Foreign insurance companies in China

Transcription

1 Foreign insurance companies in China This survey focuses on the strategic and emerging issues surrounding the expanding activities of foreign insurance companies in China. December 2012

2 Table of contents Foreword... 1 Executive summary... 2 Market environment Human capital Distribution Risk management Competition and positioning Regulation Peer review Appendices Partners in success

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4 Foreword Welcome to the 6th edition of PwC s survey on foreign insurance companies in China. This year 31 companies participated in our survey. We would like to thank the chief executive officers (CEOs) and senior executives that contributed their insights to this survey. Their ongoing time, effort and support have continued to make this publication possible. We would also like to thank Dr Brian Metcalfe for his continued research and analyses over the years. The objectives of the survey continue to be: Understanding of the market issues facing foreign insurers in China Building an industry-wide perspective of market trends Gaining insight into the thinking of chief executive officers of China s insurance industry Generating discussion and debate on the best strategic options available to foreign insurance companies Canvassing industry views on how China s insurance market may evolve over the next three years The survey also includes observations on changes to China s insurance marketplace, key risks, the evolving regulatory environment, future opportunities and the state of competition. For foreign property and casualty (P&C) insurers, the opening of the motor third party liability insurance market represents a major opportunity. Motor insurance represents more than 70% of the total P&C insurance market in China. Yet to fully capitalise on this opportunity, foreign P&C insurers have two major challenges in front of them. The first one is accessing historical motor insurance data. In the survey, foreign insurers have expressed concerns over the lack of historical data enabling them to set up appropriate pricing and underwriting processes. The second one is having a robust distribution channel. Foreign insurers, operating mostly in major cities, will need to establish a nationwide distribution network to reach the masses. For foreign life insurers, like their domestic counterparts, have been affected by the rules limiting the number of insurance companies distributing through the bancassurance channel and the continued underperforming of equity markets. Some of the foreign companies have had opportunities to change their business model by reducing their shareholding and partnering with banks. Most recorded good premium income growth as a result of these changes. The new bank-driven model will continue to develop and is likely to become more prominent in coming years. Most foreign life insurers anticipate the need for more capital in the near future. At the moment, the China Insurance Regulatory Commission (CIRC) is developing a risk oriented solvency system. This will impact not only the capital amount required. The enterprise risk management mechanism will also be a significant implementation requirement that will enhance corporate governance and fulfil the principles of risk and return. Solvency II may also impact the ability of European partners to contribute to any future fund raising activities. On the talent side, sales and branch managers have become hiring priorities among life and P&C companies, highlighting both the shortage of skilled talent and their importance to business growth. While many challenges lie ahead, foreign insurers remain optimistic about future growth as they capitalise on the many opportunities in China. Tom Ling Insurance Industry Leader, China Peter Whalley Insurance Industry Leader, Hong Kong Shu-Yen Liu Actuarial Practice Leader, Asia 1 PwC refers to PricewaterhouseCoopers Limited which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. Disclaimer: The materials in this issue generally cover developments up to October 2012, unless otherwise indicated. Foreign insurance companies in China

5 Executive summary 2 Foreign insurance companies in China 2012

6 Background This survey focuses on the strategic and emerging issues surrounding foreign insurance companies in China. The survey attempts to synthesise diverse viewpoints and offer insights into this dynamic market. The survey is based on interviews with CEOs and senior executives of 31 foreign insurance companies. The interviews were undertaken in August, September and October 2012 and were approximately one hour in length. They were conducted in Beijing, Shanghai, Shenzhen, Chengdu and Chongqing. The participating companies in this year s survey are listed in the adjacent columns. Life insurance companies (18) AEGON-CNOOC Life Insurance Allianz China Life Insurance American International Assurance Aviva-COFCO Life Insurance CIGNA & CMC Life Insurance CITIC-Prudential Life Insurance Generali China Life Insurance Heng An Standard Life Insurance HSBC Life Insurance Huatai Life Insurance ICBC AXA Assurance ING BoB Life Insurance Manulife-Sinochem Life Insurance MetLife Insurance Old Mutual Guodian Life Insurance Samsung Air China Life Insurance Shin Kong-HNA Life Insurance Sino-French Life Insurance Property and casualty insurance companies (13) Allianz China General Insurance AXA General Insurance Chartis Insurance Chubb Insurance Groupama Insurance Liberty Mutual Insurance Mitsui Sumitomo Insurance RSA Insurance Samsung Property and Casualty Insurance Sompo Japan Insurance Tokio Marine & Nichido Fire Insurance XL Insurance Zurich Insurance Foreign insurance companies in China

7 Overview Despite the slowdown in China s economy, foreign insurers in this survey continue to forecast strong growth. Although market share for foreign insurers remains insignificant, they continue to press forward in China, the world s second largest economy. They hope that as the economy develops and matures and the regulatory environment becomes more hospitable, they will gain traction, expand their product offerings, develop their brands and increase sales and profitability. Foreign insurers continue to seek better ways to be successful in China. Business models, business mixes and distribution channels are under constant review. Several foreign joint venture relationships have been reconfigured with new shareholders and new shareholding percentages. As a result, some of these revised structures have generated a significant rise in new business. With the entry of banks, we re seeing a paradigm shift in China s insurance market. A number of foreign insurers have been dependant on the bank channel and the full ramifications of these changes are yet to play out. Simultaneously, the agent channel which has been a vital sales conduit for another group of foreign life insurers is evolving. The channel reached its peak in 2010 with around three million life insurance agents. The channel is now in decline. Some foreign insurers have radically overhauled their agent networks and hope that with better qualified, trained, motivated and supervised agents, they will succeed by selling more sophisticated value added products. All the foreign participants view the large and medium sized domestic insurers as formidable and direct competitors. Capital adequacy pressures and the economic environment have slowed the pace of growth for these companies. The foreign insurers may be able to capitalise on this in selected target markets. Participants continue to emphasise the challenging regulatory environment. In this report they cite it as their primary concern, but they also refer to it as the most important driver of change. Opportunities could quickly expand if the regulator chose to open up in a number of key areas. For example on the life side, changes on pensions, retirement products, tax incentives and health insurance could permit the foreign insurers to leverage their knowledge and expertise. A good example on the property and casualty side will be how the foreign insurers gain access to the auto insurance market. Success in this sector will be determined by the regulatory framework and the strategic focus of foreign insurers. But the pace and penetration of all these different insurance markets will be determined by the ability to construct a robust distribution infrastructure. As the report illustrates there are many barriers which limit the foreign insurers from accomplishing access in a market driven way. Against this backdrop, survey participants still view the China market with great optimism. They see new opportunities as consumer needs and the marketplace evolve. They believe they possess the skill sets, expertise and technology to capitalise on Asia s fastest growing insurance market. 4 Foreign insurance companies in China 2012

8 China s place in the Asian insurance market Expected growth of survey participants The foreign life insurers interviewed in this survey continue to predict buoyant growth. One cluster anticipates growth around 15% in 2012 through to A second cluster expects higher growth of around 30% in 2012 and then 25% till These projections look good when compared to a number of the large and medium sized domestic life insurers who anticipate slower growth over the next year. The foreign property and casualty companies also forecast continued growth. On average they anticipate around 20% from 2012 till But some players anticipate a further boost, driven by access to the auto insurance market. The broader Asian insurance market The chart below provided by Swiss Re shows that the average real premium growth between 2002 and 2011 was almost 20%. However insurance penetration remains extremely low at around 2%. While the growth rates in other Asian markets are behind China, life sector penetration levels pale in comparison to Taiwan, Hong Kong, Japan and South Korea. The same is true in the property and casualty sector. Real premium growth is extremely strong but penetration rates are below most other Asian markets. The below chart reflects the continued potential and overall attractiveness to foreign insurers. Insurance penetration % 14% 12% 10% 8% 6% 4% 2% Japan South Korea Taiwan Singapore Australia Australia MY MY TH HK PH Japan PH ID South Korea Taiwan Hong Kong India Thailand SG Indonesia India China China Average real premium growth Life premiums, 2011 (USD 10 billion) Non-life premiums 2011 (USD 10 billion) 0% -10% 0% 10% 20% 30% 40% Foreign insurance companies in China

9 Asian insurance market projections to 2020 Swiss Re s data shows that foreign companies in the life insurance market is around 4% in China compared to Hong Kong (86%), Malaysia (83%), Singapore (63%), Taiwan (24%), Korea (22%) and Japan (17%). Asian Life Companies Market Share Share of foreign companies in life insurance Percentage CN HK IN ID JP MY PH SG KR TW TH VN Note: For India, all joint ventures (JVs) with 26% maximum foreign shares are considered foreign companies in these charts Source: Swiss Re Economic Research & Consulting. The same marked contrast is also found in the property and casualty market where foreign companies in China have around 1%. This is quite different from other Asian markets such as Hong Kong (72%), Malaysia (51%), Singapore (82%), Taiwan (25%), Korea (3%) and Japan (10.5%). Asian Property and Casualty Companies Market Share Share of foreign companies in non-life insurance 2010 Percentage CN HK IN ID JP MY PH SG KR TW TH VN Note: For India, all joint ventures (JVs) with 26% maximum foreign shares are considered foreign companies in these charts Source: Swiss Re Economic Research & Consulting. 6 Foreign insurance companies in China 2012

10 Market share of foreign life companies in China since 2004 The market share of the foreign life insurers peaked at 8.9% seven years ago. It has displayed a slight increase in the first three quarters of 2012 rising to 4.3% over last year s share of just 4%. It remains to be seen whether the re-configuration of some foreign insurers with bank partners may lead to a change in market share. At the same time the slowing growth of domestic insurers may also contribute to an increase in market share figures for the foreign insurers. Market share % 8.9% 5.9% 8% 4.9% 5.2% 5.6% 4.3%* 4.0% Source: CIRC * Relates to January to September 2012 SunLife Everbright is excluded from foreign companies after 2010 Market share of foreign property and casualty companies in China since 2004 As the adjacent chart demonstrates the market share for the foreign property and casualty companies in China has consistently resided at around 1% for the last decade. The figure for the first three quarters of 2012 suggests it has moved up to 1.2%. It remains to be seen whether the opening up of the MTPL (motor third party liability) market will result in a significant increase in market share for the foreign insurers. Market share % 1.2% 1.2%1.2% 1.2% 1.2%* 1.1% 1.1% 1.1% Source: CIRC * Relates to January to September 2012 Foreign insurance companies in China

11 The bank channel The banks continue to play a very important role in the distribution of insurance products. Changes in the last couple of years represent both major opportunities and major threats to the foreign insurers. The market place dynamics changed with new CBRC regulations which limits the sale of insurance products in bank branches to just three insurance companies. In addition, insurance companies were denied the right to place their sales representatives in bank branches. This passed responsibility for selling insurance products over to bank employees. This report found that the three company restrictions had a significant impact on the foreign life insurers. However, respondents agreed that the three company rule was applicable at the branch level and therefore a multiple insurer relationship still exists with the banks. Fourteen life companies indicated that 30% of premium originated in the bank channel. They are unsure how sales and market share may change as the banks develop and rollout their own proprietary insurance products. Agency remodelling In the past there has been concern surrounding the sustainability and future direction of the agent sales channel. Previous reports have highlighted concerns about the high agent turnover rates, their low expertise and skill level, limited income capacity and poor public image. Mis-selling has exacerbated many of these issues. Findings in this year s report reconfirm all of these issues. Participants recorded agents as the channel experiencing the most pronounced decline. Nine of the 14 life respondents that provided details of their agent turnover said they would terminate between 20% to 40% of their workforce. Even more remarkably three participants said they would let go respectively, 70%, 80% and 90% of their agents this year. The foreign life insurers understand that they need to upgrade their training programmes and focus on quality agents who are able to sell more sophisticated insurance products. Talent shortages affect succession planning and growth. The finding that a majority of foreign insurers do not believe that they have the people in place to deliver on their current strategy is remarkable but not unexpected. In past reports, the issue of talent shortages has been emphasised. These results suggest that there is a chronic shortage of experienced personnel. Many participants mentioned that they had highly qualified staff but felt there was a high demand for employees with broad experience spanning 20 years or more. As the industry expands, evolves and matures there is a need for increased continuity and experience. 8 Foreign insurance companies in China 2012

12 Succession planning was also found to be an issue in this report. Although a number of participants have implemented talent management programmes there is concern across the board that companies are also challenged in this area. The research revealed that 26 of 30 respondents believe that talent shortages will have a significant or very significant impact on top line growth over the next three years. Market share predictions The current market share of the foreign life companies is 4.3%. A consensus indicates that they expect market share to be around 5% by This is a small increase given the slowing growth among the domestic insurers. It remains well below the peak of 8.9% achieved in The market share of the foreign property and casualty companies is 1.2%. The consensus for 2015 is between 1% and 2%. This prediction seems conservative in the context of the pending expansion into auto insurance. Geographic expansion The survey found that 13 of the 18 life companies have 60% or more of their business in Tier 1 cities. The same is true for the property and casualty companies where nine of the 13 participants have at least 60% of their business in Tier 1 cities. Prospects for continued growth In general the foreign life companies anticipate continued buoyant growth. One cluster expects around 15% in both 2012 and 2015 and a second cluster predicts faster growth 30% in 2012 and 25% in The property and casualty companies also predict steady growth albeit at a lower rate. One cluster of property and casualty companies predicts growth of 20% (2012) and 20% (2015). Several companies anticipate higher growth than this. Life companies hope this growth will be fuelled by sales of retirement, protection and participating products. On the wholesale side they see growth in health insurance, corporate accident and retirement products. The property and casualty companies on the individual side expect growth in auto insurance, personal accident and health insurance. On the wholesale side the top three future products were identified as enterprise property, liability and marine insurance. In both sectors it must be emphasised that the foreign insurers are growing from relatively small bases. This relative over concentration on Tier 1 cities suggests that better opportunities might be found in the Tier 2 and Tier 3 cities. However, the slow branch approval process limits the ability of foreign insurers to gain traction in secondary cities as they expand and grow. Foreign insurance companies in China

13 Better service and consumer protection A number of participants noted the emphasis on customer service and protection by the CIRC s new Chairman Mr Xiang Junbo (formerly Chairman of Agricultural Bank of China). As a result they anticipate increased monitoring and regulation in these areas. They expressed concern over the damage to the industry through mis-selling by poorly qualified agents. Opening up Auto China is the largest automobile market in the world and auto insurance represents 70% or more of the property and casualty market. Auto insurance was left out of the World Trade Organisation (WTO) Treaty with China and foreign insurers have persistently lobbied to be granted permission to enter the market. Now that their wish has been granted, they are in the process of formulating strategies. It was apparent in this survey that several foreign insurers plan to aggressively enter the market while others may adopt a more measured approach. It is also clear that entry will be challenging. The market lacks comprehensive meaningful data and will be subject to close regulatory involvement. The foreign insurers with their limited geographic presence and low brand awareness will be challenged as they attempt to gain traction. Change drivers Bank entry into insurance ranks ahead of the regulatory environment as the major driver of change for the life insurers. Capital market developments and capital requirement demands are also key drivers for the life companies. On the property and casualty side the most important drivers are regulations, the economy, the auto insurance market and technology. The influence of the bank channel is much less significant for the property and casualty insurers at this time. Only a few more new entrants There are currently around 50 foreign insurers in China. Participants were more conservative this year in predicting the number of new entrants. Most expect no more than ten new entrants over the next three years. Product mix On the retail side of the life industry, increasing attention is planned for retirement products followed by protection and then participating products. On the wholesale side participants emphasised group health and retirement products. Auto insurance dominated discussion on the property and casualty side followed by personal accident and health insurance. On the wholesale side the top three products were property, general liability and marine insurance. They hope to deploy advanced technologies, leverage expertise gained in other Asian markets and implement creative marketing strategies to attract business. However, they will be subject to both market and regulatory forces. 10 Foreign insurance companies in China 2012

