The Chinese Insurance Market Asia-Pacific October to December 2010

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1 The Chinese Insurance Market Asia-Pacific October to December 2010 In this issue Issue 15 (October to December 2010) Welcome to Issue 15 of the China Newsletter, covering developments in the Chinese insurance market in the fourth quarter of A long awaited piece of news is that AIA successfully floated on the Hong Kong Exchange, making it the biggest Asia Pacific life insurance IPO. The IPO raised USD 20.5 billion after the exercise of the greenshoe option. Another potential IPO expected by the market is the flotation of New China Life. The domestic life insurer finally received a long-awaited capital boost in late November 2010 with RMB 14 billion raised in a shareholder reorganisation. This quarter has seen active acquisitions between banks and insurance companies. Industrial and Commercial Bank of China ( ICBC ) has confirmed it is investing into AXA-Minmetals Life, taking a 60% stake in the company, while shareholdings of existing shareholders AXA and Minmetals are to reduce to 27.5% and 12.5% respectively. The shareholding of Pacific Antai has also changed with China Pacific Insurance Group ( CPIC ) selling its shares. The new shareholders are China Construction Bank ( CCB ) with 51% and China Life (Taiwan) 19.9%, with the rest held by domestic shareholders. Standard Life announced that it has not been possible to reach agreement with Bank of China ("BoC") over the sale of a majority interest in Heng An Standard Life.. Regulatory changes continued to impact the industry. The China Banking Regulatory Commission ( CBRC ) issued a notice on further strengthening compliant sales and risk management of bancassurance business to effectively protect the interests of bank customers. The China Insurance Regulatory Commission ( CIRC ) introduced rules to regulate incentive plans for insurance intermediaries, regulate telemarketing and the issuance of subordinated debts for insurance companies. We hope you continue to find this Newsletter interesting and informative. We would particularly like to receive your feedback on how we can improve this Newsletter over time to increase its value to you. Towers Watson Risk Consulting and Software, China Industry statistics Market update Potential entrants Expansion and capital injection Regulatory update CBRC strengthened compliant sales and risk management of bancassurance business for commercial banks CIRC set up new rules for life insurance for minor children CIRC regulated incentive plans for insurance intermediaries CIRC regulated the telemarketing and phone interview process in the life insurance industry CIRC released draft administrative rules on subordinated debts Beijing allows no-claim bonus for commercial motor insurance Distribution Agency Bancassurance Agency companies and insurance brokers Products Personnel changes Contacts towerswatson.com 1

2 Industry statistics January to November 2010 According to the CIRC, the Chinese insurance industry generated gross written premiums of RMB 1,344.0 billion from January to November 2010, up 32% compared with the same period last year. The contribution of life premiums was RMB billion, up 32% compared with the corresponding period in The balance of premium income came from non-life insurance (RMB 353 billion) and personal accident and health (RMB 88.1 billion) up 34% and 19% year-on-year respectively. Life insurers Domestic life insurers gross premium income grew by 31% to RMB billion from January to November 2010, accounting for 95% of total life premiums received nationally. Most major domestic insurers reported growth from January to November this year. China Life reported a 14% increase in premium income, standing at RMB 312 billion. Ping An Life took the second position with premium income of RMB billion, up 21% compared with the corresponding period last year. New China Life grew rapidly, up 45% in the first eleven months this year, with income of RMB 88.2 billion compared with RMB 60.8 billion in the same period last year and is now ranked number three. This was followed closely by CPIC and Taikang Life who reported 40% (to achieve RMB 86.2 billion) and 37% (producing RMB 81.8 billion) year-on-year growth in premium revenues respectively. Among the next tier domestic players PICC Life reported a 58% year-on-year increase with premium revenue standing at RMB 77.3 billion. Both Sunshine Life and Sino Life have expanded in the first eleven months of this year, with RMB 14.0 billion and RMB13.9 billion premium income, up 298% and 123% respectively. Foreign companies generated gross premium income of RMB 53.5 billion in the first eleven months this year, up 43% compared with the corresponding period last year. AIA showed a 5% year-on-year growth in premium income and stood at RMB 7.6 billion. Huatai Life reported a 47% increase in premium income of RMB 5.8 billion. Generali China Life showed a 59% year-on-year growth to RMB 5.7 billion, boosted largely by its bancassurance channel. This was followed closely by CITIC-Prudential and Aviva- COFCO which reported 39% and 20% year-on-year growth in premium revenues of RMB 5.0 billion and RMB 4.5 billion respectively. BoComm Life Assurance has also had large year-on-year growth of 286% with premium income of RMB 2.9 billion. Non-life insurers Domestic non-life insurers gross