) 6 18

AIA 3 1 10

Aviva-COFCO 3 9

CIGNA 2 1 1 9


Zurich 1 2 7

MetLife 1 1 5

Allianz Life 1 2 5


Generali 1 1


Technically competent staff



AIA 16 48

Chartis (AIG) 6 18

CITIC-Prudential Life 1 2 1 8

Huatai Life 2 4

Aviva-COFCO 1 2 4


Tokio Marine 1 3

Allianz Life 1 1 3

Pacific Antai 1 2

Chubb 1 2

Mitsui Sumitomo 1 2

Generali 1 1Based on 24 foreign insurance companies

Brand awareness

Corporate social responsibility First Second Third Score

Allianz Life 2 1 7

AIA 1 3

AXA-Minmetals 1 3

Zurich 1 3

Aviva 1 2Based on five foreign insurance companies


Appendices


Methodology 100

Participants 101

Premium income for domestic life insurance companies, June 2010 102

Premium income for foreign life insurance companies, June 2010 103

Premium income for domestic property and casualty insurance companies, June 2010 104

Premium income for foreign property and casualty insurance companies, June 2010 105

Background comments on participants 106

American Chamber of Commerce in China White Paper – Insurance Section 2010 112

Appendices


Methodology

Previous experience has shown that personal interviews with senior executives using a standard questionnaire offers the best research approach. The questionnaire contained 50 questions and was completed during interviews of approximately one hour. The author conducted interviews in April and May 2010 in Beijing, Chengdu, Chongqing, Guangzhou, Hong Kong and Shanghai.

Responses have not been attributed in this report to individual foreign insurance companies. On occasion separate results have been shown for life companies and property and casualty companies.

At times, individual foreign insurance companies declined to answer particular questions or were unable to provide sufficiently accurate data. This is noted where applicable.

The time commitment, cooperation and support by all the foreign insurance companies in this survey was outstanding.

About the author

Dr Brian Metcalfe is an Associate Professor in the Business School at Brock University, Ontario, Canada. He has a doctorate in financial services marketing and has researched and produced over 40 reports, such as this one, on behalf of PricewaterhouseCoopers in 11 different countries including Australia, Canada, China, India, Japan and South Africa.

Previous reports have examined strategic and emerging issues in corporate, investment and private banking, life and property and casualty insurance, insurance broking and wealth management.

In April 2010, he authored the fourth report on Foreign Banks in China.

He has consulted for a wide range of organisations, including Royal Bank of Canada, Bank of Nova Scotia, Barclays Bank, Sun Life Insurance Company, Equitable Life of Canada and several major consulting firms.

He has taught an executive management course entitled “Financial Services Marketing” at the Graduate School of Business, University of Cape Town.


Participants

Property and casualty insurance companies City Country of foreign partnerAllianz Insurance Company Guangzhou Germany

AXA General Insurance China Ltd. Shanghai France

Chartis Insurance Shanghai USALiberty Mutual Insurance Co., Ltd. Chongqing USA

Chubb Insurance Shanghai USAMitsui Sumitomo Insurance Co., Ltd. Shanghai Japan

Royal & Sun Alliance Insurance Co., Ltd. Shanghai BritainSompo Japan Insurance (China) Co., Ltd. Dalian Japan

Tokio Marine & Nichido Fire Insurance Co., Ltd. Shanghai JapanZurich Insurance Company Beijing Switzerland

Life insurance companies City Country of foreign partnerAEGON-CNOOC Life Insurance Co., Ltd. Shanghai Netherlands

American International Assurance Co., Ltd. Shanghai USA

Allianz China Life Insurance Co., Ltd. Shanghai Germany

Aviva-COFCO Life Insurance Co., Ltd. Shanghai Britain

AXA-Minmetals Assurance Co., Ltd. Shanghai France

CIGNA & CMC Life Insurance Co., Ltd. Shenzhen USA

CITIC-Prudential Life Insurance Co., Ltd. Guangzhou Britain

Generali China Life Insurance Co., Ltd. Beijing Italy

Great Eastern Life Assurance China Co., Ltd. Chongqing Singapore

Haier New York Life Insurance Co., Ltd. Shanghai USA

Heng An Standard Life Insurance Co., Ltd. Tianjin Britain

HSBC Life Insurance Co., Ltd. Shanghai Britain

Huatai Life Insurance Co., Ltd. Beijing USA

Manulife-Sinochem Life Insurance Co., Ltd. Shanghai Canada

John Hancock Tianan Life Insurance Co., Ltd. Shanghai Canada

United MetLife Insurance Co., Ltd. Shanghai USA

Nissay-SVA Life Insurance Co., Ltd. Shanghai Japan

Pacific-Antai Life Insurance Co., Ltd. Shanghai Netherlands

Samsung Air China Life Insurance Co., Ltd. Shanghai Korea

Sino-US MetLife Insurance Co., Ltd. Beijing USA

Sun Life Everbright Life Insurance Co., Ltd. Tianjin Canada


Premium income for domestic life insurance companies, June 2010

Company Name Premium Income Jan-June 2010 (RMB million)