14 Unwavering commitments The life companies continue to believe that their commitment to China is resolute. Fourteen of the 18 participants recorded 9 or higher. This is the highest score since Although ten of the 13 property and casualty companies scored 7 or higher and therefore rank a little below the life companies this is the highest score since Participants also suggested that their Chinese joint venture partners were strongly committed. Seven of the 17 respondents awarded a 10 to their Chinese partners. However, some participants assigned much lower scores. They continue to believe that some Chinese partners would prefer to exit their joint venture relationships. Raising capital As the life insurers continue to grow they need to introduce additional capital. Twelve of 14 life companies confirmed that they have plans to inject capital. An estimate of the projected increase for the 18 life participants forecast that registered capital in 2012 of RMB 54 billion will expand to RMB 83 billion by Foreign insurance companies in China

15 Peer ranking summary A summary of the peer ranking (top three positions) of the 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.. First Second Third Life insurance - Traditional savings AIA Manulife-Sinochem CITIC-Prudential Life insurance - Investment-linked CITIC-Prudential Metlife Old Mutual Guodian/ICBC-AXA Life insurance - Protection AIA Manulife-Sinochem CIGNA CMC/CITIC-Prudential Health insurance AIA CIGNA & CMC Chartis Personal accident insurance Chartis* AIA CIGNA & CMC Auto insurance Liberty Mutual Chartis Samsung Fire & Marine/Allianz Homeowner insurance Liberty Mutual RSA AXA Winterthur Enterprise property insurance Chartis Allianz P&C Mitsui Sumitomo Cargo, transportation insurance Chartis Tokio Marine Zurich Group life Generali Aviva-COFCO AIA Group accident and health Generali Chartis ICBC-AXA Customer relationships AIA Chartis/CITIC-Prudential Geographic expansion Chartis Aviva-COFCO CITIC-Prudential Innovation Chartis AIA Metlife Distribution effectiveness AIA Chartis CIGNA & CMC Marketing strategies AIA Metlife Chartis Technically competent staff AIA Chartis Manulife-Sinochem Brand awareness AIA Chartis CITIC-Prudential * Chartis has recently renamed the company AIG 12 Foreign insurance companies in China 2012

16 Market environment Foreign insurance companies in China

17 Number of branches and subbranches offices Eighteen life companies projected an increase from 170 branches to 249 branches or 46% increase. These totals show some differences with the numbers reported in 2011, due to a different mix of participants. In 2011 a 60% increase over three years was predicted. Thirteen property and casualty companies predict an increase from 39 branches in 2012 to 72 branches by 2015, an 85% increase. They project that the current number of 97 subbranches/offices will expand by 240% to 330 by This figure is dramatically influenced by one participant who anticipates a major change in their distribution strategy. The 18 life companies have currently 900 sub-branches and offices and this is projected to grow by 53% to 1,386 sub-branches/offices by Three life companies account for much of this increase. Each one has more than 100 sub-branches/offices at present and all plan to more than double by Number of agents The 13 property and casualty companies indicated that they have 732 agents and this number will increase to 982 by 2015 a 34% increase. These numbers are very similar to 2011 but disguise the fact that three companies expect a decline in the number of agents. Five companies noted they do not use agents. The 18 life companies recorded that they currently have 86,167 agents and this will expand to 134,380 agents by In 2011 the life participants recorded 100,000 agents and expected a 68% increase by The 2012 numbers show that several large agent driven companies have reduced numbers over the last year and predict more modest increases over the next three years. Number of employees The 18 life companies employ 22,060 in 2012 and anticipate a 37% increase to 30,210. These numbers display similar growth projections to those reported last year. Again they hide steady growth by most participants but less optimistic predictions by a few companies. For example, comparison with three year projections made in 2011 indicate that one company has reduced its 2015 projection by 800 employees and two have adjusted theirs by 400 employees. The 13 property and casualty companies predict much faster employment growth. They expect their current total of 3,907 to grow by 75% to 6,845 by All the participants forecast growth. This is much more buoyant than the 2011 report when total employment was expected to reach 3,500 by Several of the larger property and casualty companies expect robust future growth. Non PRC employees The 18 life companies employ 217 non-prc employees and expect this to expand to 270 by This is a change from 2011 when the three year projection remained static. While most companies predict minimal or no change in the number of non-prc employees, one indicated a decline while another suggested it could add 30 new non-prc employees. 14 Foreign insurance companies in China 2012

18 The 13 property and casualty companies expect non-prc employees to grow 29% to 180 by Two companies anticipate relatively significant increases. The Japanese participants account for more than 50% of the total both in 2012 and Number of individual policy holders Seventeen life company participants provided projections on individual policyholders. Estimates were made for one additional participant. In 2012 participants had 6.85 million policyholders and expect this to grow by 65% and reach 11.3 million by Projections for eight property and casualty companies suggest that policies will expand by 79% in 2015 to over 900,000 individual policy holders. This projection is subject to major variation based on the entry by the participants into the MTPL market. Assets under management All 18 life company participants provided an estimate of their 2012 assets under management and 17 provided projections to Based on the expectations of the 17 companies, the additional company s 2012 figures were also projected to The estimate is that the 2012 assets under management figure of RMB 281 billion will more than double to RMB 674 billion by Registered Capital Projections All 18 life company participants provided data on their registered capital in 2012 and only two declined to project to Based on the estimated increase of 16 companies, a projection was made for all 18 participants. It is estimated that the 2012 figure of RMB 54 billion will grow to RMB 83 billion by Number of corporate policyholders Based on 12 life companies projections and estimates for three additional companies it was calculated that a significant increase is expected. The current number of 22,223 is expected to more than double to 48,080 by Eight property and casualty companies estimated that their corporate policyholders will expand from 23,587 to 41,250 by Foreign insurance companies in China

19 Q Can you identify the major concerns of the Chinese insurance market at present? The primary concern expressed by the property and casualty insurers was the CIRC s strict monitoring process. One Japanese insurer commented that although brokers and agents are also monitored, inevitably it is the insurance provider that receives the punishment. A European insurer commented that the regulator wants to manage everything in the market and this makes it difficult to differentiate services and pursue innovative opportunities. An American insurer suggested that domestic insurers want to write more non-auto business, credit insurance, extended warranty insurance. They also plan to have a greater focus on internet marketing over telemarketing. Foreign insurers argue that they are unable to accurately gauge profitability in the auto sector. This is because of non-existent market data and the future policy directions pursued by the regulator. The property and casualty insurers are also concerned about the shortage of professionals in the marketplace. A Japanese insurer said that in the past it had focussed on the large Japanese corporations that manufactured in China and then exported their products. More recently there has been a growth in Japanese owned SMEs who have a different risk profile than their larger predecessors. In similarity to the property and casualty insurers the life insurers cite regulation as their major concern. The fast pace of regulatory change was criticised with new rules emerging every week. A European insurer contended that the foreign insurers were over-regulated and there was too much hand-holding by the CIRC. A wide range of concerns were listed by the life companies. They included the following comments: Different interpretations and implementation of regulations across provinces The industry has outgrown the talent pool High surrender rates Ineffective distribution channels. The industry had 3 million agents most of whom are low quality Recruitment and training needs to be improved to lift the image of the industry Uncertainty over the granting of branch licenses Recognition of the need by consumers to buy insurance for protection and not investment Loss of consumer confidence as a result of mis-selling. A crisis of trust The trend toward weaker solvency ratios by domestic insurers 16 Foreign insurance companies in China 2012

20 Q What, in your opinion, are the most important developments taking place in China s insurance market at present? The most important development for life insurers was identified as the on-going changes in the regulatory environment. Several commented that the new CIRC Chairman stressed the need for improvements in product quality and customer service. Almost all the life participants drew attention to the expanding role of the banks in insurance. The emergence of the bank insurance companies has led to less business for many foreign insurers. One company noted the increased emphasis on selling insurance for protection rather than investment purposes. Further developments were anticipated in the pension market, this will be influenced by the experience of the pilot pension scheme underway in Shanghai. The pension market has great potential and insurers also see future opportunities in medical insurance. Concern was expressed over the viability of the agent channel where low margins prevail. If they are to survive, agents will have to move up market and sell higher margin products. The key development for property and casualty companies is the opening up of the auto insurance market. Participants expressed concern over the impact of price deregulation in this segment. Historically it has been an unprofitable market and deregulation may drive prices even lower, putting further pressure on profits. Participants also noted that the CIRC continues to tighten regulation of intermediaries. This is expected to lead to further consolidation in the agent channel. The property and casualty insurers also commented on the increased presence of the banks in the insurance sector. One participant contends that the internet will play an increasing role in the distribution of personal lines. Foreign insurance companies in China

21 Q What are the major drivers of change in the Chinese insurance business? Across the 31 participants the most important drivers of change continue to be recognised as the regulatory environment, followed by bank entry and then the economic cycle. Although domestic insurers had a lower score in 2012, they still reached fourth place as a driver of change. The next three drivers, capital requirements, technology and economies all recorded higher values than in previous years Score Regulatory changes Bank entry into insurance Economic cycle Existing domestic insurers Capital requirements Technology Capital Markets Economies of scale Opening up of MTPL market Mergers/Consolidation Global financial crisis New domestic entrants Convergence Existing foreign insurers Other new entrants Liquidity Funding constraints Globalisation New foreign entrants New foreign entrants Based on responses from 31 companies in 2012 and 2010 and 28 companies in 2011, scores for 2011 readjusted 18 Foreign insurance companies in China 2012

22 Life insurance Bank entry outscores regulatory changes on the Top Three list for life companies. Capital markets and capital requirements share third position. Technology appears to be less significant for the life companies relative to the property and casualty companies. This may be because the latter group hope to establish a competitive edge over their domestic counterparts as they deploy new technologies in the auto insurance market. Average score on a scale of 1 to Bank entry into insurance Regulatory changes Capital Markets Capital requirements Economic cycle Existing domestic insurers Economies of scale Technology Other Global financial crisis Based on responses from 18 Life companies Property and casualty insurance The Top Three drivers of change for the property and casualty insurers were regulatory changes, the economic cycle and the opening up of the MTPL market. Technology is also considered to be important. Bank entry into insurance is in sixth position. Average score on a scale of 1 to Regulatory changes Economic cycle Opening up of MTPL market Technology Existing domestic insurers Bank entry into insurance Economies of scale Global financial crisis Capital requirements Mergers/Consolidation Based on responses from 18 Life companies Foreign insurance companies in China

23 AXA, ICBC Launch ICBC-AXA Life JV In recent announcements, AXA, the Industrial and Commercial Bank of China Co Ltd (ICBC) and Minmetals declared the launch of their foray into the China insurance market for life insurance. Officially branded as ICBC-AXA Life, the company recently received official approval from China s State Council and all other relevant governing bodies to do business in the country. This follows the acquisition of 60 percent of the equity stake in AXA- Minmetals by ICBC. ICBC-AXA Life represents AXA s long term commitment to the Chinese market, according to Henri de Castries, Chairman and CEO of AXA. By partnering with ICBC, AXA stands to gain significantly in terms of expertise and experience, bringing diversified and comprehensive insurance coverage for the Chinese market. Prior to the partnership, AXA and Minmetals formed the venture known as AXA-Minmetals and was established in In October of 2010, ICBC acquired a 60 percent equity stake in AXA-Minmetals, resulting in an equity split of 60 percent ICBC, 27.5 percent AXA, and 12.5 percent Minmetals. The equity stake was purchased for 1.2 billion yuan by ICBC and prior to the acquisition, the equity split was 51 percent-50 percent AXA-Minmetals. With headquarters in Shanghai and operations in over 20 major cities and provinces, ICBC-AXA intends to service a vast majority of China. Beijing, Shanghai, and Guangzhou will serve as major service hubs. Some of the products which ICBC-AXA will offer include education, family protection, wealth management, and retirement insurance advice and services. ICBC-AXA will be leveraging ICBC s 282 million clients and expertise in the Chinese financial industry. The strategic move on both parties should prove to set a new precedent as China s power player teams up with Europe s largest insurer. Ambitious plans are in place as ICBC-AXA strives to be the leading provider for insurance in China. In recent statements, Mr. Castries was quoted as saying that Europe looks like Chernobyl before the explosion, indicating forecasts of tumultuous times ahead. The development of ICBC-AXA represents a diversified move for AXA and a new area of opportunity for ICBC. As financial woes continue to haunt the financial industry, the insurance industry represents a stable move despite the large gains that can be achieved through it. The Chinese market is difficult to penetrate due to strict Chinese government oversight and regulation. As such, China represents a significant opportunity due to its sheer size of population. Previously, AXA utilised Minmetals network and Chinese statecontrolled status to break into the Chinese market. However, as Minmetals is a mineral and metal company, AXA stands to gain much more through the help of ICBC s broad reach within the relevant sector. The Chinese market is expected to grow at an average rate of 12 percent per year between 2010 and 2020, according to analysts. Chinese national companies maintained a 95 percent market share on life insurance and 99 percent in damage products, while more than 50 foreign players were struggling to win more of the market for general lines. AXA aims to bypass regulatory brakes which have restricted the company s ability to compete in the past. ICBC has agreed to distribute AXA s product in over 16,000 branches. AXA remains dedicated to the Chinese market and is actively trying to withdraw from activities within Australia and New Zealand. Source: 23 July, Foreign insurance companies in China 2012

24 Life insurance - Traditional savings As in previous years the traditional insurance market is perceived as intensively competitive. Relative to 2011 there has been less change by participants. In 2012, a third of participants have made significant or fundamental change compared to over 50% in Four companies made no changes. Intensive Competition 12.5% 31.3% 6.3% 6.3% Moderate 12.5% 12.5% 18.8% Light None Response No change Minor change Significant operational and Fundamental change in strategy and organisational positioning change Note: Based on responses from 16 companies Shading represents greater than 20% Life insurance - Investment-linked product This sector displays much lower levels of competition than last year. This year 20% view ILP as intensively competitive. In 2011, it was 44%. Only a third of companies have made significant or fundamental changes. Intensive Competition 6.7% 6.7% 6.7% Moderate 13.3% 26.7% 6.7% Light 6.7% 13.3% 13.3% None Response No change Minor change Significant operational and Fundamental change in strategy and organisational positioning change Note: Based on responses from 15 companies Shading represents greater than 20% Life insurance - Protection Insurance providing protection has become much more competitive. Intensive 6.3% 25.0% 25.0% Nine companies viewed it as intensively competitive this year in contrast to just one last year. More than half of participants have made significant or fundamental changes to their strategy. Moderate 6.3% 12.5% 12.5% Light 6.3% 6.3% None Competition Response No change Minor change Significant operational and Fundamental change in strategy and organisational positioning change Note: Based on responses from 16 companies Shading represents greater than 20% Foreign insurance companies in China