premium income grew by 33% and stood at RMB billion from January to November of Foreign companies gross premium income reached RMB 3.9 billion, up 33% compared with the same period last year. PICC Property & Casualty Insurance (RMB billion), Ping An Property & Casualty Insurance (RMB 55.6 billion), and China Pacific Property Insurance (RMB 46.7 billion) remained the top three non-life insurers, with 66.4% market share in terms of premium income by the end of November this year. These three insurers achieved premium growth of 27%, 59%, and 48% respectively. Chartis Insurance Company China Limited remained the top foreign non-life insurer, with premium income of RMB 0.9 billion in the first eleven months this year. This is an increase of 24% compared with the same period last year. Market update Potential entrants Huahui Life Insurance has been approved by the CIRC with registered capital of RMB 1.5 billion. It is funded by 6 domestic companies including Shenyang Coal Trade Group Corporation. The company will be based in Shenyang. XL Reinsurance and XL Insurance, companies of XL Group, have been approved by the CIRC to set up XL Insurance (China) in Shanghai with registered capital of RMB 200 million. China Guodian Corporation and another four companies are preparing to set up Changjiang Property and Casualty Insurance. China Guodian Corporation will be the majority shareholder with about 40% of capital. Fubon Life Insurance Company Limited, a subsidiary of Taiwan's Fubon Financial Holding and Nanjing Zijin Investment Holdings Co., Ltd. signed an agreement to to build a joint venture life insurance company, headquartered in Nanjing and is reported to invest RMB 800 million. Shandong International Trust and Investment Corporation and German ERGO Insurance Group initiated a joint venture life insurance company. The venture will be headquartered in Jinan of Shandong Province. Guy Carpenter & Company, a risk and reinsurance specialist and a member of Marsh &McLennan Companies, has received the Wholly-Owned Foreign Enterprise ( WOFE ) broking license by the CIRC. Hang Seng Bank has indicated that it is looking for a partner to enter the insurance, asset management and securities industries, WellPoint has indicated that it plans to launch a joint venture in late towerswatson.com 2

3 Expansion and capital injection The latest approvals for the opening of new provincial/city branches for both domestic and foreign companies are as follows: Life and health insurance companies Aviva COFCO AXA-Minmetals Cathay Life CIGNA CMC Life Huatai Life Manulife Sinochem Shin Kong & HNA Life Sino US MetLife Skandia-Guodian Life General insurance companies Cathay Property and Casualty Chubb Property and Casualty Generali Property and Casualty Branch Henan Zhejiang Tianjin Guangdong Hunan Xiamen Hainan Beijing Chongqing Branch Guangdong Jiangsu Shanghai The following insurance companies have received approval from the CIRC to make capital injections in the forth quarter this year. Accumulated registered capital is listed as follows: Insurance companies Registered capital (RMB billion) AXA Minmetals BoCommLife Insurance Cathay Life CIGNA CMC Life China Life Property and Casualty CPIC Property Huatai Life Huaxia Life HSBC Life New China Life Sinatay Life Sino Life Sunshine Life Sunshine Property and Casualty Corporate developments AIA successfully floated on the Hong Kong Stock Exchange in late October The IPO raised USD 20.5 billion after the exercise of the greenshoe option, which brings the total number of shares offered to about 8.08 billion ICBC has confirmed it will invest RMB 1.2 billion into AXA- Minmetals Life, taking a 60% stake in the company, while shareholdings of existing shareholders AXA and Minmetals are to reduce to 27.5% and 12.5% respectively. China Life has signed a comprehensive strategic cooperative agreement with Beijing Municipal Government to take part in the social development of the capital city. China Life has signed a strategic cooperative agreement with China Unicom to further expand the finance and insurance business in the fields of communications and e- commerce. China Life has injected cash capital of RMB 3.0 billion into Guangdong Development Bank. After the transaction, China Life will hold about 3.08 billion shares of Guangdong Development Bank, accounting for 20% of the Bank s registered capital. China Life has signed an agreement with Swiss Life to develop group life insurance solutions for multinational corporation employees in the China Swiss Life global employee benefit network. China Re has partnered with China Life (Overseas) for the development of cross-border Renminbi reinsurance business in Macau, following a similar cooperation between the parties in Hong Kong in August CNInsure Inc. has signed a strategic partnership agreement with China Continent P&C Insurance. Pursuant to the agreement, both parties will work closely on product distribution, development of customised products, data sharing as well as outsourcing of claims adjusting services. China Consruction Bank has increased its shareholding of Pacific Antai from 50% to 51% following the sale of CPIC s shareholding. China Life (Taiwan) holds 19.9% of the company s shares, with the rest of the shares held buy domestic companies. It is also reported that the company will change its name to CCB Principal Life Insurance. Dragon Life has been approved to issue up to