China Life 192,999.14

Ping An Life 90,496.34

New China Life 54,625.85

CIPC 52,305.72

Taikang Life 51,485.89

PICC Life 45,790.57

Taiping Life 19,100.45

Sunshine 7,396.04

China Life (old business) 6,623.52

Sino Life 6,503.57

PICC Health 5,808.49

Minsheng Life 4,171.78

Union Life 3,498.49

Happy Life 3,067.71

Dragon Life 2,631.91

Ping An Annuity 2,548.52

Guohua Life 2,547.31

Jiahe Life 2,385.04

Huaxia Life 1,939.54

Yingda Taihe Life 1,604.14

Sinatay Life 1,171.98

Greatwall Life 1,122.89

China Post Life 454.33

Aeon Life 229.91

John Hancock Tianan Life 182.20

Ping An Health 79.59

Kunlun Health 70.90

Reward 1.16Source: CIRC



Generali China Life 4,051.56

AIA 3,865.59

Huatai Life 3,741.10

Sun Life Everbright Life 2,949.60

Aviva-COFCO Life 2,791.14

CITIC-Prudential Life 2,691.32

CIGNA & CMC Life 1,281.83

Sino-US MetLife 1,090.94

AEGON-CNOOC Life 956.39

Manulife-Sinochem Life 871.31

Allianz China Life 829.73

United MetLife 706.50

Heng An Standard Life 669.07

ING Capital Life 614.08

AXA-Minmetals 517.30

Pacific-Antai Life 484.06

Skandia-BSAM Life 427.13

Cathay Life 351.46

BoComm Life* 323.46

Great Eastern Life (China) 301.00

Haier New York Life 210.32

Samsung Air China Life 152.05

Sino-French Life 123.81

Nissay-Greatwall Life 99.69

King Dragon Life 70.13

HSBC Life 51.06

Shin Kong - HNA Life 41.51Source: CIRC

Premium income for foreign life insurance companies, June 2010


Premium income for domestic property and casualty insurance companies, June 2010


PICC 81,406.39

Ping An 29,975.38

CIPC 27,042.31

China United Property 10,030.12

CICC (China Continent Property & Casualty Insurance)

6,838.86

Sunshine Property & Casualty 5,593.16

China Life Property & Casualty 5,582.40

Tianan 5,160.41

Sinosure 4,266.67

ABCC 3,731.83

Yong An Property 3,297.65

Alltrust 3,096.02

Taiping 2,670.03

Sinosafe 2,122.40

Du-bang 1,921.89

Tianping Auto 1,738.69

Anhua Agricultural 1,670.05

Bank of China 1,197.85

Yingda Taihe Property 1,078.60

Dazhong 877.18

Chang An Property & Liability 815.16

Min An 794.45

Sunlight Agricultural Mutual 715.55

Ancheng Property & Casualty 693.77

Bohai Property 524.97

Anxin Agricultural 395.70

Dinghe 391.76

Zheshang 385.24

Guoyuan Agricultural 377.02

ZKing 153.31

China Huanong Property & Casualty 106.63

Cinda 31.82

China-Coal 0.00Source: CIRC


Premium income for foreign property and casualty insurance companies, June 2010


Chartis (AIG) 514.67

Mitsui Sumitomo 224.33

Tokio Marine & Nichido Fire 212.62

Samsung Fire & Marine 175.04

Liberty Mutual Chongqing 159.54

Allianz Life 155.59

Zurich 123.05

Winterthur 91.35

Generali China 90.54

Royal & Sun Alliance 85.90

Sompo Japan 77.21

Chubb 70.47

Hyundai (China) 58.85

Cathay 24.47

Groupama SA Chengdu 19.94

Aioi 19.30

LIG 16.57

NIPPONKOA 12.85Source: CIRC


Background comments on participants

Foreign insurance company Background comments††

AEGON-CNOOC Life Insurance Co., Ltd.

700 employees

www.aegon-cnooc.com

Established in May 2002 and headquartered in Shanghai, AEGON-CNOOC Life Insurance Co., Ltd. is a 50/50 joint venture between AEGON Group and China National Offshore Oil Corporation (CNOOC).

Its current registered capital is RMB 1.63 million. AEGON-CNOOC started its life insurance business in Shanghai, China in May 2003. By 2010 it operates in 10 provincial level areas in China. In December 2009 a new company logo was introduced.

Allianz China Life Insurance Co., Ltd.

1,000 employees

www.allianz.com.cn

Allianz China Life Insurance Co., Ltd. (previously named as Allianz Dazhong Life Insurance Co.,) Ltd., was the first European life insurance joint venture established in China. It officially opened in Shanghai on 25 January 1999. The company is jointly invested by the German financial conglomerate Allianz AG and CITIC Trust & Investment Co., Ltd. of China. In September 2009, Allianz China increased its registered capital to RMB 2 billion. The company has established eight branches with over 60 sales service centres, and cooperates with more than 10 bank partners.