25 Health insurance The health sector appears to becoming more competitive. The majority of participants consider it to be intensively competitive. Furthermore, the majority also indicated that they have made significant or fundamental changes. In 2011 no companies recorded making fundamental change and only four said they had made significant changes. This number rose to 10 companies in Intensive Competition 5.3% 5.3% 31.6% 10.5% Moderate 15.8% 21.1% 10.5% Light None Response No change Minor change Significant operational and Fundamental change in strategy and organisational positioning change Note: Based on responses from 19 companies Shading represents greater than 20% Personal accident insurance Personal accident is characterised by moderate levels of competition and only minor change. The responses suggest that competition has declined. Only four of the 23 respondents said they had made significant or fundamental changes. Intensive Competition 8.7% 13.0% 4.3% Moderate 8.7% 43.5% 8.7% 4.3% Light 8.7% None Response No change Minor change Significant operational and Fundamental change in strategy and organisational positioning change Note: Based on responses from 23 companies Shading represents greater than 20% 22 Foreign insurance companies in China 2012

26 Group life The participants continue to view competition to be pronounced in group life. In contrast to last year, many more respondents have made changes to their strategy. In 2011, eleven companies said they had made no changes, in 2012 this was reduced to just four companies. Intensive Competition 6.7% 20.0% 13.3% 6.7% Moderate 13.3% 26.7% 6.7% Light 6.7% None Response No change Minor change Significant operational and Fundamental change in strategy and organisational positioning change Note: Based on responses from 15 companies Shading represents greater than 20% Group accident and health Competition has increased in group accident and health. 75% of respondents now class this product line as intensively competitive. Furthermore, nine companies acknowledged that they have made significant or fundamental changes. These results suggest that this segment has become more challenging. Intensive Competition 8.3% 33.3% 25.0% 8.3% Moderate 4.2% 12.5% 4.2% Light 4.2% None Response No change Minor change Significant operational and Fundamental change in strategy and organisational positioning change Note: Based on responses from 24 companies Shading represents greater than 20% Homeowner insurance In 2012, nine companies answered this question, up from seven companies last year. As in 2011 none of the respondents view homeowner insurance as intensively competitive and only three companies believe it displays moderate competition. Foreign insurance companies in China

27 Auto insurance As the foreign property and casualty companies gear up for the entry into the auto market, they unanimously consider it to be intensively competitive. This confirms why there is such a high level of uncertainty on performance. The majority of respondents indicated that they have made fundamental changes to strategy. In 2011, 43% said that they have made no change. In 2012, 73% have made significant or fundamental changes. Intensive Moderate Light None Competition 27.3% 18.2% 54.5% Response No change Minor change Significant operational and Fundamental change in strategy and organisational positioning change Note: Based on responses from 11 companies Shading represents greater than 20% Enterprise property insurance Enterprise property remains an intensively competitive market. The majority of respondents have made no change to their strategy. Intensive 30.8% 23.1% 7.7% 7.7% Moderate 15.4% 7.7% Light 7.7% None Competition Response No change Minor change Significant operational and Fundamental change in strategy and organisational positioning change Note: Based on responses from 13 companies Shading represents greater than 20% Cargo, transportation insurance There has been limited change in cargo and transportation insurance. It splits 58% to 42% between intensive and moderate competition. Intensive 41.7% 16.7% Moderate 8.3% 16.7% 16.7% Light None Competition Response No change Minor change Significant operational and Fundamental change in strategy and organisational positioning change Note: Based on responses from 12 companies Shading represents greater than 20% 24 Foreign insurance companies in China 2012

28 Q How do you envisage the MTPL market opening up over the next three years? Can you describe how you think the foreign companies will enter the market? The participants were asked to comment on how they believed the foreign insurers would enter the auto insurance market. All agreed the market was extremely competitive and tariff pricing made it difficult to segment and be profitable. One large insurer said that the foreign companies would lose money for the next 10 years. Others believed it would be difficult to make a profit for at least five years. One participant contended that some foreign companies will invest heavily in the segment and may have some success. Another believed that the regulator would offer some incentives to the foreign entrants because they wanted to inject competition and overhaul the sector. Other participants argued that to be successful, foreign insurers needed a network, and with the current pace of CIRC approval at one new branch each year, this was unachievable. Many debated the type of market segments foreign companies would target. Would the foreign companies attempt to enter the market at the top end and hope to develop a cross-selling opportunity to sell other types of insurance to auto insurance clients? Would foreign insurers with connections to auto-manufacturers in their home country try to leverage these networks? (For example, some Japanese, Korean or German insurers might try this path.) Several participants pointed out that auto insurance is sold at the point of sale and dealers are highly independent. They may not be motivated or adequately incentivised to sell foreign insurance products. There was also almost universal curiosity over the strategy being pursued by one of the foreign auto insurers. The group consensus was that this competitor viewed China as a critical long term market and was therefore engaged in an aggressive market share strategy. Distribution challenges will affect the potential success or failure of the foreign insurers. They tended to discount the role of the bank channel. Although successful in other markets around the world, some participants believed that territorial demarcations between the CIRC and CBRC would limit the potential of using the bank channel for autoinsurance. Many participants mentioned the role of 4S dealerships - considered the primary distribution channel. 4S is an abbreviation for Sales, Service, Spare parts and Surveys (consumer feedback). 4S dealerships are authorised by both domestic and foreign car companies. According to the China Automobile Dealers Association, there were 60,000 car distributors in China in 2010 of which 15,000 were 4S dealerships. Foreign insurance companies in China

29 Q Should foreign funded insurance organisations be permitted to apply for multiple licenses across China simultaneously? The majority of participants contend that they should be able to apply for multiple branch licenses simultaneously. They argue that the slow approval of new branches hindered their ability to expand. No Yes Several participants disagree. They believe that the short supply of talent effectively means they could not add branches at a faster pace than the current restrictions permit. Based on responses from 30 companies Q How many branch licenses granted in 3 years? How many would you open if there were no restriction? The chart below shows the 18 life participants and compares the number of branches they will be permitted to open in the next three years versus the number they would like to open if there were no restrictions. For the 18 participants, 59 branches are anticipated, with no restrictions the total would rise 51% to 89 branches. The reason for this disparity is attributed to the tight control of new branch openings by the regulator. Seven participants indicated they would expand at a much faster rate if they were permitted. Q Branch approval process for life companies 10 8 Number of branches Life 1 Life 2 Life 3 Life 4 Life 5 Life 6 Life 7 Life 8 branches expect to open in next 3 years branches would like to open in next 3 years Based on responses from 18 life companies Life 9 Life 10 Life 11 Life 12 Life 13 Life 14 Life 15 Life 16 Life 17 Life Foreign insurance companies in China 2012

30 Q Branch approval process for property and casualty companies The chart below shows the 13 property and casualty participants and compares the number of branches they will be permitted to open in the next three years versus the number they would like to open if there were no restrictions. For the 13 participants, 25 branches are anticipated, with no restrictions the total would almost double to 48 branches Number of branches P&C 1 P&C 2 P&C 3 P&C 4 P&C 5 P&C 6 P&C 7 P&C 8 P&C 9 P&C 10 P&C 11 P&C 12 P&C 13 branches expect to open in next 3 years branches would like to open in next 3 years Based on responses from 13 P&C companies Foreign insurance companies in China

31 Timing on the branch approval process Some interesting contrasts were evident in the approval process when life insurers estimated how long it takes the regulator to grant a new branch license. Seven participants suggested six months, three, nine months and a further five, 12 months. Two life companies implied less than six months Number of months to be granted a branch license Based on responses from 18 Life companies Life 1 Life 2 Life 3 Life 4 Life 5 Life 6 Life 7 Life 8 Life 9 Life 10 Life 11 Life 12 Life 13 Life 14 Life 15 Life 16 Life 17 Life 18 The property and casualty companies faced longer time lines. Most expect around 12 months. Three companies anticipate 6 to 12 months, while another said it had to wait 18 months. In contrast, domestic life and property and casualty companies face much shorter approval periods according to the participants. On the life side, participants typically suggested that branch approval would be granted in one or two months. The property and casualty companies believe their domestic counterparts face a two to four month approval period. Number of months to be granted a branch license P&C 1 P&C 2 P&C 3 P&C 4 P&C 5 P&C 6 P&C 7 P&C 8 P&C 9 P&C 10 P&C 11 P&C 12 P&C Foreign insurance companies in China 2012 Based on responses from 13 P&C companies

32 Q New product approval process Most life and property and casualty participants acknowledged that new product approvals were largely a formality and recorded little or no discontent with the process. While some life companies suggested all that was required was a simple filing others said it might take one to two months. Some life participants indicated that the tax bureau sometimes delays the process. New auto products seemed to be more challenging. One Asian property and casualty insurer said a new auto product required one year for approval. Life insurance companies 9 8 Number of months to be granted a branch license Life 1 Life 2 Life 3 Life 4 Life 5 Life 6 Life 7 Life 8 Life 9 Life 10 Life 11 Life 12 Life 13 Instantly Life 14 Based on responses from 14 Life companies Property and casualty insurance companies Number of months to be granted a branch license P&C 1 P&C 2 P&C 3 P&C 4 P&C 5 P&C 6 P&C 7 P&C 8 P&C 9 P&C 10 P&C 11 P&C 12 Instantly Based on responses from 12 P&C companies Foreign insurance companies in China

33 Q Do you believe lifting the 50% ownership cap will encourage further investments by foreign partners The joint venture life companies believe that lifting the 50% ownership cap would encourage further investment by foreign partners. Fifteen of the 18 participants would support a lifting of the cap. Don t know No Yes A large foreign life insurer drew attention to the apparent paradox where foreign insurers who have reduced shareholdings have grown at a faster pace. In other words those with smaller shareholdings have become more dominant in the marketplace. Based on responses from 18 Life companies Q Do you believe multiple investments by foreign insurers should be allowed? The participants strongly support the principle of multiple investments. The 18 life companies unanimously supported this, while 10 of the 11 property and casualty respondents support the ability to have shareholdings in multiple insurance vehicles. This measure could be interpreted to mean ownership in more than one foreign entity or the ability to have sizeable holdings in both domestic life and property and casualty companies. Some foreign property and casualty companies see acquisition of domestic companies as an entry mechanism into auto insurance. 30 Foreign insurance companies in China 2012

34 Q Do you agree with the need to have two founding shareholders for an Insurance Asset Management Company (IAMC)? Fifteen of 17 life respondents disagree with the need to have two founding shareholders in the formation of a new insurance asset management company. They argue this requirement adds further potential for disagreement and divergence on the future path of these new entities. By the middle of 2012 there were 16 insurance asset management companies in China. One example of a foreign insurer granted approval is AVIVA COFCO. The AVIVA IAMC based in Beijing has registered capital of RMB 100 million. AVIVA COFCO with a 41% shareholding has the following partners; Sinatay Life (34%), China Resources SZITIC Trust (20%) and Shanghai Vstone Capital (5%). Szitic Trust and Shanghai Vstone Investment Management are both market leaders in respectively, trust and private placements. Don t know No Based on responses from 17 life companies Yes COFCO s website states that the new company will offer a variety of asset management services to a range of different types of customers. (COFCO press release 29 June 2012). China regulator OKs insurance investment managers BEIJING--China s insurance regulator has approved nine fund management companies and securities brokerages to manage investments on behalf of insurance companies, the regulator said in a statement on its website Wednesday. The move follows a decision by the China Insurance Regulatory Commission in July to let China s insurers outsource some of their investment operations for stocks, bonds and mutual funds in a bid to reduce costs and improve investment returns. Previously, insurers had to manage these investments on their own. The nine companies are Bosera Asset Management Co., Dacheng Fund Management Co., HuaAn Fund Management Co., HFT Investment Management Co., Huatai-PineBridge Fund Management Co., Harvest Fund Management, Lion Fund Management Co., Haitong Securities Co. and China International Capital Corp., according to the statement. Qualifying companies are required to have at least 10 billion yuan ($1.6 billion) in outstanding assets under management to handle investments of insurers, according to CIRC s new rule. Chinese insurers have struggled with low investment returns and asset depreciation. China Life Insurance, the world s largest life insurer by market value, reported a 26% drop in its first-half net profit this year due to high asset impairments arising from sluggish domestic capital markets. Source: 27 September, 2012 Foreign insurance companies in China

35 Q Did the 2010 CBRC restrictions limiting sales to products from three insurance companies impact your sales? Have more recent changes addressed these issues? It as recognised that CBRC s decision in 2010 to limit bank branches to selling insurance products from just three providers, had a significant impact on foreign insurers. Respondents suggested that various interpretations of the rule have allowed some flexibility. For example, the restriction is to three providers at any branch and not bank wide. This allows the possibility of flexible assortments. One participant claimed that Ping An had benefitted from the rule. Another suggested it could have a long term negative impact on the insurance sector. Restrictions on qualified insurance salespersons at the branch level left the door open to increased mis-selling. 32 Foreign insurance companies in China 2012

36 Q There are currently around 50 foreign funded insurance companies. How many do you anticipate in the market by 2015? There are currently around 50 foreign insurers in China. A sign of industry openness and vitality can be portrayed by new entrants. In this year s survey, participants predicted a modest increase with 20 of the 30 respondents predicting that by 2015 the total population would be between 50 to 59 companies. Predict a significant increase Predict a reduction Four participants predicted a reduction and six an increase. The historical chart below shows that this year s prediction is more conservative than Several companies predicted a slower pace with just one or two new entrants each year. One life company stated that two applications have been refused. 60 to to to 49 Predict a modest increase 30 to 39 Based on responses from 30 companies in or more 70 to to to to to to 29 New entrants referenced included ERGO (Germany) Prudential of America, Fubon Life (Taiwan) and Kyobi Life (Korea). Based on responses from 31 companies in 2012, 26 companies in 2011, 31 companies in 2010, 29 companies in 2009, 26 companies in 2008 and 24 companies in 2007 Foreign insurance companies in China

37 Q Do you believe that some domestic partners would like to leave the insurance business? The foreign life companies firmly believe that there are domestic partners that would like to leave the joint venture. This comment is made at an industry level and does not necessarily apply to participants partners. No comment No 15 companies believe some domestic partners want out Yes Based on responses from 18 companies Q Might there be consolidations? The adjacent chart displays remarkable consistency on the likelihood of further consolidations. In total 93% of this year s participants suggested this will occur. One possible scenario might envisage foreign insurers being permitted to takeover small or medium sized domestic insurers % Yes Based on responses from 15 companies in 2012, 24 companies in 2011, 23 companies in 2010, 29 companies in 2009, 23 companies in 2008 and 20 companies in 2007 Q Are foreign partners that have only 25% shareholdings less committed? The opinion of the foreign life companies was divided on the commitment level of foreign partners that reduced their shareholding below 25% and thereby became domestic companies. No Yes Ten believe that a shareholding reduction does not necessarily equal less commitment. Several participants stated that SunLife (SunLife Everbright) was not less committed to the market. The counter argument, made by a number of participants, drew attention to the loss of management control by foreign partners. Based on responses from 30 companies 34 Foreign insurance companies in China 2012