RMB 250 million of 10-year subordinated debts. The talks between Standard Life and BoC have broken down with the parties unable to reach agrrement on the terms. Under the proposed deal with BoC, Standard Life s current 50% stake in joint venture Heng An Standard Life would have reduced to 25%. Standard Life have reported that they will continue with the existing partner. Ming An Insurance has been bought by six companies for RMB 1.54 billion. The buyers include Meilan International Airport Co., Ltd. The seller, Tai Ping Group, booked over RMB 900 million on the deal. New China Life received a long-awaited capital boost in late November 2010 with RMB 14 billion raised in a shareholder shuffle. It may have established a precedent and high-price for several insurance company stock launches planned in Zurich Financial Services AG has agreed to purchase 0.28 billion new shares of New China Life in the private placement with total price of around USD 420 million so as to maintain its 20% share in New China Life. In addition, it is reported that Fullerton Financial Holdings (a subsidary of Temasek ) and Standard Chartered has bought shares. Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 3

4 New China Life has signed a strategic cooperation agreement with Taiwan MJ Health Management International Holding Company to develop comprehensive health and insurance cross-industry cooperation. In the next three years, they plan to jointly establish 34 health management centers and the investment is expected to exceed RMB1.5 billion. Sunshine Life has signed a comprehensive business cooperation agreement with China Postal Savings Bank. Sino Life has been approved by CIRC to set up an asset management company. Tianping Auto Insurance is to list on the A-share market by mid If Tianping Auto Insurance successfully completes its IPO, it will be the first property and casualty insurance company listed on the domestic market. Union Life plans to build a retirement community in the Caidian District of Wuhan City, with a total investment of more than RMB2 billion. The regulators fined 14 insurance companies a total of RMB 9.89 million. The companies include PICC Property & Casualty Co., China Life Insurance Co., Ping An Property & Casualty Insurance Co. and China Pacific Property Insurance Company. Regulatory update Regulators to further strengthen compliant sales and risk management of bancassurance business for commercial banks Recently CBRC issued a notice on further strengthening compliant sales and the risk management of bancassurance business to more effectively protect the interests of bank customers. The main focus of the notice is summarised below (some of these were covered in our previous Newsletter): Commercial banks should conduct bancassurance operations on a transparent, fair and unbiased basis, so as to fully protect customers rights and interests. They should fully inform customers of the characteristics, attributes and risks regarding the insurance products and may not mislead the customer. Banks should not misleadingly sell products by means of prize giving, lucky draws, rebates, or giveaways of material objects or insurance policies. Commercial banks should not mix insurance products with saving products, funds, and wealth management products, they should simply compare the return on insurance products to the above mentioned products, they should not overstate the returns on insurance products. The notice also stresses that commercial banks should offer risk alerts by means of risk assessment, fitness evaluation, copying statements of risk alerts, and issuing risk notices, so that suitable products are sold to suitable customers. In principle, each outlet of a commercial bank could only sell insurance products of up to three insurance companies. If more than three companies are represented the outlet should adhere to prudential operations and report to the CBRC local bureau. Commercial banks should only be involved in bancassurance operations that are commensurate with the banks own resources and capabilities instead of beyond their own capabilities. The notice states that only banks staff with appropriate qualifications required for insurance agents can promote insurance products at banks outlets and banks should not allow salespeople from insurance companies to promote insurance products in the bank s outlets. CIRC set up new rules for life insurance for minor children In order to protect the legitimate rights of minor children, the CIRC published new rules regarding parents who purchase life insurance for their minor children. Before an insured turns adult, each insured s total amount insured (death benefit) from all insurance companies should not exceed RMB 100,000. However, the limit does not apply to cash values and to air accidental death benefit amounts. Before signing of the insurance contract, the insurance company should obtain complete information on the insured s other insurances. If the insured s total sum assured from all policies is over the maximum limit, the insurer should inform the client and stop the solicitation. Otherwise, the insurer can insure the difference between the already insured amount and the maximum limit. CIRC introduced rules to strictly regulate incentive plans for insurance intermediaries Insurance intermediaries can only offer equity incentives plans to sales employees who have worked at the current company for over two consecutive years. The equity incentive plan should not have any deceptive and misleading information, including exaggerating or promising some future expected returns, such as possible IPO. The plan should not lure salespeople to purchase additional insurance, or offer clients stocks or inappropriate benefits. CIRC further regulate the telemarketing and phone interview process in the life insurance industry Insurance companies should conduct telemarketing insurance business strictly following CIRC regulations. Without prior approval, no agencies or individuals should conduct any telemarketing business. Insurance companies should choose one specific unified telemarketing number for all regions and cities by June Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 4