American International Assurance Co., Ltd.

2,600 employees

www1.aia.com.cn

American International Assurance Co., Ltd. (AIA), a wholly-owned subsidiary of American International Group, Inc. (AIG), has been serving Asia for over 75 years since its inception in 1931 in Shanghai. In 1992, AIA was the first foreign organisation to be granted an insurance license in China. Headquartered in Hong Kong, AIA has branch offices, subsidiaries and affiliated companies in China in the following cities, Beijing, Jiangsu, Guangdong, Shanghai and Shenzhen. In 2003 AIG companies acquired a 9.9% stake in PICC P&C’s outstanding share capital at its Initial Public Offering in Hong Kong, and reached a co-operative agreement with PICC P&C to develop the accident and health insurance market in China.

Aviva-COFCO Life Insurance Co., Ltd. Group

1,300 employees

www.aviva-cofco.com.cn

Aviva-COFCO Life Insurance Co., Ltd. (ACL) is a joint venture between AVIVA PLC and COFCO group, the largest oil and food importer and exporter in China and a leading food manufacturer. ACL commenced operation in Guangzhou in January 2003. By 2010, ACL’s business had expanded into 10 provinces and 40 major cities. Its current registered capital is about RMB 2.1 billion.

AXA-Minmetals Assurance Co., Ltd.

500 employees

www.axa-minmetals.com.cn

AXA-Minmetals Assurance Co., Ltd. is a joint venture of AXA Group and China Minmetals Group. It was the first Sino-French insurance company in China and also the first life insurer to be approved by the China Insurance Regulatory Commission (CIRC) after the CIRC was established. The company was established in Shanghai in June 1999. In September 2009, its registered capital was increased to RMB 1.205 billion.

CIGNA & CMC Life Insurance Co., Ltd.

2,000 employees

www.cigna-cmc.com

CIGNA was the first American insurance company granted by the Qing Dynasty government and entered the Chinese market in 1897. The joint venture was established in August 2003 in Shenzhen, Guangdong Province. It is the first Chinese life insurance company not to use agents and brokers. Instead, telemarketing is the preferred distribution channel. It has a registered capital of RMB 360 million.

†† The background comments were taken from the CIRC and the respective foreign insurance companies’ websites in June 2010




CITIC-Prudential Life Insurance Co., Ltd.

1,440 employees

www.citic-prudential.

com.cn

CITIC-Prudential Life Insurance Co., Ltd. was the first Sino-British joint venture life insurance company when it was established in Guangzhou in October 2000. CITIC-PRU is jointly owned by China International Trust and Investment Corporation and Prudential UK PLC. CITIC-PRU has a registered capital of RMB 2.115 billion, in which CITIC and Prudential PLC each hold 50%. By the end of 2009, its business had expanded to 11 provincial areas and 31 cities.

Generali China Life Insurance Co., Ltd.

1,120 employees

www.generalichina.com

Generali China Life Insurance Co., Ltd. is a joint venture between Assicurazioni Generali S.p.A. (Generali) and China National Petroleum Corporation (CNPC). The company was approved by the China Insurance Regulatory Commission on 15 January 2002.

It was the first Sino-foreign joint venture insurance company approved for operation by the Chinese authorities after China joined the World Trade Organisation. In February 2006, the company moved its headquarters from Guangzhou to Beijing. In December 2008, the company increased its registered capital from RMB 1.9 to 2.7 billion. As a result, it has the largest registered capital and assets under management among all foreign life insurance companies in China.

Great Eastern Life Insurance Co., Ltd.

200 employees

www.lifeisgreat.com.cn

Established in 1908, Great Eastern Life Assurance is the oldest and most established life insurance company in Singapore and Malaysia. It is a fully-owned subsidiary of Great Eastern Holdings Ltd, the largest life insurance group in Singapore and Malaysia with about S$50.9 billion in assets. Great Eastern is a subsidiary of OCBC Bank. Set up in February 2003 by the Chongqing Government, Chongqing Land Properties Group is a state-owned enterprise under the Chongqing People’s Municipal Government, and is the only foreign life insurance company headquartered in western China. The company offers life, health, accidental death & dismemberment insurances for both individuals and groups to the Chinese market. Each partner contributed 50 percent to its registered capital of RMB 1 billion.

Haier New York Life Insurance Co., Ltd.

450 employees

www.hnylic.cn

Haier New York Life Insurance Co., Ltd., established in 2002 in Shanghai, is a joint venture company partnership between the Haier Investment and Development Co., Ltd. (under the Haier Group of Qingdao), and New York Life International, with a registered capital of RMB 800 million.

It provides its customers with a comprehensive range of life insurance products and services and operates in 15 cities.