38 AIG Plans Life-Insurance Joint Venture with PICC HONG KONG U.S. insurer American International Group Inc. AIG said Thursday it will form a joint venture with the life-insurance unit of People s Insurance Co. (Group) of China Ltd., which might put it in direct competition with its former Pan-Asian insurance unit. AIG also said it will buy US$500 million worth of shares in PICC s Hong Kong initial public offering, which seeks to raise up to $3.6 billion. That investment would make AIG the largest foreign shareholder in China s fourth-largest insurance company. It would also mark a reversal for AIG, which was forced by the U.S. government to sell most of its crownjewel Asian life-insurance operation, AIA Group Ltd., to help repay the government for bailing AIG out during the financial crisis. AIA went public in Hong Kong in October 2010, and AIG which traces its roots to an insurance organisation founded in Shanghai in 1919 now owns a 13.69% stake. The planned joint venture may put AIG in competition in China with AIA, the only foreign insurance company with a full license there, obtained after years of lobbying the country s leaders The joint venture will distribute life insurance and other insurance products through a specialised agency force throughout the country, focusing on major cities. PICC makes most of its money from property-and-casualty insurance; its life-insurance business was ranked fifth in China in premiums for the first nine months of this year, according to the China Insurance Regulatory Commission. AIG said it won t sell more than 25% of its PICC shares in the next five years without the Chinese insurer s consent, unless the legal documents for the joint venture haven t been drawn up in the next six months. China s life-insurance market has become one of the largest in the world over the past decade, as strong economic growth drives demand. PICC is selling billion new shares in an indicative price range of 3.42 to 4.03 Hong Kong dollars (44 to 52 U.S. cents). So far it has secured 16 cornerstone investors for its IPO, which are putting up a total of around US$1.72 billion. In addition to AIG, they include state-owned China State Grid Corp., the country s largest power company, which is kicking in $300 million. In Hong Kong, cornerstone investors are guaranteed allotments of shares in an IPO in return for agreeing to hold them for a set period. AIG would own around 2.7% of PICC if the IPO is priced at the top end of the range. It already owns 9.9% of PICC s Hong Kong-listed property-andcasualty unit, PICC Property & Casualty Co which it bought into in Source: Wall Street Journal, 22 November, 2012 Foreign insurance companies in China

39 Q Some have suggested that there is a growing trend in the life sector that domestic joint venture partners would like to leave the relationship. The majority of foreign life insurers continue to believe that there are domestic partners who would like out of the joint venture relationship. They cite domestic partners disappointment with poor performance after seven to ten years. Don t know No Yes Based on responses from 18 life companies Q Are there pressures from your head office to reduce the cost of operations in China? Twenty of the 30 respondents suggested there were head office pressures to reduce the cost of the China operation. However, because most companies are in a growth mode, the pressure is not to reduce absolute costs but instead focus on expense ratios and seek improvements in productivity. No Yes Based on responses from 30 companies Q If you are implementing cost reductions will they be blanket reductions/ targeted reductions? Six companies said cost reductions had been targeted towards areas such as HR costs, back office costs, office space costs, branch costs etc. Ten companies highlighted blanket reductions which emphasised increased operational efficiencies. No reduction Targeted Blanket Based on responses from 20 companies 36 Foreign insurance companies in China 2012

40 Q In your opinion, which category of institutions represents the most significant competitive threat to your organisation over the next five years? The large established domestic insurers such as China Life, Ping An Life, CIPC and New China Life on the life side and PICC, Ping An and CIPC on the property and casualty side continue to represent the greatest competitive threat to the foreign insurers. The new bank subsidiaries that have entered the market in the last couple of years are seen as formidable competitors to the foreign life companies but not the foreign property and casualty companies. The third competitive force is the foreign insurers own peer group. Some of the niche players mentioned by the property and casualty insurers included local agricultural insurers in western provinces such as Sichuan and Qinghai. Score Established domestic insurance companies Bank subsidiaries Foreign insurers already competing your market Start-up institutions (domestic) Foreign insurers entering the market for the first time Niche players Other Based on responses from 31 companies Foreign life companies Foreign P&C companies Q Can you rate the magnitude of the competitive threat of the banks entering the insurance market over the next three years, using a scale of 1 to 10, where 10 represents the maximum threat. The pronounced threat of the banks is illustrated in the adjacent chart which shows that 13 of the 18 life companies rate it at 7 or higher. In contrast, more than half of the property and casualty companies score the threat at 5 or below. Several life participants envisage rapid growth by the bank subsidiaries. One mentioned that capturing new business will be a problem as much of the agency business is renewable premium. Number of companies Life P&C Based on responses from 30 companies in 2012, 18 life companies and 12 P&C companies Foreign insurance companies in China

41 Q What does your life insurance company find the most/least difficult aspects of the Chinese insurance industry? This chart reflects consistency with last year s findings although the regulatory environment shares top place with finding and retaining good personnel. This pushed last year s most difficult issue, domestic insurers, into third position. Innovative product offerings and competition from bank insurers have both moved up reflecting their increased difficulty. Competition from other foreign insurance companies is of insignificant importance. Regulatory environment inspection and rules Finding and retaining good personnel Competition from domestic insurance companies Innovative product / service offerings Competition from bank insurance companies Building a customer base Ownership restrictions Brand name recognition Identifying profitable clients Economy and market volatility Competition from foreign insurance companies Risk management Product/Revenue diversification Taxation Corporate governance Accounting Policy Changes Based on responses from 18 Life companies Increasingly difficult 38 Foreign insurance companies in China 2012

42 Q What does your P&C insurance company find the most/least difficult aspects of the Chinese insurance industry? On the property and casualty side the top three are the regulatory environment, finding and retaining good personnel and domestic competition. These factors are closely followed by brand name recognition which will become critically important as the foreign insurers enter the auto market. The property and casualty insurers placed the economy and market volatility at a much higher rank than their life counterparts, fifth versus tenth position. Regulatory environment inspection and rules Finding and retaining good personnel Competition from domestic insurance companies Brand name recognition Economy and market volatility Competition from foreign insurance companies Risk management Innovative product / service offerings Building a customer base Product/Revenue diversification Identifying profitable clients Corporate governance Accounting Policy Changes (Ministry of Finance IFRS) Taxation Competition from bank insurance companies Ownership restrictions Based on responses from 13 Property and Casualty companies Increasingly difficult Foreign insurance companies in China

43 Q From the perspective of your H.O. has the agenda for your insurance company s China operation changed as a result of the ongoing financial turmoil? (timeframe: last 12 months) Is there any evidence of contagion from Europe? In general, the participants recorded that the on-going financial turmoil in global markets has had minimal impact on their parents agenda for China. Although 11 participants recorded the status quo or neutral, 16 participants believe that there has been a positive response by head office toward China over the last 12 months. Only a few participants suggested there had been any negative carry-over from their European parent and this focussed on the local joint ventures demands for increased capital. Neutral Negatively Based on 18 Life companies Positively Neutral Positively Negatively Based on 13 P&C companies 40 Foreign insurance companies in China 2012

44 Sale of 25% stake in China Joint Venture to Chongqing City Construction Investment Group Adding another leading Chongqing state-owned enterprise to the partnership Great Eastern Holdings Limited today announced that it has entered into a conditional sale and purchase agreement with Chongqing City Construction Investment (Group) Co. Ltd. to sell 25% of its equity interest in Great Eastern Life Assurance (China) Company, Ltd ( GELC ) for a total sum of RMB303 million. GELC is a joint venture between Great Eastern and Chongqing Land Properties Group in China set up in May The company is headquartered in Chongqing, with branches in Shaanxi and Sichuan. The proposed sale is subject to regulatory and other relevant approvals and conditions. Upon completion, GELC will be renamed Zhong Xin Ancheng Life Insurance Co. Ltd. Mr Chris Wei, Group CEO, Great Eastern Holdings, commented China is an attractive market for Great Eastern. Today s announcement is a significant step in the strategic repositioning of our China business and paves the way for future expansion of branch network through further localisation. We are delighted to welcome Chongqing City Construction Investment Group, a leading stateowned enterprise in Chongqing, to the partnership. With their experience and success in Ancheng Property & Casualty Insurance, a general insurance company, Chongqing City Construction Investment Group s entry will strengthen and add value to the partnership. Furthermore, the Ancheng brand is highly-regarded and very well-established in Chongqing. We look forward to leveraging the strength of the brand to enhance the partnership s penetration in the local market and better serve our customers. Mr Hua Yu Sheng, Party Secretary of Chongqing City Construction Investment Group and Chairman of Ancheng Property & Casualty Insurance, said We are pleased to bring on board our strengths and experience in the Chinese market. The combined population of over 150 million in Chongqing, Shaanxi and Sichuan, coupled with increasing urbanisation and growing affluence already presents significant opportunities and insurance potential. Our ambition is to expand beyond Western China and bring the company to greater heights. Source: Corporate Press Release, 27 August 2012 ING to Sell 50% of ING-BOB Life Insurance ING is looking for buyer of a 50% equity in ING-BOB Life Insurance Company Limited and intends to sell it to an overseas company with operation experience in international insurance, said people familiar with the matter. However, the transaction will not be done in a short term based on current situation. It is also hard for ING, Bank of Beijing and the target company to find a foreign buyer with a powerful strength. General Manager of ING- BOB Life Insurance said on September 12 that the company turned losses into profits in underwriting in the first half of 2012 and is likely to make profits for the first time in the full year. Founded in Dalian at 2002-end, ING-BOB Life Insurance is also known as ING Capital Life Insurance Company Ltd. previously. Bank of Beijing purchased equity of ING-BOB Life Insurance from Beijing Capital Group in June 2010 and became Chinese shareholder of the target company with a 50% equity in hand. The rest 50% equity is owned by ING Group. Thus, the company changed its name to ING-BOB Life Insurance. Source: SinoCast Daily Business Beat, 24 September, 2012 Foreign insurance companies in China

45 Q What is the level of commitment of your H.O to China in 2012 relative to other markets on a scale of 1 to 10? How would you project the score in 2015? The life companies continue to believe their head offices are unwavering in their commitment to China. 12 Fourteen of the 18 participants recorded 9 or higher. This was only surpassed in 2008 when 17 companies recorded a comparable score Number of companies Based on responses from 18 companies in 2012 and 2011, 20 companies in 2010 and 2009 and 19 companies in 2008 The 2012 chart records an outlier where one participant showed that its parent no longer has a commitment to China. The commitment level is poised to get stronger. Eleven of the 18 participants scored the future 2015 commitment level at the maximum score of 10. Number of companies Based on responses from 18 companies 42 Foreign insurance companies in China 2012

46 Q What is the level of commitment of your H.O to China in 2012 relative to other markets on a scale of 1 to 10? How would you project the score in 2015? Ten of the 13 property and casualty companies scored their parent s commitment level at 7 out of 10 or higher. This compares to eight 4 companies in Indeed it is the highest level of commitment by participants over the five years this variable has been tracked Number of companies Based on responses from 13 companies in 2012, 10 companies in 2011 and 2010, 9 companies in 2009 and 8 companies in 2008 The property and casualty companies anticipate increased commitment by Although only one company assigned a 10, six companies predicted a score of 9. Number of companies Based on responses from 13 companies Foreign insurance companies in China

47 Q What is the level of commitment of your Chinese partner to your JV on a scale of 1 to 10? Seven of the 17 life respondents recorded the maximum score of 10. This is the highest number of companies in the maximum category since the measure was tracked in In the 2011 survey, the number was five companies. However, at the other end of the scale, five participants recorded a domestic partner commitment level of 4 or below, a much greater number than in any of the previous years Number of companies Based on responses from 17 companies in 2012 and 2011,19 companies in 2010 and 18 companies in 2009 and 2008 Q Do the objectives and goals of your Chinese partner contrast with your own company? Participants commented that domestic partners have a short term view with a focus on market position and asset growth. In contrast the foreign partner is value and profit oriented and has a long term focus. Another participant implied differing views from its SOE partner on remuneration. On a positive note a foreign life company said its Chinese partner valued the skills and expertise it brought to the relationship. 44 Foreign insurance companies in China 2012

48 Q Has Shanghai s ambition of becoming an International Financial Centre affected your business strategy in China? Approximately three quarters of property and casualty companies believe that their business strategy in China is influenced by Shanghai becoming an international financial centre. The property and casualty insurers see expanded opportunities related to marine insurance. In particular, Japanese participants welcome an international marine exchange. One European insurer said it participated in a RMB 20 million project to support marine insurance development. In contrast around three quarters of life companies hold the opposite opinion. Many perceive it is too early in the opening up of the Chinese market to consider it advantageous. However, they recognised that liberalisation and deregulation will present new opportunities. One participant expressed the hope that Shanghai may offer new paths for growth if it is selected as a pilot market. Q In what ways can your insurance company contribute to the achievement of this ambition in the next 3 years? Both life and property and casualty companies believe they can make a major contribution to Shanghai s ambition. The underlying belief is that the further and faster Shanghai progresses the greater the opportunity for foreign companies. The participants welcome the cross fertilisation of ideas and products. They bring new products, advanced technology and expertise. They envisage new corporate entities in asset management and cited the possibility of future listings on the Shanghai Exchange. Various participants suggested five or more foreign companies mentioned in this report listing in Shanghai. No Yes P&C co.s Life co.s Based on responses from 17 Life and 12 P&C companies Q What are the challenges facing Shanghai s progression to an International Financial Centre? The participants provided a comprehensive set of challenges that stand in the way of Shanghai becoming an International Financial Centre. They include, the legal environment availability of talent foreign exchange high costs investment regulations city rivalry within China, competition from Hong Kong and Beijing lack of transparency and direction of central government policy. Foreign insurance companies in China

49 Human capital 46 Foreign insurance companies in China 2012

50 Q What was the level of staff turnover in 2011 and predicted for 2012? Staff turnover Life companies 2011 and predicted for 2012 Staff turnover at the life companies remains high. In 2011, four companies experienced turnover above 30%. This will be tempered a little in 2012 when it is expected that seven companies will be in the 20% to 29% range and nine companies in the 10% to 19% range. Results for the 12 property and casualty respondents show identical levels in both 2011 and These numbers however disguise differences among companies. While the group totals are identical, variations occur. For example, one company that experienced 25% turnover in 2011 during restructuring, now expects only 3% in Another that had 5% turnover in 2011 expects 12% in It is clear the property and casualty companies experience much lower levels of turnover than the life companies. Percentage 40 ro above 30 to to to 19 0 to 9 10 companies were above 20% in 2011 but this drops to seven companies in 2012 Based on responses from 18 Life companies Staff turnover P&C companies 2011 and predicted for Percentage 40 ro above 30 to to to 19 0 to 9 Three companies were above 20% and three companies below 10% Based on responses from 12 P&C companies Foreign insurance companies in China

51 Q When staff leave your company what type of company do they move to? Staff primarily move to other foreign insurers followed by the large and then the medium and small domestic players. The other group includes brokers, other industries and higher education. Number of companies Other foreign insurers Big domestic insurers Medium and small domestic insurers Based on responses from 29 companies Other 48 Foreign insurance companies in China 2012

52 Q Will the CIRC standards for remuneration based on market levels have an impact on your organisation? In August 2012 CIRC issued a guideline on salary compensation for insurance company employees, commencing on 1 January This follows similar guidelines issued by CBRC for bank employees in It has implications for expatriate personnel because it restricts performance incentives and the time frame in which they can be paid. It also limits the nature of benefits and allowances paid in cash. The responses from participants on the CIRC directive on remuneration ranged from a major impact to only a minor consequence. A number of participants both life and property and casualty believed the directive should not apply to international companies. Most participants believe it is only a guideline and will need to be revisited. Expatriate management benefit from comprehensive packages used to attract skilled and experienced personnel to China. They argued that a one-size fits all, which is primarily directed at domestic companies, is not appropriate for the foreign players. Foreign insurance companies in China