5 Insurance companies and agencies should conduct telemarketing according to a strict control system for contact lists and should not call customers who have opted to be on a Do Not Call list. Insurance companies should strengthen telemarketing and phone interview management, set up clearly defined internal control systems, prevent the leaking of client s personal information to, and telemarketing by, other distribution channels. CIRC released draft administrative rules on subordinated debts The purpose of the draft rules is to regulate the private placement of subordinated debts, management and repayment of principal and interest and information disclosure, and to ensure the solvency of insurance companies. The rules set out requirements on the issuance of subordinated debts: The company should be in operation for over 3 years; the forecast solvency ratio for the coming year (from dynamic testing) may be lower than 100%;. the audited net assets for the previous year should be no less than RMB 1 billion. Post the issuance, the accumulated unpaid principal and interest should be no more than half of the net asset value of the company for the previous year. Beijing allows floating rates for commercial motor insurance The Beijing Bureau of the CIRC released floating rates for commercial motor insurance in 2011 in Beijing in December 2010, offering no claims bonuses. The proposal will be implemented on 1 January, The insurance associations of Xiamen and Dalian also proposed to offer no claims bonuses for commercial motor insurance, and are running public consultation on their proposals. Jiangsu pilots different rating in compulsory third party liability. Jiangsu Province has been approved by the CIRC to pilot the different rating in compulsory third party liability. The Jiangsu Bureau is researching the differential rating in different regions and the relevant regulation is expected to promulgate in January Distribution Business written by insurance intermediaries (including individual agents, agency companies, brokers, banks, and postal offices) reached RMB billion for the nine months ended 30 September 2010, up 27% compared with the corresponding period in This represented 82% of gross written premiums collected nationwide. Agency The number of insurance agents reached 3,146,450 by the end of the third quarter in 2010, up 122,838 compared with the end of the second quarter. Gross premium income generated by agents reached RMB billion by the end of third quarter in 2010, an increase of 9% compared with the same period of 2009, accounting for 34% of total premium income. This included RMB billion of life premium income and RMB billion of nonlife premium income, accounting for 37% and 36% of national life and non-life premium in the same period respectively. Insurance agents generated total commissions of RMB 52.4 billion in the three quarters of 2010, an increase of 18% from the same period in Life agents generated RMB 43.1 billion and non-life agents generated RMB 9.3 billion. Bancassurance The number of bank branches and postal offices selling bancassurance products reached 137,315 by the end of the third quarter of 2010, up 30,686 compared with the end of second quarter of This included 108,895 bank branches (up 22,267 branches) and 28,420 postal offices (up 8,419 branches). By the end of September 2010, total premium income from bancassurance (including products sold via bank counters and postal offices) stood at RMB billion, up 41% compared with the same period of 2009, accounting for 35% of premium income. This included RMB billion from bank branches and RMB 71.6 billion from postal offices. The remainder of the business is sold through other channels such as auto dealers, airline counters and at railway stations. Agency companies and insurance brokers Agency companies generated total premium income of RMB 35.7 billion by the end of the third quarter, up 52% compared with the corresponding period last year, accounting for 3% of total premium. Life business accounted for 29% and non-life the remaining 71%. The premium income from insurance brokers reached RMB 22.4 billion by the end of the third quarter, up 34% compared with the corresponding period of 2009, accounting for 2% of total premium. Life business contributed RMB 2.6 billion, non-life RMB 19.3 billion and reinsurance the remaining RMB 0.5 billion. Products While the draft regulations for variable annuities were issued in the previous quarter the approval of the trial launch of these products by a select number of companies has not occurred and is expected in the first quarter of Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 5