Heng An Standard Life Insurance

Co., Ltd.

850 employees

www.hengansl.com

Heng An Standard Life Insurance Co., Ltd. (HASL) is a joint venture life insurance company established in 2003 by Standard Life plc and Tianjin TEDA Investment Holding Co., Ltd. with headquarters in Tianjin.

By June 2010, the registered capital of HASL is RMB 1.652 billion, of which each shareholder owns 50%. (HASL has operating offices in Beijing, Guangdong, Henan, Jiangsu, Liaoning, Qingdao, Sandong, Sichuan and Tianjin.)






HSBC Life Insurance Co., Ltd.

240 employees

www.insurance.asiapacific.hsbc.com

In the third quarter of 2009, HSBC Insurance (Asia) Ltd. launched a jointly held insurance company with Beijing-based National Trust, which is a privately held trust company to offer asset management, investment banking, wealth management and direct investment in China.

HSBC Insurance and National Trust each holds 50 per cent and it has a registered capital of RMB 500 million, funded equally by both shareholders. Headquartered in Shanghai, the joint venture is granted to operate Life, Health and Personal Accident insurance and re-insurance.

Huatai Life Insurance Co., Ltd.

1500 employees

www.huatailife.com

Huatai Life Insurance Co., Ltd. is the first nationwide life insurance company in China incorporated by a property and casualty insurance company. Its parent company, Huatai Insurance, is the first nationwide joint-stock property insurance company in China which American based ACE Group is the biggest shareholder. Huatai Life formally commenced its business in 2005. Headquartered in Beijing, the business scope of Huatai Life includes life insurance, health insurance, accidental injury insurance etc., and related reinsurance business and insurance assets management.

Manulife-Sinochem Life Insurance

Co., Ltd.

11,000 employees

www.manulife-sinochem.com

Manulife-Sinochem Life Insurance Co., Ltd. is the first joint venture established in China. It was created by Manulife (International) Ltd. and the Sinochem Group in November 1996. Based in Shanghai, the joint venture has RMB 1.6 billion registered capital, with 51 percent of ownership belonging to Manulife and 49 percent belongs to Sinochem.

The company has business in nine provincial areas and over 42 cities. It was the Life Insurance Partner in China providing relevant services to the Beijing 2008 Olympic Games.

United MetLife Insurance Co., Ltd.

800 employees

www.metlife.net.cn

United MetLife Insurance Co., Ltd. offers life insurance and savings products to individuals in Shanghai, Nanjing, Hangzhou, Ningbo and Wuxi. In 2004 Travellers Life & Annuity, formerly a subsidiary of Citigroup Inc, gained approval from the CIRC to set up a life insurance joint venture with Shanghai Alliance Investment Co., Ltd. — an investment company funded by the State-Owned Assets Supervision and the Administration Commission of the Shanghai Municipal Government.

In 2005 MetLife acquired Travellers Life & Annuity from Citigroup. The insurer is now called United MetLife. Each of the shareholders holds 50 percent of the company, which has RMB 1 billion registered capital. United MetLife is the first foreign insurance company granted to sell investment linked products.

Pacific-Antai Life Insurance Co., Ltd.

500 employees

www.cpic-ing.com.cn

Pacific-Antai Life Insurance Co., Ltd. (PALIC), is a joint venture between China Pacific Insurance (Group) Co., Ltd. and ING Group N.V. It was established in October 1998 in Shanghai and now has a registered capital of RMB 800 million

The company now has 22 sales and service centres in Shanghai, Guangdong and Jiangsu province. By the end of 2009, the company has a gross premium income of RMB 9.8 billion.




Samsung Air China Life Insurance

Co., Ltd.

200 employees

www.samsung-airchinalife.com.cn

Samsung Air China Life Insurance Co., Ltd. is a joint venture between China National Aviation Holding Co., and the South Korean company Samsung Life Insurance Co., Ltd. The company was licensed in May 2005 in Beijing. Its current registered capital is RMB 500 million.

Sino-French Life Insurance Co., Ltd.

60 employees

www.sfli.com.cn

Sino-French Life Insurance Co., Ltd. is a joint venture between stated owned China Post and French based CNP Assurance. The company was founded in December 2005 in Beijing, with a registered capital of RMB 200 million equally held by the two partners. The premium income of the Sino-French Life was RMB 270 million in 2009.

Sino-US MetLife Insurance Co., Ltd.

430 employees

www.metlife.com.cn

Sino-US MetLife Insurance Co., Ltd. began its operation in March of 2004. At the time of establishment, it was a joint venture between US Metropolitan Life Insurance Company and Capital Airports Holding Company of China. In February 2010, the latter sold its shares to Shanghai Alliance Investment Ltd., which is the domestic partner of United MetLife Insurance Co., Ltd.

Although now owned by the same domestic and foreign partners of United MetLife, Sino-US MetLife Insurance Co., Ltd. is a Beijing-based insurance company and is still currently operating under the original company name. The current registered capital is RMB 800 million at each partner holds 50 percent.