53 Q In 2012 will base salaries remain the same, increase or decrease? Twenty nine companies reported that salaries will increase in 2012 only two companies said they will remain the same. The pattern of increase is similar to last year. Twenty two companies expect increases in the 6% to 10% range, while five companies fall into the 5% or below category. Salary increases over time Number of companies % to 15% 6% to 10% 5% or less Not specified same Negative to 5% Based on responses from 31 companies in companies in 2011, 31 companies in 2010 and 19 companies in Foreign insurance companies in China 2012

54 Q What is your position on incentives and bonuses in 2012? The same is true of bonuses. Twelve companies expect bonuses to increase in 2012 (as in 2011) while 13 companies predict they will remain the same. Decrease Increase In contrast to 2011, five companies expect the bonuses paid to decrease in value. Two property and casualty and three life companies expect adecline in the size of bonuses. In each case this reflected lower than expected performance. Remain the same Based on responses from 30 companies in companies in 2011 and 28 companies in 2010 Q Will you 1) contain or 2) reduce overall HR costs in your China operation in 2012? The continued expansion of the foreign insurers in China is reflected in their response to HR costs. Twenty four companies will seek to contain costs and improve productivity. Three companies accept that HR costs will continue to rise while three are seeking to reduce HR costs. Reduce Increase One participant noted a significant increase in welfare payments (greater than 15%). Contain Based on responses from 30 companies Q Over the next three to five years, will you have the people to deliver your business strategy and where are your current talent shortages? Sixteen of 30 respondents do not believe that they have the people to deliver on their currently proposed strategy. The most commonly expressed concern centred on a shortage of staff with 20 years or more experience. A property and casualty company stressed that the costs of experienced people is not matched by their quality. No Yes A life company said that they have highly qualified people in accounting and investment but they lacked experience. Based on responses from 30 companies An area of concern for several life companies was the pronounced lack of skill and experience in front line managers in the distribution channels. Foreign insurance companies in China

55 Q How significant will the impact of talent shortages be on top line growth over the next three years? In a related question 26 of 30 respondents stated that talent shortages will have a very significant or significant impact on top line growth over the next three years. Number of companies Very significant Significant Neutral Based on responses from 30 companies in 2012 Unsignificant Very unsignificant Q Do you feel confident that your current talent management program is going to deliver on your succession planning? Turning to how the foreign insurers hope to deal with talent shortages in their succession planning, respondents were evenly split on their ability to deliver. Some have put talent management programmes in place, others have seconded head office staff and a number remain cautiously optimistic. No 2012 Future Yes However, the bottom line suggests that the ability to solve the talent problem remains uncertain. Based on responses from 30 companies Q To what degree have you adapted your home culture and processes to provide the flexibility of doing business in China? All participants acknowledge they have had to adapt their home country s culture and way of doing business to the China market. Five companies said they had made a fundamental adaption and 13 companies a major adaption. Number of selections Fundamental adaption Major adaption Minor adaption Not at all Based on responses from 30 companies 52 Foreign insurance companies in China 2012

56 Q What percentage of agents will you let go in 2012? Nine of the 14 life respondents indicated that they will dismiss 20% to 40% of their agent sales force in Three participants suggested they would terminate 70%, 80% and 90% respectively. 90% 80% to 89% 70% to 79% 60% to 69% 50% to 59% 40% to 49% 30% to 39% 20% to 29% 10% to 19% Based on responses from 14 life companies Q What percentage of agents will the industry cut in 2012? Commenting on the industry, five of the eight respondents suggested 40% or higher. The industry s agent sales force increased from 1.3 million in 2005 to 2.9 million in It has already begun to decline as agents faced with low remuneration, increased regulation, more demanding qualifications and alternative career opportunities have departed. 60% to 69% 50% to 59% 40% to 49% 30% to 39% 20% to 29% 10% to 19% 0% to 9% Based on responses from 8 life companies Foreign insurance companies in China

57 Q How do you define an active agent? The most common definition of an active agent is one who sells a policy every month A few life companies have alternative definitions. Number of companies one month* two months** three months other Required to sell a policy during the time period above Based on responses from 14 Life companies * One per month also includes one reference to 2 policies/month and one to 1 policy or RMB900/month commission ** Sell at least 2 life policies in three months Q What percentage of your agents were active in 2012? Finally, respondents were asked to comment on the percentage of active agents in their sales forces. At the top end, five companies recorded above 50% with two in this group indicating above 70%. However, at the bottom end of the scale, two companies suggested that only 20% to 29% of their agents are meeting the minimum requirements % to 79% 60% to 69% 1 50% to 59% 40% to 49% % to 39% 20% to 29% 10% to 19% Based on responses from 14 life companies 54 Foreign insurance companies in China 2012

58 Q Which staff functions have the highest hiring priority in 2012? Can you rank the Top 3? The top three hiring priorities in 2012 for life companies were salesforce managers followed by actuarial staff and then branch managers. These were closely followed by insurance agents and investment management personnel. Salesforce managers Actuarial Branch managers Insurance Agents-Retail Investment management Product design Risk management Operations Other Accounting Legal/compliance Insurance Salespeople -Corporate Score Based on responses from 18 Life companies On the property and casualty side the greatest demand was for underwriters, branch managers and then corporate sales. Actuarial personnel and retail agents share fourth position. These rankings add credence to the shortage of available talent and the need for comprehensive talent management programmes. Underwriting Branch managers Insurance Salespeople -Corporate Actuarial Insurance Agents-Retail Operations Sales force managers Other Finance Accounting Investment management Based on responses from 13 P&C companies Score Foreign insurance companies in China

59 Distribution 56 Foreign insurance companies in China 2012

60 Q As a foreign life company what changes do you see in distribution channels, i.e. moving towards or away from their use? The life industry is experiencing major realignments in its distribution channels. In 2012 more than 50% of respondents believe there is a continuing trend towards bancassurance. They also confirm increased emphasis on both direct marketing and telemarketing. The channel experiencing the most pronounced decline was identified as agents. Two thirds of respondents believe the agency channel is losing traction. There is a modest movement toward independent financial advisors, although most respondents recorded no change. Most believe brokers are growing although two respondents recorded a movement away from this channel. The internet was acknowledged by 90% of respondents as a growing channel while both affinity schemes and the post office remain relatively unchanged. Bancassurance Direct sales (promotional) Telemarketing Insurance agents (tied) Indep Financial Advisors Brokers Internet Affinity schemes Post Office Towards Away from No Change Based on responses from 18 life companies In contrast to the life sector the property and casualty sector has experienced the greatest movement away from direct channels. Channels increasing in importance include internet, brokers and telemarketing. Bancassurance is also growing in importance for a number of property and casualty companies. Bancassurance Direct sales (promotional) Telemarketing Insurance agents (tied) Indep Financial Advisors Brokers Internet Affinity schemes Post Office Towards Away from No Change Based on responses from 13 P&C companies Foreign insurance companies in China

61 Breakdown of of premium flow by individual channel In a related question, 30 companies provided a rough indication of the volume of new premium that flowed through the same 10 channels. Interestingly, 14 life companies suggested that 30% of premium originated in the bank channel. Four companies recorded over 70%. Four companies capture 50% or more of sales through the agent channel and two of these 90% or above. Although two companies recorded 15% of sales through the internet, the majority are only beginning to engage this channel. Life insurance companies Bancassurance Bancassurance Direct sales Telemarketing Insurance agents (tied) Indep Financial Advisors Brokers Internet Affinity schemes Post Office Life Life Life Life Life Life Life Life Life Life Life Life Life Life Life Life Life Life Group Property and casualty insurance companies As expected, brokers are the dominant channel for the property and casualty companies. Direct sales are also very important. Four companies recorded 80% of volume in this channel. The internet is currently of no significance. Direct sales Telemarketing Insurance agents (tied) Indep Financial Advisors Brokers Internet Affinity schemes Post Office P&C P&C P&C P&C P&C P&C P&C P&C P&C P&C P&C P&C Group 58 Foreign insurance companies in China 2012

62 Life insurance companies in the Tier 1 cities It is often said that the Tier 1 insurance market is saturated and overly competitive and that greater opportunities reside in Tier 2 cities and beyond. The foreign insurers have a heavy weighting in Tier 1 cities. Various definitions of Tier 2 and Tier 3 cities are available, but it is estimated within this group of 1,500 cities that more than 120 have populations exceeding 1 million. The Tier 1 cities can be defined as the municipalities of Beijing and Shanghai, Guangzhou and Shenzhen. At the top of the Tier 2 cities are the municipalities of Tianjin and Chongqing followed by the provincial capitals. The group of 18 life companies has 13 companies that claim to have 60% or more of their business in Tier 1 cities. As a result only five companies have 40% or less, three of these have 30% or less in Tier 1 cities. Life 1 Life 2 Life 3 Life 4 Life 5 Life 6 Life 7 Life 8 Life 9 Life 10 Life 11 Life 12 Life 13 Life 14 Life 15 Life 16 Life 17 Life Tier 1 Beyond Tier 1 Based on responses from 18 Life companies Foreign insurance companies in China

63 Property and casualty insurance companies in the Tier 1 cities A similar pattern exists with the property and casualty companies. Nine of the 13 participants have 60% or more in the Tier 1 cities. There are two life and two property and casualty companies that are exclusively active in the Tier 1 cities. On the property and casualty side, some Japanese and Korean companies have a sizeable proportion of their business outside Tier 1 cities because their clients manufacturing basis may be in Tier 2 or Tier 3 cities. P&C 1 P&C 2 P&C 3 P&C 4 P&C 5 P&C 6 P&C 7 P&C 8 P&C 9 P&C 10 P&C 11 P&C 12 P&C Tier 1 Beyond Tier 1 Based on responses from 13 P&C companies 60 Foreign insurance companies in China 2012

64 Risk management Foreign insurance companies in China

65 Q How would you score China s position on regulation versus the US or EU? Is China ahead, level or behind in terms of the application of risk management regulations? Twenty five participants out of 27 indicated that they believed China lagged behind both Europe and the United States on risk management regulation. Several property and casualty companies said China tends to copy Europe more than the U.S. with additional inputs from Australia and Japan. Level Ahead Behind They emphasised that the new CIRC Chairman placed great importance on the need to improve consumer protection. Based on responses from 27 companies in 2012 and 23 in 2011 Several large foreign life companies judged that China was a long way behind Europe and the U.S. on risk management. Q Is fraud a significant issue in your organisation? Two thirds of respondents do not believe that fraud represents a significant issue for their organisation. No comment No Yes Among the nine respondents that believe it to be an issue were property and casualty insurers. They claimed it primarily occurred in the auto sector (false thefts, false repair claims, industry kickbacks etc.) and personal accident. On the life side, fraud was related to a poor salesforce quality, mis-selling and as a result, false claims. Based on responses from 31 companies 62 Foreign insurance companies in China 2012

66 Q Do you have any plans to raise additional capital? Twelve of the 14 life companies plan to raise additional capital. They point out that as they continue to grow it is necessary to inject new capital to maintain acceptable solvency levels. No Yes A smaller percentage of property and casualty companies plan to increase capital. Seven of 12 respondents said they planned an increase. This will change if they are able to succeed in the auto insurance sector. These findings are consistent with the growth projections made by both the foreign life and foreign property and casualty companies in the next section. Based on responses from 14 life companies No Yes Based on responses from 12 P&C companies Foreign insurance companies in China

67 Competition and positioning 64 Foreign insurance companies in China 2012

68 Q What product areas do you see as becoming increasingly important in the life insurance industry in the next three years? On the retail side of the life industry, retirement products were considered the most important over the next three years. They were followed by protection and then participating products. Critical illness insurance came in fourth position just ahead of long term savings and annuity products. Top retail products Life insurers provided the following product lines as areas where they had enjoyed success in the last 12 months. Participating products Annuities Traditional insurance products Health insurance Long term savings products Bancassurance Universal life Protection products in the agency channel On the wholesale side the most important product was group health insurance. This was followed by corporate accident and health insurance, retirement and then annuity products Retirement products Protection products Participating products Critical illness Long term savings Annuity products Other Children s education products Universal life products Based on responses from 17 Life companies Top wholesale products Group health insurance Corporate accident and health insurance Retirement products Annuity products Credit insurance Enterprise annuities Other Top end health insurance. Based on responses from 17 Life companies Foreign insurance companies in China

69 Q What product areas do you see as becoming increasingly important in the property and casualty insurance industry in the next three years? On the retail side of the property and casualty industry, as expected auto insurance comes first followed by personal accident, health insurance and travel insurance. Household insurance and critical illness are of limited importance. Top retail products Property and casualty insurers provided the following product lines as areas where they had enjoyed success in the last 12 months. Auto insurance Agricultural insurance Enterprise property Liability insurance Travel insurance Group and individual accident and health Marine insurance Multinationals in China On the wholesale side the top three products are enterprise property, general liability and marine insurance. Financial lines underwriting, commercial automobiles and corporate liability follow this group. 0 Auto insurance Personal accident Health insurance Travel insurance Based on responses from 14 property and casualty companies Top wholesale products Household insurance Critical illness 5 0 Enterprise property Liability general Marine Financial lines underwriting Commercial automobile Corporate liability Other Niche liability insurance Export product liability Product liability Based on responses from 14 property and casualty companies 66 Foreign insurance companies in China 2012

70 Q Can you predict the market share of the foreign life insurers in 2015? The current market share of the foreign life companies is 4.3%. The participants were asked to predict where it might be in As the chart illustrates, eight companies selected 5% (three selected 4% and three 6%). Therefore they believe it will be around 5%. This is less optimistic than 2011 and much lower than 2010 when seven companies believed it would be above 7% by Number of companies % 3% 4% 5% Expected market share percentage by 2013/2014/2015 Based on responses from 18 life companies in in 2012 and 2011 and 20 life companies in % 7% 8% 9% 10% 15% Foreign insurance companies in China

71 Q Can you predict the market share of the foreign property and casualty insurers in 2015? The current market share of the foreign property and casualty companies is 1.2%. Three respondents selected 1%, four chose 1.5% and another three 2.0%. These are in line with 2011 but less optimistic than However, what is unusual in 2012 is that two participants predict a major jump by 2015, presumably because of their hopes in the auto sector. One chose a market share prediction of 5% and another 5.5% by Number of companies less than 1% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% Expected market share percentage by 2013/2014/2015 Based on responses from 13 P&C companies in 2012, nine in 2011 and 10 in % 4.50% 5.00% 5.50% 68 Foreign insurance companies in China 2012

72 Q Can you score your life company s level of success in the following markets in 2012? The chart below displays the perceived success levels of the 2012 life participants. Scores are placed on a scale of 1 to 5 where 5 is perceived as very successful. In the seven different markets scores are around 3 thus reflecting moderate success. The results for 2012 largely match previous years. Only in one segment health insurance do they marginally exceed previous years scores. Life insurance- Traditional (18) 4 Group - Accident & Health (16) 3 2 Life insurance -ILP (16) 1 Group Life (16) Life insurance -protection (17) Personal accident (15) Health insurance (16) Standard Figures in brackets represent the number of respondents in 2012 Foreign insurance companies in China