6 China Life has introduced a participating endowment product covering dread disease, accidental death and catastrophic death, with the latter offering 3 times the basic sum assured. The plan covers 6 major natural disasters, including earthquakes, floods, typhoons, tsunamis, mudslides, and landslides. Heng An Standard Life has launched a participating endowment plan with a rider offering advance payment for dread disease benefits. The plan covers 38 types of critical illnesses and offers reversionary bonus and terminal bonus. Policyholders can also choose other flexible riders including accidental injury, medical, accidental hospital indemnity and inpatient reimbursements. Manulife-Sinochem Life Insurance has launched a new Critical Illness Package combining protection for critical illnesses, total and permanent disability, death and a maturity benefit. The product is especially customised to suit the needs and affordability of a younger segment of the population. Ping An Life has introduced a child s endowment plan with one uniform premium rate regardless of age and gender. While alive the insured child will get a benefit every two year of 30% of the annual premium.. Taiping Life and CNInsure jointly launched a personal accident plan with premium of RMB 100. The plan offers sum assured of RMB 50,000 for injuries, and RMB 8,000 for accident medical insurance coverage. In addition, it provides advanced payments for accident rescue and hospitalisation expenses. Union Life introduced a participating annuity plan. The insured will receive annuity payment of 6% of basic sum assured starting from the second policy year till age 84. Upon maturity when the insured reaches age 85, the plan will return paid premium and basic sum assured. The plan also offers policy loans of up to 80% of the cash surrender value for emergency purpose. Cinda Property and Casualty Insurance has launched the first product in China to provide coverage for the cost of an investigation to obtain evidence of patent infringement. Sunshine Property and Casualty Insurance has launched the first product in China for small loans for individual business. Policyholders are mainly individuals who need small loans for their business, and the product aims to protect the interests of commercial banks and other financial institutions who offer small loans to the policyholders. Personnel changes Fang Liyu ( 方 立 宇 ) has been named Chief Actuary of Manulife-Sinochem Life Insurance. Gong Xingfeng ( 龚 兴 峰 ) has been appointed Chief Actuary of New China Life. Ju Jin ( 鞠 瑾 ) has been appointed Chairman of the Board of Great Wall Life. Li Fei ( 李 飞 ) has been named Chairman of the Board of Huaxia Life. Li Yakun ( 李 亚 昆 ) has been appointed Chief Actuary of Taikang Pension. Louis Cheung, president of PingAn, has resigned for personal reasons. This followed Dominic Leung s (Chief Insurance Officer) retirement in June Mao Dan ( 毛 丹 ) has been named Chief Actuary of United MetLife. Pan Yuefei ( 潘 跃 飞 ) has been appointed Chairman of China Coal Insurance. Sun Hanjie ( 孙 汉 杰 ) has been named Chief Actuary of PingAn health. Tang Lan ( 汤 澜 ) has been named Chief Actuary of Anbang Life. Wei Botao ( 韦 伯 韬 ) has been named Chief Actuary of Old Mutual-Guodian Life. Xu Chubin ( 徐 初 斌 ) has been appointed Chief Actuary of Zhongrong Life. Yao Lichao ( 姚 立 超 ) has been appointed Chief Actuary of Sinatay Life. Zhao Xiaoqiang( 赵 晓 强 ) has been named Chief Actuary of China Reinsurance (Group). Zhao Yongyi ( 赵 镛 一 ) has been appointed Chairman of the Board of Hyundai Insurance (China). Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 6

7 Contact details Towers Watson s Risk Consulting and Software practice in China is based in Shanghai and Beijing. Please contact Michael Ross and Adrian Liu for life insurance, Alex Zhu for non-life insurance and Steve Kean for distribution consulting. Michael Ross General Manager of Life Insurance Consulting, Shanghai Adrian Liu General Manager of Life Insurance Consulting, Beijing Alex Zhu Head of Non-Life Insurance Consulting, China Steve Kean Products, Distribution and Markets Beijing 29/F Floor, Kerry Centre South Tower 1 Guang Hua Road Chaoyang District Beijing, , China Tel: (8610) Fax: (8610) Shanghai 11/F Floor, Kerry Centre 1515 West Nanjing Road Shanghai, , China Tel: (8621) Fax: (8621) s: michael.ross@towerswatson.com adrian.liu@towerswatson.com alex.zhu@towerswatson.com steve.kean@towerswatson.com Towers Watson is present in seven locations in Greater China, including Beijing, Shanghai, Shenzhen, Guangzhou, Wuhan, Hong Kong and Taipei. The Chinese Insurance Market newsletter has been prepared by Towers Watson for general information purposes only and does not constitute professional advice. The information, opinions and projections contained in this Newsletter are derived from various sources and have not been independently verified by Towers Watson. If you require professional advice or require any further information please contact any of the above named individuals. Errors and omissions excepted. About Towers Watson Towers Watson is a leading global professional services company that helps organisations improve performance through effective people, risk and financial management. With 14,000 associates around the world, we offer solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. towerswatson.com 7