Skandia-BSAM Life Insurance Co., Ltd.

300 employees

www.skandia-bsam.cn

Skandia-BSAM Life Insurance Co., Ltd. was established as the first life insurance joint venture company headquartered in Beijing in January 2004 by Skandia Insurance Co., Ltd., now a member of the Old Mutual Group, and Beijing State-Owned Assets Management Co., Ltd.

In March 2010, Guodian Capital Holding Co., Ltd., a subsidiary of China Guodian, acquired all shares from the domestic partner. Its registered capital is RMB 520 million and each partner holds 50 percent respectively.

Sun Life Everbright Life Insurance

Co., Ltd.

1000 employees

www.sunlife-everbright.com

Sun Life Everbright Life Insurance Co., Ltd. is a joint venture between Canada’s Sun Life Financial Group with China’s Everbright Group. It opened for business in Tianjin in April of 2002. In June 2004 the joint venture established a branch in Beijing. In November 2009, each of the shareholders increased registered capital of RMB 150 million, which brought the total from 1.2 billion to 1.5 billion. It now has branches in seven provincial areas.




Allianz Insurance Company

32 employees

www.allianz.cn

Allianz Insurance Company Guangzhou Branch commenced operations in February 2003, as Allianz Group’s first non-life insurance operation in China. It offers a series of insurance services including property, liability, marine, engineering, motor and domestic credit insurance, as well as short-term health insurance and accident insurance, for domestic and foreign clients within the province of Guangdong including Shenzhen. Meanwhile, Allianz is focusing on business expansion and enhancing its service network in Guangdong province.

In July 2010, it gained approval from the CIRC for transforming the company from a branch into a subsidiary with a status of independent position of legal person. This is the precondition for out-branching in other provinces and municipalities outside of Guangdong.

AXA General Insurance Company

China Ltd.

120 employees

www.axa-ins.com.cn

AXA acquired 100% of Winterthur Group in June 2006.

Winterthur obtained an insurance license to operate a full foreign owned branch in Shanghai in 1997. Its business operation is confined to general non-life insurance business targeting solely foreign-funded enterprises, Sino-foreign joint cooperative ventures, etc.

Chartis Insurance Company China Ltd.

1,000 employees

www.chartisinsurance.com.cn

Former AIG General Insurance China Ltd. Re-branded to the current English name in July 2009 globally while the registered Chinese name remained unchanged.

In September 1992, AIG was first granted an insurance license to operate property insurance businesses in Shanghai. In 2007, AIG was approved to have fully owned subsidiary in China, with branch offices in Beijing, Shanghai, Guangdong Province and the city of Shenzhen.

Chubb Insurance (China) Co., Ltd.

80 employees

www.chubb.com.cn

Chubb has operated in China since September 2000 through the establishment of the Shanghai branch of its operating insurer, Federal Insurance Company. In 2008, Chubb converted Federal Insurance Company Shanghai branch into a wholly foreign owned company with the approval of the CIRC. It has a registered capital of RMB 220 million.

Groupama SA

169 employees

www.groupama.com.cn

Groupama SA Chengdu Branch was established in October 2004 and signed a cooperation agreement with the Agricultural Bank of China. As the first wholly foreign-owned non-life insurer in Sichuan Province, its business includes property, health, commercial motor, cargo and personal accident insurance by 2010. It also became one of the pilot insurance companies for political agricultural insurance in Sichuan in 2007.


†† The background comments were taken from the CIRC and the respective foreign insurance companies’ websites in June 2010.



Liberty Mutual Insurance Co., Ltd.

100 employees

www.libertymutual.com.cn

In November 2003, the CIRC granted Liberty Mutual Insurance Company permission to begin conducting business in the city of Chongqing. While the largest line of business is motor (on the commercial side), the company provides an array of other property and casualty products such as fire, cargo, liabilities, homeowners, and personal accident insurance.

In July 2007, the former Liberty Mutual Chongqing Branch was granted to transform into a wholly foreign owned subsidiary in China, and renamed to Liberty Insurance Co., Ltd. In February 2010, Liberty increased its registered capital to RMB 355 million. Liberty is the only foreign property insurance company based in Chongqing. It has a branch is Beijing and is preparing for another one in city of Hangzhou.

Mitsui Sumitomo Insurance (China)

Co., Ltd.

270 employees

www.ms-ins.com.cn

Created from a merger in 2001. Mitsui Sumitomo Shanghai Branch was established in May 2001, and became the second 100% Japanese-owned insurance company in China. In September 2007, the Shanghai branch was incorporated to Mitsui Sumitomo Insurance (China) Co., Ltd (MSI China), a fully invested subsidiary if MSI Group.