73 Q Can you score the level of importance the following markets will have to your life company in 2015? Looking forward to 2015, strong scores are recorded for protection (4.2) traditional life insurance (4.1) and health insurance (3.4). Life insurance- Traditional (18) 4 Group - Accident & Health (16) 3 2 Life insurance -ILP (15) 1 Group -Life (15) Life insuranceprotection (18) Personal accident (15) Health insurance (16) 2015 Figures in brackets represent the number of respondents 70 Foreign insurance companies in China 2012

74 Q Can you score your property and casualty company s level of success in the following markets in 2012? Wide variations in success occur in the property and casualty market across the four years results underperform those recorded in 2011 across eight different sectors. For example, auto insurance scored just 2.25 in 2012 compared to 3.50 in DNO (9) Health insurance (7) 4 3 Personal accident (12) Professional indemnity (11) 2 Auto insurance (8) 1 Public liability (13) Enterprise Property (12) Products liability (13) Homeowners (10) Employers liability (12) Group - Accident & Health (10) Cargo, Transportation (12) Standard Figures in brackets represent the number of respondents in 2012 Foreign insurance companies in China

75 Q Can you score the level of importance the following markets will have to your property and casualty company in 2015? Going forward to 2015, the participants place importance on accident and health (4.1), cargo (4.0), product liability (3.8) and health insurance (3.8). Auto insurance scored 3.75 although four companies scored it 5/5 and two companies 4/5. DNO (9) Health insurance (10) 4 Personal accident (12) 3 Professional indemnity (12) 2 Auto insurance (12) 1 Public liability (13) Enterprise Property (12) Products liability (13) Homeowners (11) Employers liability (12) Group - Accident & Health (10) Cargo, Transportation (11) 2015 Figures in brackets represent the number of respondents 72 Foreign insurance companies in China 2012

76 Q What is your insurance company s primary method of expansion in China? The primary method of expansion for the foreign insurers in China remains organic growth of their existing operations. This option was chosen by 28 of the participants. Several participants also suggested their future interests in acquisition. Joint venture Organic growth On the property and casualty side there is an interest in acquiring brokers or agents. If regulation were to change participants are interested in acquiring small and medium sized domestic property and casualty companies. Based on responses from 18 life companies Other Organic growth Based on responses from 12 P&C companies Foreign insurance companies in China

77 Q What is your estimate of the annual growth in premiums of your life company for 2012 and over the next three years? Most foreign life companies continue to anticipate buoyant growth. This year s projections identify two distinct clusters. One group of five or six companies anticipated 15% annual growth in 2012 and again in A second group of 5/6 companies falls in the 30%/25% range. Beyond these clusters are outliers of zero in 2012 and 300% in 2015 and 200% in 2012 falling to 30% by In addition a few companies predict consistently high growth rates in 2012 and 30 in 2015 Expected annual growth rate in in 2012 and 300 in Expected annual growth rate in 2015 Based on responses of 18 Life companies 74 Foreign insurance companies in China 2012

78 Q What is your estimate of the annual growth in premiums of your property and casualty company for 2012 and over the next three years? Five property and casualty companies portray growth in the range of 20% (2012) and 20% (2015). Two companies anticipate a combination of 35% (2012) and 20% (2015). Beyond this there are two more companies that push close to 50% in 2012 and 25% to 35% by Expected annual growth rate in Two companies at 35 (2012), 20 (2015) Expected annual growth rate in 2015 Based on responses of 11 P&C companies Foreign insurance companies in China

79 Q What is your estimate of the annual growth in premiums of the industry for 2012 and over the next three years? Participants were asked to comment on the industry as a whole. On the life side two companies came in with very negative industry growth estimates for 2012 of -10% and -15%. The most optimistic prediction made by three participants was 15% in 2012 and 15% again in However as the chart shows, four companies predicted zero growth in 2012 rising to 10% by Life insurance industry Expected annual growth rate in companies at 15/ companies at 10/ companies at 5/ companies at 0/10 Expected annual growth rate in 2015 Based on responses of 18 Life companies Property and casualty insurance industry Property and casualty participants were more optimistic about their sector. Many offered estimates around 15% in both 2012 and 2015, but a few pushed closer to 20%. A noticeable contrast was that none of the participants predicted 2012 or 2015 growth below 14% Expected annual growth rate in companies at 15/ Expected annual growth rate in 2015 Based on responses of 11 P&C companies 76 Foreign insurance companies in China 2012

80 Q How does your head office measure success in China? Participants use a variety of metrics to measure their success. The most important is overall profitability, followed by value of new business, top line growth and embedded value. Life insurance industry 15 Others included access to local auto companies, employee satisfaction, customer satisfaction, performance versus domestic insurers. Number of selections Profitability Value of new business Top line growth Embedded value Other Based on responses from 18 Life companies Property and casualty insurance industry 10 Number of selections 5 0 Profitability Top line growth Other Value of new business Embedded value Based on responses from 10 P&C companies Foreign insurance companies in China

81 Regulation 78 Foreign insurance companies in China 2012

82 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? The impact of the global financial crisis on regulation in China appears to be less consequential. The scores have moderated slightly in 2012 versus This year eight life companies predicted significant change and three companies very significant. In 2011 the distribution recorded 10 companies as significant and three companies as very significant. In 2009 it was nine companies as significant and six companies as very significant. Life insurance companies 11 Number of Life companies Very insignificant Insignificant Neutral Significant Very significant Based on responses from 18 Life companies in 2012, 18 companies in 2011, 21 in 2010 and 20 companies in 2009 Foreign insurance companies in China

83 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? The property and casualty companies believe that there will continue to be significant changes as a result of the fallout from the global financial crisis. However only one company thinks these changes will be very significant. The 2012 results show a rise in the neutral category. Property and casualty insurance companies Number of P&C companies Very insignificant Insignificant Neutral Significant Very significant Based on responses from 11 P&C companies in 2012, 10 companies in 2011 and 2010 and 9 companies in 2009 Q In which areas do you anticipate tighter regulation on foreign insurance companies? In which areas do you anticipate tighter regulation on foreign insurance companies? Participants believe the pace of new regulations will continue. The current focus of the CIRC emphasises consumer protection. Life companies predicted more inspections, new solvency regulations and closer monitoring of agents. Several property and casualty insurers suggested that the opening up of the auto business would be accompanied by closer monitoring and control by CIRC. 80 Foreign insurance companies in China 2012

84 Q Are there tax rules you would like to see changed? Seventeen life companies believe future market development would be assisted by tax changes. Most attention focussed on pension and retirement related products. They welcomed the Shanghai pilot on pension reform and retirement annuities. The lack of deductions for insurance was also a point of concern. Reform would increase pension products attractiveness. Property and casualty insurers seek tax changes regarding health insurance. They would also like to see a reduction in the business tax. Life companies No comment No Yes Based on responses from 18 companies in 2012, 16 companies in 2011, 21 companies in 2010 and 20 companies in 2009 Property and casualty companies No comment No Yes Based on responses from 10 companies in 2011, 10 companies in 2010 and 9 companies in 2009 Foreign insurance companies in China

85 Q60 Would you like to see the 50% ownership restriction removed? Little has changed on the expectation that the 50% ownership rule might be removed. In 2012, most life companies believe it is at least 10 years away. Only five companies believe it could occur in the next five years. Despite dilutions in shareholding, joint venture conflicts, foreign departures and a decline in market share, the participants remain pessimistic that a major change on ownership might occur. Next 3 years Next 5 years 2009 Next 10 years Next 10 years Based on responses from 18 life companies in 2012 and 2011, 19 life companies in 2010 and 20 life companies in Number of companies 82 Foreign insurance companies in China 2012

86 Peer review Foreign insurance companies in China

87 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. 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 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. Life insurance Traditional savings First Second Third Score Change AIA Manulife-Sinochem CITIC-Prudential Metlife 2 6 Aviva-COFCO CIGNA & CMC 1 2 Generali 1 1 Based on 17 foreign insurance companies Life insurance Investment-linked First Second Third Score Change CITIC-Prudential Metlife Old Mutual Guodian 3 9 ICBC-AXA Life AIA Aviva-COFCO 2 4 Generali 1 3 Manulife-Sinochem AEGON-CNOOC 1 1 Allianz Life 1 1 Based on 15 foreign insurance companies 84 Foreign insurance companies in China 2012

88 Life insurance Protection First Second Third Score Change AIA Manulife-Sinochem CIGNA & CMC CITIC-Prudential ICBC-AXA Life 1 1 Generali 1 1 Metlife 1 1 Based on 14 foreign insurance companies Health insurance First Second Third Score Change AIA CIGNA & CMC Chartis* 4 12 Aviva-COFCO ICBC-AXA Life CITIC-Prudential Allianz P&C Zurich 1 3 Manulife-Sinochem Metlife 3 3 Allianz Life 1 2 AXA Winterthur 1 2 Based on 19 foreign insurance companies Personal accident insurance First Second Third Score Change Chartis* 9 27 AIA CIGNA & CMC Metlife Generali Zurich 1 3 Aviva-COFCO Allianz P&C CITIC-Prudential 2 2 HengAn Standard 1 2 Ace Huatai P&C 1 2 RSA 1 2 Manulife-Sinochem 1 1 Chubb 1 1 Based on 20 foreign insurance companies * Chartis has recently renamed the company AIG Foreign insurance companies in China

89 Auto insurance First Second Third Score Change Liberty Mutual 7 21 Chartis Samsung Fire & Marine Allianz P&C Cathay 1 2 Mitsui Sumitomo 1 2 RSA 1 2 Based on 9 foreign insurance companies Homeowner insurance First Second Third Score Change Liberty Mutual 2 6 RSA AXA Winterthur Chartis 1 3 Zurich 1 3 Generali 1 2 Based on 6 foreign insurance companies Enterprise property insurance First Second Third Score Change Chartis 6 18 Allianz P&C Mitsui Sumitomo AXA Winterthur Generali 1 2 Tokio Marine 1 2 Sompo Japan 1 1 Zurich 1 1 Based on 8 foreign insurance companies Cargo, transportation insurance First Second Third Score Change Chartis Tokio Marine Zurich Allianz P&C Mitsui Sumitomo Chubb 1 2 AXA Winterthur 1 1 Sompo Japan 1 1 Based on 10 foreign insurance companies 86 Foreign insurance companies in China 2012

90 Group life insurance First Second Third Score Change Generali Aviva-COFCO AIA 3 6 Cathay 1 3 CITIC-Prudential ICBC-AXA Life 2 2 AEGON-CNOOC 1 1 Manulife-Sinochem 1 1 Based on 14 foreign insurance companies Group accident and health insurance First Second Third Score Change Generali Chartis 5 15 ICBC-AXA Life AIA Aviva-COFCO 3 6 AEGON-CNOOC CITIC-Prudential 2 4 CIGNA & CMC 1 3 AXA Winterthur Zurich 1 3 Chubb 1 2 RSA 1 2 Manulife-Sinochem 1 1 Allianz P&C 1 1 Based on 21 foreign insurance companies Customer relationships First Second Third Score Change AIA Chartis CITIC-Prudential Manulife-Sinochem Metlife Chubb Tokio Marine Mitsui Sumitomo 1 3 Sompo Japan 1 2 Aviva-COFCO 1 1 Generali 1 1 Based on 16 foreign insurance companies Foreign insurance companies in China

91 Geographic expansion First Second Third Score Change Chartis Aviva-COFCO CITIC-Prudential Manulife-Sinochem Cathay Life Liberty Mutual Samsung Fire & Marine RSA Chubb 1 3 Generali Metlife 3 3 Mitsui Sumitomo 1 2 Sompo Japan 1 2 Based on 19 foreign insurance companies Innovation First Second Third Score Change Chartis 9 27 AIA Metlife 5 15 ICBC-AXA Life AXA Winterthur Aviva-COFCO Allianz P&C 2 4 CIGNA & CMC Allianz Life 1 2 CITIC-Prudential 1 2 Manulife-Sinochem 1 2 Chubb 1 2 Liberty Mutual 1 2 RSA 1 2 Zurich 1 2 Mitsui Sumitomo 1 1 Based on 23 foreign insurance companies 88 Foreign insurance companies in China 2012

92 Distribution effectiveness First Second Third Score Change AIA Chartis CIGNA & CMC Manulife-Sinochem Metlife Allianz P&C CITIC-Prudential Liberty Mutual 2 4 Cathay 1 3 Zurich 1 3 Allianz Life 1 2 Aviva-COFCO 1 1 Generali 1 1 RSA 1 1 Based on 20 foreign insurance companies Marketing strategies First Second Third Score Change AIA Metlife Chartis Aviva-COFCO 2 6 Liberty Mutual 2 6 CIGNA & CMC Manulife-Sinochem Allianz Life 1 3 Generali 1 3 AXA Winterthur 1 3 Samsung Fire & Marine 1 3 CITIC-Prudential 3 3 ICBC-AXA Life 1 2 ING BoB 1 1 Allianz P&C 1 1 Based on 20 foreign insurance companies Technically competent staff First Second Third Score Change AIA Chartis Manulife-Sinochem Metlife CITIC-Prudential Zurich 2 6 Generali 1 3 Tokio Marine 1 3 Allianz P&C Aviva-COFCO 2 2 ICBC-AXA Life 1 2 Mitsui Sumitomo 1 2 Chubb 1 1 RSA 1 1 Based on 22 foreign insurance companies Foreign insurance companies in China

93 Brand awareness First Second Third Score Change AIA Chartis CITIC-Prudential Allianz P&C 3 6 Samsung Fire & Marine Aviva-COFCO Metlife Manulife-Sinochem Generali Chubb 1 3 Tokio Marine ICBC-AXA Life 1 2 HSBC 1 2 Zurich 1 2 ING BoB 1 1 AXA Winterthur 1 1 Based on 27 foreign insurance companies 90 Foreign insurance companies in China 2012

94 Appendices Foreign insurance companies in China

95 Table of contents Methodology Participants Premium income for domestic life insurance companies, September Premium income for foreign life insurance companies, September Premium income for domestic property and casualty insurance companies, September Premium income for foreign property and casualty insurance companies, September Foreign life company participants premium income by product type Foreign property and casualty company participants premium income by product type Background comments on participants American Chamber of Commerce in China White Paper; Insurance Section European Business in China Position Paper 2012/2013 ; Insurance section Foreign insurance companies in China 2012

96 Methodology Previous experience has shown that personal interviews with senior executives using a standard questionnaire offers the best research approach. The questionnaire contained 60 questions and was completed during interviews of approximately one hour. The author conducted interviews between August, and October 2012 in Beijing, Shanghai, Guangzhou, Shenzhen, Chengdu and Chongqing. 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 Goodman School of Business at Brock University, Ontario, Canada. He has a doctorate in financial services marketing and has researched for and produced many reports, such as this one, on behalf of PwC firms in 14 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. He authored the following reports this year: Foreign Banks in China (June 2012), Strategic and Emerging Issues in South African Banks (July 2012), and Asset Management Companies in South Africa (September 2012). He has consulted for a wide range of organisations, including Royal Bank of Canada, Scotiabank, Barclays Bank, Sun Life Insurance Company, Equitable Life of Canada and several major consulting firms. He has also taught an executive management course entitled Financial Services Marketing in the Graduate School of Business at the University of Cape Town. Foreign insurance companies in China