MSI China has a capital of RMB 500 million. Its main business includes Property & Casualty Insurance, Short-term Health Insurance, Personal Accident Insurance, and the Reinsurance of the insurance above. MSI China established its Guangdong Branch in August, 2008 as the first Japanese insurance branch in Guangdong Province. In addition, its second branch opened in Beijing in January 2010.

Sun Alliance Insurance (China) Ltd.

110 employees

www.rsagroup.com.cn

Royal & Sun Alliance’s (RAS) links with China go back to 1853 when it first operated in Shanghai. In 1992, Royal & Sun Alliance returned to China and opened a representative office in Beijing, becoming the first European insurer to set up an office in China. In April 1998, the Chinese Premier of the State Council announced during his visit to the UK that Royal & Sun Alliance would be the first British insurance company to be granted an operating license in China. On 8 October 1998, Royal & Sun Alliance Insurance PLC Shanghai branch was officially opened by the British Prime Minister.

RSA was granted to convert into a wholly owned subsidiary in 2007. Sun Alliance Insurance (China) Limited was formally authorised & launched on March 2008 and capitalised at RMB 500 million, with its Head Office in Shanghai. Now it has a branch in Beijing opened in October 2009.

Tokio Marine & Nichido Fire Insurance Co.,

(China) Ltd.

250 employees

www.tokiomarine.com.cn

As the first Japanese insurance company in China, Tokio Marine & Nichido Fire Insurance Co., (China) Ltd. (TMNF) was authorised to open a branch in Shanghai in September 1994. In July 2008, the Shanghai branch got its approval to restructure into a wholly owned subsidiary.

TMNF China is especially good at Cargo and Transportation insurance, which ranked number one in the Shanghai market by the end of 2007 with a market share of 17.8%.

Zurich Insurance Company

120 employees

www.zurich.com.cn

In October 2005, Zurich received the approval from the CIRC to prepare the general insurance branch in Beijing. In May 2006, Zurich obtained the operation approval from the CIRC to open a general insurance branch with a registered capital of RMB 200 million. Zurich Insurance Company Beijing Branch focuses on serving corporate customers, including foreign customers with activities in China and large and medium sized enterprises in China, particularly those with business overseas.




American Chamber of Commerce in China White Paper – Insurance Section 2010

China’s insurance market has maintained steady growth and become the world’s sixth largest market. This is partly attributable to positive structural changes, improved market order, better risk control and a progressive legal framework under the direction of the China Insurance Regulatory Commission (CIRC). US insurers have continued confidence in and commitment to the China market and have increased investment, continued best practices transfers to their China operations and made other developmental contributions to the insurance industry.

However, market access issues continue to restrict US and other foreign insurers in most cities, limiting the scope of their geographical expansion, investment options and product offerings. These barriers continue to deny Chinese consumers and society the full benefits of a robust and competitive insurance industry, preventing individuals from effectively insuring their health and property, and companies from more efficiently managing their risk. Although the insurance industry grew 39 percent from 2007 to 2008, foreign insurers’ market share actually shrank from six to four percent over the same period.

As insurance plays an increasingly important role in China, all insurance companies, including those with US investment, actively contribute. A level playing field is critical, as a fair and open business environment benefits consumers and the long-term interests of the industry.

Significant Developments

On 1 October 2009, the new Insurance Law came into effect. It creates favourable conditions for the development of the industry through expanded scopes of business and investment channels for insurance companies, improved conduct requirements for market participants and strengthened consumer protection. US insurance companies welcome the new Insurance Law and believe China’s insurance industry will benefit as the new Law helps to level the playing field. AmCham-China commends the CIRC for inviting public comments on the Insurance Law and corresponding administrative rules’ revision processes. AmCham-China looks forward to further engagement with the CIRC.

Throughout 2009, the CIRC continued to direct the industry towards profit-driven growth through balanced structure and rational market conduct. It devoted significant supervisory resources to intensify enforcement against irregularities, investigating thousands of cases and penalising offenders, even at senior levels.

Starting in January 2009, the CIRC also introduced a risk-based supervisory approach, which classifies insurers into four groups based on performance indicators in solvency, corporate governance, fund utilisation and operations, each resulting in different supervisory actions. While both approaches may work well with current market conditions, in the long run, the risk-



based approach will more efficiently use regulatory resources and impose less onerous regulatory burden on prudent firms.

Specific Issues

International insurance companies want to compete fairly in the China market. Although they are allowed market entry, their ability to compete fully is hampered, to the detriment of Chinese consumers. An overwhelming number of American and other foreign insurers operating in China are registered in China and are therefore Chinese companies; yet, they still face regulatory discrimination. Currently, insurance industry competition is restricted in the areas below.

Geographical Barriers

Branch Office and Sub-branch Office

The establishment of branches and sub-branches is critical to market expansion in a country as large as China. Yet, as described in the 2009 White Paper, there is a persistent pattern of unequal treatment.

Article 81 of the new Insurance Law provides that the insurance regulatory authority under the State Council shall examine applications to establish a branch and render a decision whether or not to approve within 60 days of the receipt of application materials. Qualified foreign insurers experience much

longer waits before receiving approval to establish branches.