97 Participants Life insurance companies City Country of foreign partner AEGON-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 CIGNA & CMC Shenzhen USA CITIC-Prudential Life Insurance Co. Ltd. Beijing Britain Generali China Life Insurance Co. Ltd. Beijing Italy Heng An Standard Life Insurance Co. Ltd. Tianjin Britain HSBC Life Insurance Co. Ltd. Shanghai Britain Huatai Life Insurance Co. Ltd. Beijing USA ING BoB Dalian Netherlands ICBC-AXA Shanghai France Manulife-Sinochem Life Insurance Co. Ltd. Shanghai Canada Metlife Insurance Co. Ltd. Shanghai USA Old Mutual Guodian Life Beijing Britain Samsung Air China Life Insurance Co. Ltd. Shanghai Korea Shin Kong- HNA Life Shanghai Taiwan Sino-French Insurance Beijing France Property and casualty insurance companies City Country of foreign partner Allianz Insurance Company Guangzhou Germany AXA General Insurance China Ltd. Shanghai France Chartis Insurance Shanghai USA Chubb Insurance Shanghai USA Groupama Chengdu France Liberty Mutual Insurance Co. Ltd. Chongqing USA Mitsui Sumitomo Insurance Co. Ltd. Shanghai Japan RSA Insurance Co. Ltd. Shanghai Britain Samsung Property and Casualty Shanghai Korea Sompo Japan Shanghai Korea Tokio Marine & Nichido Fire Insurance Co. Ltd. Shanghai Japan XL Shanghai Ireland Zurich Insurance Company Beijing Switzerland 94 Foreign insurance companies in China 2012

98 Premium income for domestic life insurance companies, September 2012 Company Name Premium Income Jan-Sept 2012 (RMB million) China Life 263,056 Ping An Life 100,873 New China Life 77,826 CIPC 74,938 PICC Life 52,189 Taikang Life 50,211 Taiping Life 26,689 Sino Life 20,230 Sunshine 12,677 China Post Life 10,303 China Life (old business) 9,373 Minsheng Life 7,226 PICC Health 6,615 Union Life 6,412 Huaxia Life 4,795 Ping An Annuity 4,741 Happy Life 4,501 CCB Life 4,298 Jiahe Life 3,469 Sun Life Everbright 3,114 Aeon Life 2,783 Guohua Life 2,611 Greatwall Life 2,212 Sinatay Life 1,668 Tian An Life 1,152 Yingda Taihe Life 988 Li An Life 977 Anbang Life 928 Taiping Pension 709 Zhongrong Life 378 Kunlun Health 238 Dragon Life 146 Reward 96 Qianhai Life 93 Sino-Conflux Insurance 86 Dongwu Life 6 Changjiang Pension - China Life Pension - Taikang Pension - 758, Source: CIRC Foreign insurance companies in China

99 Premium income for foreign life insurance companies, September 2012 Company Name Premium Income Jan-Sept 2012 (RMB million) AIA 6,248 Generali China Life 3,339 Metlife 3,281 Aviva-Cofco Life 2,805 CITIC-Prudential Life 2,734 Huatai Life 2,315 ICBC-AXA Life 2,297 Manulife-Sinochem Life 1,847 CIGNA & CMC Life 1,722 ING BoB 1,262 Heng An Standard Life 1,134 AEGON-CNOOC Life 1,090 Allianz China Life 995 BoComm Life 531 HSBC Life 380 Founder Meiji Yasuda Life* 367 Cathay Life 343 Great Eastern Life (China) 247 Nissay-Greatwall Life 241 Shin Kong HNA Life 225 Samsung Air China Life 211 Ping An Health 165 King Dragon Life 117 Old Mutual Guodian 68 Sino-French Life 27 33,991 *Formerly Haier New York Life Source: CIRC 96 Foreign insurance companies in China 2012

100 Premium income for domestic property and casualty insurance companies, September 2012 Company Name Premium Income Jan-Sept 2012 (RMB million) PICC 147,077 Ping An 73,887 CIPC 51,928 China United Property 19,166 China Life Property & 16,946 Casualty CICC (China Continent 13,521 Property & Casualty Insurace) Sunshine Property & 10,704 Casualty Sinosure 8,697 Tianan 6,129 Taiping 5,606 Yong An Property 5,419 ABCC 5,373 Alltrust 4,409 Sinosafe 4,332 Huatai 4,237 Yingda Taihe Property 4,024 Tianping Auto 3,391 Bank of China 2,824 Du-bang 2,360 Sunlight Agricultural 2,144 Mutual Anhua Agricultural 2,097 Zheshang 1,628 Guoyuan Agricultural 1,612 ZKing 1,611 Min An 1,551 Cinda 1,547 Chang An Property & 1,323 Liability Dazhong 1,213 Dinghe 1,192 Bohai Property 1,171 Ancheng Property & 1,033 Casualty Anxin Agricultural 607 Jintai 291 China Huanong Property & 251 Casualty Taishan 204 China-Coal 152 UrTrust 145 Changjiang 95 CHAC 24 Xin an 14 Huaxin 1 409, Source: CIRC Foreign insurance companies in China

101 Premium income for foreign property and casualty insurance companies, September 2012 Company Name Premium Income Jan-Sept 2012 (RMB million) Chartis (AIG) 866 Liberty Mutual Chongqing 513 Allianz 477 Samsung Fire & Marine 404 Groupama SA Chengdu 379 Tokio Marine & Nichido 362 Fire Mitsui Sumitomo 360 Zurich 259 AXA P&C 227 Sompo Japan 220 Cathay 200 Generali China 194 Royal & SunAlliance 132 Fubon 111 Chubb 111 Hyundai (China) 74 LIG 64 Aioi 39 NIPPONKOA 35 XL 24 Lloyd s Insurance 0 5,052 Source: CIRC 98 Foreign insurance companies in China 2012

102 Life Company Participants Premium Income By Product Type 2011 Company Regular Life Par. Life Universal Life Individual Group Total Investment Health Accidental Annuity Regular Life Health Accidental Linked ACE Huatai 6,994,817 2,855,691,253 8,130,143 70,310,608 44,403,624 2,420,049 38,587,796 15,966,947 3,042,505,237 AEGON 339,728, ,438,703 2,734, ,661 54,522,408 22,910,426 17,109,450 67,727,785 2,903,155 1,174,246,423 AIA 994,058,305 3,124,081,205 27,200,825 9,074,768 1,849,064, ,368,306 1,562,889,057 28,857, ,121,483 76,014,111 8,186,730,572 Allianz Life 163,321, ,233,648 4,149,261 5,851,668 81,700,690 16,638,694 Included in individual 1,004,895,405 Aviva 787,611,401 2,296,400,892 28,584, ,050,540 18,619,014 8,576, ,837,869 46,834,211 3,541,514,307 ICBC AXA 1,129,647,506 94,934,604 12,892,594 82,356,081 15,028, ,273,793 59,832,517 1,601,965,508 CIGNA n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a CITIC-Prudential 153,543,672 1,868,997,086 4,817,227 51,322, ,577,614 93,106, ,685,244 Included in individual 3,431,049,563 Generali 1,768,546,000 90,323,000 18,346,000 1,056,716, ,010,000 63,989,000 3,583,930,000 HengAn Standard n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a HSBC 2,741, ,375,149 26,054 8,025, ,037 Included in individual 297,386,648 ING BoB 146,325,951 1,225,271,565 2,942, ,241 85,158,735 20,819,913 1,480,661,257 Manulife 63,293,217 1,820,689,889 2,892, ,705,865 28,881, ,816 2,259,395 21,181,574 14,678,649 2,314,036,342 Metlife 1,330,053,542 1,429,881,050 1,462, , ,608,629 93,428,295 Included in individual 3,175,040,725 Old Mutual Guodian n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Samsung Air China 14,952, ,249, ,855 15,289,049 30,188,697 Included in individual 323,796,722 Shin Kong HNA 5,429, ,079,271 5,407,413 5,217,795 55,588 4,548,966 1,663, ,402,638 Sino French n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Source: Individual company s annual reports Foreign insurance companies in China

103 Property and Casualty Company Participants Premium Income By Product Type 2011 Company Liability Corporate Property Credit and Guarantee Engineering Cargo & Trasportation Marine Automobile Shortterm Health Household Property Accidental Reinsurance Other Total Allianz P&C 100,666,810 96,002,676 58,446,840 83,284,140 59,296,723 7,389,717 32,952,927 9,271, ,191 included 447,530,244 AXA P&C 48,887, ,327,070 16,424,651 50,747,380 11,281,026 5,994,590 55,375,688 3,798, ,835,718 Chartis 329,367, ,412,573 26,617,396 6,603, ,475,072 28,822, ,201, ,846,282 12,880,388 1,173,226,464 Chubb 120,066,502 8,168,072 33,399,348 1,942,902 42,326,619 included 205,903,443 Groupama n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 134,029,872 Liberty Mutual 21,983,841 8,394,762 10,531, ,016,561 35,885,785 27,603, ,416,193 Mitsui Sumitomo 448,363, ,157, ,520,000 Royal & Sun Alliance 52,484,150 34,453,715 9,587,346 35,451,120 9,834,508 32,924,118 4,635, ,370,644 Samsung Fire & Marine 21,754, ,342,526 1,053,828 20,132, ,626,087 4,920,648 4,950,135 27,766, ,547,524 Sompo Japan 301,480, ,041, ,521,900 Tokio Marine 473,874, ,478, ,353,224 XL 14,951, ,429 1,724,011 16,867,921 Zurich n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0 Source: Individual company s annual reports 100 Foreign insurance companies in China 2012

104 Background comments on participants Foreign insurance company Background comments AEGON-CNOOC Life Insurance Company Limited 1,000 employees Allianz China Life Insurance Company Limited 750 employees Established in May 2002 and headquartered in Shanghai, AEGON-CNOOC Life Insurance Company Limited is a 50/50 joint venture between AEGON Group and China National Offshore Oil Corporation (CNOOC). Its registered capital increased twice in December 2010 and April 2011 to the current amount of RMB 1800 million. AEGON-CNOOC started its life insurance business in Shanghai, China in May By 2012 it operates in 10 provincial level areas in China. Allianz China Life Insurance Company Limited was the first European life insurance joint venture established in China. It officially opened in Shanghai on January 25th, The company is jointly invested by the German financial conglomerate Allianz AG and CITIC Trust & Investment Company Limited of China. They hold 51% and 49% share respectively. In September 2009, Allianz China increased its registered capital to RMB 2 billion. The company has established branches in eight provincial level areas with business in about 40 cities, and cooperates with more than 10 bank partners. American International Assurance Company Limited American International Assurance Company, Limited (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. 2,200 employees 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, Dongguan, Foshan, Jiangmen, Guangzhou, Shanghai, Shenzhen and Suzhou. 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 Company Limited AVIVA-COFCO Life Insurance Company Limited (ACL) is a joint venture between AVIVA PLC and COFCO group, the largest oils and food importer and exporter in China and a leading food manufacturer. ACL commenced operation in Guangzhou in January ,500 employees By 2012, ACL s business had expanded into 12 provinces and 50 major cities. Its current registered capital is about RMB 2946 million. CIGNA CMC 4,240 employees CIGNA CMC is a 50/50 joint venture established in August 2003 between USA based health care management company CIGNA and CMC Group, key state-owned enterprises directly under the Chinese central government. It has a registered capital of RMB 500 million and is headquartered in Shenzhen. By 2012, the business of CIGNA CMC covers nine provinces in China. Telemarketing is the earliest marketing channel for the company and now it is a leading life insurance telemarketer in the market. Foreign insurance companies in China

105 Background comments on participants Foreign insurance company Background comments CITIC-Prudential Life Insurance Company Limited 1,700 employees CITIC-Prudential Life Insurance Company Limited was the first Sino-British joint venture life insurance company when it was established in Guangzhou in October CITIC-PRU is jointly owned by China International Trust and Investment Corporation and Prudential UK PLC. CITIC-PRU has a registered capital of RMB 2.36 billion, in which CITIC and Prudential PLC each hold 50%. By the May 2012, its business had expanded to 12 provincial areas and 50 cities. In 2011, the company relocated its head office from Guangzhou to Beijing. Generali China Life Insurance Company Limited Generali China Life Insurance Company Limited 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 January ,500 employees Heng An Standard Life Insurance Company Limited 580 employees 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 2011, the company increased its registered capital from RMB 2.7 to 3.3 billion. As a result, it has the largest registered capital and assets under management among all foreign life insurance companies in China. Generali China now has operations in 10 provinces with more than 60 outlets. Heng An Standard Life Insurance Company Limited (HASL) is a joint venture life insurance company established by Standard Life Assurance and Tianjin TEDA Investment Company Limited with headquarters in Tianjin since December By October 2012, the registered capital of HASL was RMB billion, of which each shareholder owns 50%. The main business of HASL includes personal insurance for foreigners and domestic individuals, reinsurance and group insurance. HSBC Life Insurance Company Ltd. 280 employees Heng An Standard Life had been in advanced negotiations with Bank of China to sell a majority stake to Bank of China but in late 2010 the deal was terminated. At that time Standard Life issued a brief statement to the London Stock Exchange, saying: It has not proved possible for the parties to reach agreement. Standard Life will continue to develop Heng An Standard Life in partnership with its existing joint venture partner. In the third quarter of 2009, HSBC Insurance (Asia) Limited 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 675 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. The background comments were taken from CIRC and the respective foreign insurance companies websites in October Foreign insurance companies in China 2012

106 Background comments on participants Foreign insurance company Background comments Huatai Life Insurance Company Limited 3,250 employees ICBC AXA Assurance Company Limited 800 employees ING BoB 500 employees Huatai Life Insurance Company Limited is the first nationwide life insurance company in China incorporated by a property & 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 on May 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. Its current registered capital is RMB million. Its business operates in 13 provinces with more than 200 outlets. ICBC AXA Assurance was originally a joint venture of AXA Group and Minmetals Group. It was the first Sino-French insurance company in China and also the first life insurer to be approved by China Insurance Regulatory Commission after the CIRC was established. The company was established in Shanghai in June 1999 with a current registered capital of RMB 2205 million. In July 2012, Industrial and Commercial Bank of China (ICBC), one of the major domestic commercial banks in the country, acquired 60% stake from AXA Group and Minmetals Group. The original partners now hold 27.5% and 12.5% stakes respectively. Formerly ING Capital Life. The company was established in The domestic partner changed in July 2010 and it is now a joint venture between ING Insurance and Bank of Beijing with each of them holding 50% stakes. ING BoB is headquartered in Dalian with a registered capital of 1.75 billion RMB in Manulife-Sinochem Life Insurance Company Limited 1,450 employees Metlife Insurance Company Limited 1,100 employees Manulife-Sinochem Life Insurance is the first joint venture established in China. It was created by Manulife Financial of Canada and Sinochem Corporation in November 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 13 provincial areas and over 50 cities. It was the only Life Insurance Partner in China providing relevant services to the Beijing 2008 Olympic Games. Metlife Insurance CO., was created as a result of Sino US Metlife acquired by United Metlife in March 2011, with a registered capital of RMB 2120 million in Shanghai United Investment Company Limited holds 50% stakes while Metlife of Connecticut and Metlife hold 27.8% and 22.2% respectively. 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 - 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 was called United Metlife. United Metlife is the first foreign insurance company granted to sell investment linked products. The background comments were taken from CIRC and the respective foreign insurance companies websites in October 2012 Foreign insurance companies in China