Chinese-invested insurance companies, even if newly established, characteristically receive multiple branch approvals concurrently on the same day or within days of each other. Conversely, foreign-invested insurance companies rarely, if ever, receive multiple branch approvals concurrently.

Moreover, the central-level CIRC often reserves for its own examination and approval matters involving the establishment of sub-branches by wholly foreign-owned and Chinese-foreign joint venture (JV) insurance companies. This has triggered delay concerns among foreign insurers regarding the sub-branch approval process. It also impedes the expansion of foreign-invested insurance companies to the central and western regions of China where the need for capital and economic development is greatest. As the new Insurance Law becomes effective, AmCham-China urges even and uniform application of the Insurance Law for branch establishment by foreign companies.

A separate barrier to geographic expansion in the Administrative Measures on Insurance Company Management is the requirement that an insurance company have no record of penalties imposed during the previous two years. Some AmCham-China companies


have been penalised for minor infractions and are thus prohibited from establishing branches and sub-branches for two years at a time. We believe that such prohibition should apply only to serious violations, lest responsible insurance companies be restricted from offering their products to consumers in some localities.

Investment Barriers

Equity Cap on Life JVs

Freedom to capitalize the business and reap resulting profits encourages insurance companies to invest and grow their businesses, as is true in other industries. The 50 percent cap on foreign-invested personal insurance companies is a major disincentive for foreign insurers to invest, introduce advanced products and otherwise serve the China market. All too often, their partners are either unwilling to make additional investments needed to expand the business, or are mere rent-seekers awaiting an opportunity to cash out without contributing beyond the initial share of the JV’s registered capital.

Dual Investment

In a late 2007 draft rule governing management of equity in insurance companies, the CIRC barred foreign insurers from simultaneously investing in multiple entities in China engaged in the same business. The rule was never formally enacted, but its spirit seems to be in effect, as no foreign companies have been approved for dual investments since 2008.

In September 2009, the CIRC issued a revised draft rule for public comment. It states that “two or more insurance companies (defined as companies with less than 25 percent equity holding by foreign investors), if controlled by the same entity or mutually controlled, shall not enter into business of the same competitive nature or of a conflict of interest.” The definition of “control” remains vague and it is unclear if foreign companies can make dual investments in two domestic companies without “control.” AmCham-China recommends that for the sake of clarity and transparency, the CIRC explain its current rules and confirm that dual investments by foreign insurers are permissible within reasonable parameters.

Foreign Currency Conversion

US insurance companies have committed to the China market and are increasing China operations investment for growth and solvency purposes. However, when foreign funds are wired in, they have to stay in designated bank accounts until they are converted into renminbi (RMB). During this “parking period”, the funds are subject to great currency exposure as the RMB has tended to appreciate over time. Moreover, the process of converting foreign currency into RMB is usually lengthy and the approved amount of conversion is often uncertain. This process, in addition to creating an unstable environment for foreign insurers, also restricts foreign insurers’ ability to pay claims to Chinese clients in RMB in a timely manner. AmCham-China therefore



suggests that for the sake of creating a predictable investment environment for foreign insurers, the procedure for foreign currency conversion be expedited and made more transparent.

Product Barriers

Mandatory Third Party Liability Insurance for Auto (MTPL)

Currently, foreign insurers are not allowed to write MTPL coverage. This restriction has effectively blocked foreign firms from China’s auto insurance market, which accounts for 70 percent of the property and casualty (P&C) market. MTPL has received tremendous public attention, sometimes controversial, since its inception. As MTPL moves into its third year, underwriting losses have arisen in many provincial markets. The underwriting losses in the auto insurance segment have impacted the overall P&C sector.

By comparison, the US private passenger auto segment has been profitable over the past 10 years, attributable to superior risk control, pricing and data management skills. These are standard practices in mature markets, but have yet to be utilised in China. Opening MTPLwill attract foreign companies and encourage them to bring best practices to China to improve the performance of MTPL and the auto insurance market as a whole. Such improvements will benefit industry and consumers in the long run.

Political Risk Insurance (PRI)

PRI enhances foreign trade and investment by protecting companies from financial losses caused by events that are political in nature, (i.e., acts or events such as government expropriation or nationalisation in a foreign country where the company operates). Such coverage is increasingly important as Chinese companies follow the “Go Out” overseas trade and investment policy, particularly in countries with less mature governance systems that are susceptible to sudden changes in law or policy.

In China, however, the only PRI provider is a government monopoly (Sinosure) sometimes acting in cooperation with multilateral development institutions. The barrier to market entry for all private insurers harms Chinese traders and exporters by limiting the availability and range of PRI alternatives. Although several foreign companies have extensive experience and worldwide networks to serve their PRI customers, they cannot make their capabilities available to Chinese customers.

Limitations on International Brokers

Under current rules, international brokers are limited to large-scale commercial risks. This restriction has effectively blocked foreign brokers from other lines of business such as small and medium-sized enterprises (SME), which contribute 60 percent of China’s GDP. SMEs are largely underserved by insurance because



SMEs have low risk awareness and insurers have high distribution costs. International brokers can bridge the gap with their broad experience and risk management expertise. In addition, international brokers will provide strong support for SMEs going overseas by using their global networks.

Enterprise Annuities

AmCham-China applauds the Chinese government for beginning to include enterprise annuities as supplemental coverage in the social insurance policy framework. We note, however, that the qualification process is rather opaque and complicated, discouraging international companies from participating in this under-served market. As a consequence, enterprise annuities are likely to expand more slowly and in a more limited range of products from less experienced providers than if the process is made less complicated and more transparent.

Recommendations

• Ensure uniform enforcement of the new Insurance Law and allow foreign insurance companies to enjoy national treatment by granting new branch licenses on a concurrent basis

• Remove requirements for foreign insurance companies to establish JVs in order to enter the personal insurance market, or at the very least, remove the current 50 percent equity cap

• Permit foreign insurance companies to make dual investments in entities in the same line of business within reasonable parameters (to be clearly defined)

• Open MTPL and PRI to foreign P&C carriers

• Allow international brokers to provide brokerage services to Chinese SMEs

• Expedite and increase the transparency of the process of converting foreign currency into RMB



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About PricewaterhouseCoopers

PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

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The PricewaterhouseCoopers firms in China, Hong Kong and Singapore provide a wide range of services to help organisations solve business issues, identify and maximise opportunities. Our industry specialisation enables us to identify trends and customise solutions for your sector of interest. Each line of service is staffed with highly qualified, experienced professionals and leaders in our profession. These resources, combined with our global network, allow us to provide the support you need wherever you may be located.

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Financial Services

The ongoing transformation of the financial services industry, through the key drivers of technology and insurance, is dramatic and complex. As legal barriers fall between the various components in the industry, the financial services sector is being shaped by megatrends such as convergence, consolidation and globalisation. Each of these megatrends has a significant impact on the way our clients manage and think about their businesses.

We have the largest specialist financial services practice in mainland China and Hong Kong. Our strategy is to bring significant business advantage to our clients through combining our global multidisciplinary teams, integrated across industry sectors, geographies and functional skills to bring our global best practices and creative problem-solving skills to bear.

PwC China has been at the forefront in working with foreign insurance companies in mainland China to move into new markets, introduce new types of products and comply with the growing body of regulatory requirements. We have worked with foreign insurers to develop and implement bancassurance strategies, enter the health and group markets, obtain regulatory approval for new branches, corporate structures and the launch of new products. PricewaterhouseCoopers has also worked alongside many foreign investors looking to take strategic stakes in domestic insurers and other financial institutions.

Some relevant PwC thought leadership and other publications include:

• Countdown to Solvency II (July 2010)

• What investment professionals say about financial instrument reporting (June 2010)

• China Insurance Journal (May 2010)

• The Chinese Insurance Market: Is this the last, best chance for multinational insurers? (April 2010)

• Solvency II: A guide to the new regime (March 2010)

• 13th Annual Global CEO Survey — Insurance summary (February 2010)

• Insurance Digest (January 2010)

• Making sense of the numbers: Analysts’ perspectives on current and future reporting in the insurance industry (November 2009)

• Asia Pacific Insurance Tax News (November 2009)

• Emerging from the storm: The day after tomorrow for insurance (September 2009)

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Raymond Yung — BeijingPricewaterhouseCoopers China+86 (10) 6533 [email protected]

Simon Copley PricewaterhouseCoopers Hong Kong+852 2289 [email protected]

Insurance

Shu-Yen Liu — BeijingPricewaterhouseCoopers China+86 (10) 6533 [email protected]

Peter WhalleyPricewaterhouseCoopers Hong Kong+852 2289 [email protected]

Investment Management

Robert Grome PricewaterhouseCoopers Hong Kong+852 2289 [email protected]

Alex Wong — ShanghaiPricewaterhouseCoopers China+86 (21) 2323 [email protected]

Financial Services

Mervyn Jacob PricewaterhouseCoopers Hong Kong+852 2289 [email protected]


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Insurance contacts

Hong Kong

Peter WhalleyInsurance Industry Leader, Hong Kong+852 2289 [email protected]

Rex HoTax Partner+852 2289 [email protected]

Beijing

Shu-Yen LiuActuarial Practice Leader, Asia+86 (10) 6533 [email protected]

Tom LingPartner+86 (10) 6533 [email protected]

Shanghai

Alex WongPartner+86 (21) 2323 [email protected]

Singapore

Alywin TehInsurance Industry Leader, Singapore+65 6236 [email protected]

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For additional copies, please contact Anna Lai on +852 2289 8719 or at [email protected]

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Foreign insurance companies in C

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