107 Background comments on participants Foreign insurance company Background comments Old Mutual Guodian Life Company Limited 600 employees Samsung Air China Life Insurance Company Limited 250 employees Formerly Skandia-BSAM Life Insurance, the company was established as the first life insurance joint venture company headquartered in Beijing in January Its shareholders are Skandia, a member of the Old Mutual Group, and Guodian Capital Holding Company Limited, a member of China Guodian Corporation, with a registered capital of RMB 940 million, and each partner holds 50%. In February 2010 Guodian Capital Holding acquired the stake from the former domestic partner. Since then the company s English name has been rebranded but the Chinese name remains the same. Samsung Air China Life Insurance Company Limited is a joint venture between China National Aviation Holding Company and the South Korean company Samsung Life Insurance. The company was licensed in May 2005 in Beijing. Its current registered capital is RMB 500 million. com.cn Shin Kong HNA Life 300 employees Shin Kong HNA Life is a joint venture between Shin Kong Life Insurance (Taiwan) and HNA Group, the holding company of Hainan Airlines. Each partner owns 50% stake of the company. Established in March 2009, the company has a current registered capital of RMB 500 million and a head office in Beijing with outlets in Hainan and Shaanxi Provinces as well. Sino-French Life Insurance Company Limited 60 employees Sino-French Life Insurance 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 background comments were taken from CIRC and the respective foreign insurance companies websites in October Foreign insurance companies in China 2012

108 Background comments on participants Foreign insurance company Background comments Allianz Insurance Company 130 employees Formerly Allianz Insurance Company Guangzhou Branch, Allianz China General Insurance Company Ltd. is a wholly foreign-funded subsidiary insurance company solely owned by Allianz with headquarters located in Guangzhou. It commenced operations on 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. In July 2010 with an official approval from the Chinese Insurance Regulatory Commission, Allianz Insurance Company Guangzhou Branch was permitted to transform from a branch to a subsidiary. In Dec 2011, Allianz increased its registered capital from 220 million to 420 million RMB. AXA General Insurance Company China Ltd. 103 employees AXA acquired 100% of Winterthur Group in June Winterthur obtained an insurance license to operate a full foreign owned branch in Shanghai in Its business operation is licensed to provide a full range of general insurance products ranging from commercial insurance to personal insurance packages for corporations, SMEs and individuals. It has a registered capital of 200 million RMB. Chartis Insurance Company China Ltd. 1,000 employees Chubb Insurance (China) Company Limited Former AIG General Insurance China Ltd. Re-branded to the currently 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. By 2012, Chartis has a registered capital of RMB 601 million. In July 2012, Chartis was granted to do automobile insurance business in China. 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 CIRC. It has a registered capital of RMB 220 million. 95 employees china Groupama SA 525 employees Groupama SA Chengdu Branch was established in October 2004 and signed a cooperation agreement with the Agricultural Bank of China. Its business includes property, health, commercial motor, cargo and personal accident insurance. It also became one of the pilot insurance companies for political agricultural insurance in Sichuan in In June 2011, Groupama China converted from a wholly foreign insurer to a joint venture, with the domestic partner Aviation Industry Corporation of China. Each partner holds 50% stake of the company. In the same time, it increased its registered capital from RMB 250 million to RMB 500 million. The background comments were taken from CIRC and the respective foreign insurance companies websites in October 2012 Foreign insurance companies in China

109 Background comments on participants Foreign insurance company Background comments Liberty Insurance Co. Ltd. 650 employees Mitsui Sumitomo Insurance (China) Company Limited 320 employees RSA Insurance (China) Co. Ltd. 100 employees Samsung Property & Casualty 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 Company Limited In March and September 2012, Liberty increased its registered capital twice to RMB million. Liberty is the only foreign property insurance company based in Chongqing. It has three branches in Beijing, Guangzhou and Hangzhou Created from a merger in 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 500 million RMB. 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 and the third in Wuxi, Jiangsu province in January Royal & Sun Alliance s 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 And 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 two branches in Beijing opened in 2009 Jiangsu Province opened in Samsung Fire & Marine Insurance set up the first Chinese representative office in Beijing in April In 2005 the Shanghai branch was converted to a wholly Korean owned subsidiary. In May 2010 the company was renamed to Samsung Property & Casualty (China). It has a registered capital of RMB 324million and five branches in Beijing, Tianjin, Qingdao, Suzhou and Shenzhen. 200 employees Sompo Japan 300 employees The Dalian Branch of Sompo Japan Insurance Inc., established in 2003, was upgraded to the legal status of a domestic subsidiary in June Sompo Japan established its Shanghai branch in October 2007 and its Guangdong Branch in February 2009, becoming the first Japanese non-life insurance company operating across three major regions of China: North China (Liaoning Province), East China (Shanghai) and South China (Guangdong Province). The company has a current registered capital of RMB 500 million and now expanded to Jiangsu Province and Beijing. The background comments were taken from CIRC and the respective foreign insurance companies websites in October Foreign insurance companies in China 2012

110 Background comments on participants Foreign insurance company Background comments Tokio Marine & Nichido Fire Insurance Co., (China) Ltd. 350 employees XL 14 employees As the first Japanese insurance company in China, TMNF was authorised to open a branch in Shanghai in September In July 2008, the Shanghai branch got its approval to restructure into a wholly owned subsidiary. TMNF China specialises in Cargo and Transportation insurance, At the end of 2010 it had a market share of 15.8% in Shanghai. TMNF has a registered capital of RMB 300 million, TMNF has three branches in Guangdong and Jiangsu Province, and a new one in Beijing opened in August XL Insurance (China) Company Limited is a wholly owned Irish property and casualty insurance company approved by CIRC in December It is headquartered in Shanghai with a registered capital of RMB 200 million. Zurich Insurance Company 120 employees In October 2005, Zurich received the approval from China Insurance Regulatory Committee (CIRC) to prepare the general insurance branch in Beijing. In May, 2006, Zurich obtained the operation approval from CIRC to open a general insurance branch. Zurich Insurance Company Beijing Branch focuses on serving corporate customers, including foreign customers with activities in China and large and medium sized enterprises from China, particularly those with business overseas. In February 2011, Zurich increased its registered capital from RMB 200 million to 492 million. The background comments were taken from CIRC and the respective foreign insurance companies websites in October 2012 Foreign insurance companies in China

111 American Chamber of Commerce in China White Paper Insurance Section 2012 Introduction China s insurance industry encountered some significant headwinds in Total insurance premiums fell to RMB 1.43 trillion (US $225.8 billion), a decrease of 1.3 percent from RMB 1.45 trillion (US $228.8 billion) in Primary property and casualty (P&C) premiums rose 18.5 percent to RMB billion (US $72.7 billion) on the back of an increase in motor vehicle sales, while life insurance premiums fell 8.57 percent to RMB billion (US $153.1 billion) due to policy changes affecting bancassurance distribution of insurance through banks, among other factors. This led several domestic insurers to increase their capital through both equity and debt issuances with the support of the Chinese Insurance Regulatory Commission (CIRC). Other problems were industry-specific, most notably the continuing problems in making the mandatory third party liability (MTPL) automobile liability insurance sector profitable. Restrictions on market entry, expansion, and product offerings by foreign-invested insurance companies and ancillary businesses, continued to impede innovation and deprive consumers of choice. Significant Developments There were several significant regulatory accomplishments in Among the most notable were the following: publication of the 12th Five-Year Plan for the Insurance Industry, including growth targets and the promotion of competition in the market; lifting of the four-year old de facto moratorium on the licensing of insurance asset management companies (IAMCs), which has already led to the licensing of three new IAMCs; the promulgation of additional measures to raise the quality of insurance industry practices and better protect the interests of the insured; and the issue for public comment of draft guidelines on insurance remuneration policies. However, foreign-invested insurers continue to face barriers to market entry and expansion. Domestic insurers and insurance brokerages, particularly larger companies, continue to enjoy regulatory favor with respect to branch approvals, access to capital, and ownership structure, enabling them to benefit at the expense of foreign-invested insurers and to the disadvantage of consumers. Consequently, foreign-invested insurers have continued to lose market share in China. As of year-end 2011, the market share of foreign-invested insurers stood at a mere 3.06 percent, down from six percent in 2004 and 4.37 percent in The decline in life insurance has been particularly sharp, falling from 8.9 percent in 2005 and 5.6 percent in 2010 to 4.04 percent in The market share of foreigninvested P&C companies, who are excluded from the MTPL insurance market, continues to barely register, falling from 1.3 percent in 2005 to 1.06 percent in 2010 before stabilising at 1.09 percent in Foreign-invested specialist health and pension insurers continue to be excluded from the market altogether. Meanwhile, foreign-invested insurance brokerages are restricted to large-scale commercial risks and group life and accident insurance, and are essentially excluded from the automobile insurance market. 108 Foreign insurance companies in China 2012

112 American Chamber of Commerce in China White Paper Insurance Section 2012 Specific Issues US insurance companies, many of which have decades of experience serving consumers around the world, want to deliver their products to Chinese consumers. But in order to do so, they need to be allowed market entry and be granted a license to operate in China, after which their foreign-invested insurance company needs to be accorded national treatment and allowed to compete on a level playing field with their domestically invested counterparts. Unfortunately, as explained below, foreign-invested insurers continue to face barriers with respect to delays in the issuance of licenses, branch approvals, and new product approvals, as well as artificial ownership caps, and other barriers. Licenses AmCham China urges CIRC, the Ministry of Human Resources and Social Security (MOHRSS), and other concerned government departments to terminate all moratoria on the issuance of new licenses and treat foreigninvested applicants equally with their domestically invested counterparts. Pension Insurance and Health Insurance Although a number of US and other foreign-invested life and P&C insurers have received licenses to operate in China, specialist pension and health insurers continue to be denied market entry. MOHRSS has not issued any enterprise annuities licenses since 2007, excluding many internationally known financial institutions from the market and denying Chinese consumers access to their products and expertise. Several US-invested specialist health insurers with many years of experience who wish to help expand China s health insurance market remain on the sidelines while waiting for a license to be issued. Insurance Asset Management Companies The issuance of licenses by CIRC to a small number of IAMCs beginning in December 2010 is a welcome sign that the moratorium on the issuance of licenses in that particular segment of the industry has been lifted and that CIRC is willing to issue licenses to foreigninvested applicants in this segment. This is a welcome development. Sales and Service Channels Branch Expansion No distinction exists in law or regulation between foreign-invested and domestically invested insurers with respect to branch approvals. Nevertheless, US-invested insurers continue to report that branch applications by foreign-invested insurers are subject to lengthier review periods and a de facto refusal by CIRC to review multiple branch applications at the same time. CIRC s published data confirms this as well. By contrast, domestically-invested insurers have enjoyed the competitive advantage of having multiple branch applications reviewed and approved concurrently. AmCham China welcomes the February 2012 notice by CIRC s General Office to level the playing field between foreign-invested and domestically invested insurers with respect to sub-provincial branch and sub-branch approvals. Evidence shows that more equal treatment with respect to branch approvals benefits consumers by developing the market more rapidly and providing wider choice to consumers. Moreover, domestically invested insurers have no reason to fear more equal treatment with respect to branching, as the market share of foreign-invested insurers, even in the geographies where they have the largest market share, is still small. Foreign insurance companies in China

113 American Chamber of Commerce in China White Paper Insurance Section 2012 Bancassurance Bancassurance is an important channel for insurance product sales, particularly for medium- and smallsized insurance companies, including foreign-invested insurance companies. The China Banking Regulatory Commission (CBRC) issued a directive on November 1, 2010, restricting in principle a bank branch from selling the insurance products of more than three insurance companies. This has discouraged bank branches from selling the products of medium- and small-sized insurance companies. The Guidelines on the Supervision and Administration of Insurance Business Conducted by Commercial Banks as Agents, issued March 5, 2011, appeared to replace the quantitative limit with prudential criteria; however, member companies report that the limit continues to be applied in practice, restricting consumer choice. Ownership Life Insurance AmCham China was disappointed to see that the 50 percent ownership cap on foreign-invested life insurers was left intact in the 2011 edition of the Guiding Catalogue on Foreign Investment in Industry. AmCham China continues to urge a lifting of the cap. It has been in place since China was admitted to the WTO and is no longer justified, as domesticallyinvested life insurers have since grown large and established with ready access to capital markets. Foreign-invested life insurers meanwhile also suffer from governance shortcomings as a result of the cap, as all too often the domestic investors in such companies are unable or unwilling to make the additional investments needed to expand the business. Moreover, the 2010 rule prohibiting investments by a single investor in two or more insurance companies in the same line has compelled several foreign insurers to exit one of their holdings. By forcing sales, this rule has negatively impacted the industry s development, hampering the development of specialist insurers and reducing equity value. Insurance Asset Management Companies While we applaud the lifting of the moratorium on new licenses for IAMCs, we note that CIRC continues to regulate this industry on the basis of a 2004 provisional regulation which antedates the 2005 amendment of the Company Law. Consequently, IAMCs must have at least two founding shareholders even though the amended Company Law allows them to be formed with only one founding shareholder. In other words, all insurance companies are required to partner with a second company to manage their own funds. This has a particularly serious impact on foreign investors in life insurance companies who are effectively forced to become a minority shareholder in their own IAMCs, an even more restrictive requirement than the 50 percent cap on foreign ownership in life insurers. Products Property Insurance Foreign-invested insurers have been barred from issuing MTPL automobile insurance, which accounts for 70 percent of China s P&C insurance market. Exclusion from MTPL in turn substantially weakens the capability of foreign-invested insurers to offer supplemental automobile liability insurance. 110 Foreign insurance companies in China 2012

114 American Chamber of Commerce in China White Paper Insurance Section 2012 Such exclusion has deprived consumers of choice and product innovation without benefitting domestically invested insurers, who reported underwriting losses of RMB 9.7 billion (US $1.53 billion) in 2010, nearly double the figure of RMB 5.3 billion (US $834.6 million) in CIRC in August 2011 expressly stated for the first time its intention to research opening of the MTPL market and to introduce advanced technology and management expertise. AmCham China welcomes the commitment made by Chinese Vice President Xi Jinping on his visit to the US in February 2012 to open the MTPL market to foreign-invested insurers. AmCham China is willing to assist in the process of drafting the regulations to implement this commitment. Brokerages AmCham China was disappointed to see that insurance brokerages continue to be classified as a restricted industry in the 2011 edition of the Guiding Catalogue on Foreign Investment in Industry, a restriction that has no apparent justification. Foreign-invested insurance brokerages: 1) in the commercial P&C market are only allowed to broker large-scale commercial risks (annual premiums exceeding RMB 400,000 or US $62,992), which amount to only about 20 percent of the market; 2) are excluded from the automobile insurance market, with the exception of some enterprise motor insurance; and 3) in personal insurance are only allowed to broker group life and accident insurance. The result is a drastic limitation on the scope of business of foreign-invested insurance brokerages to the detriment of consumers. Tax Incentives Pension Insurance China faces serious problems as its population ages. In the US, institution of tax-favored treatment for contributions by individuals and their employers to pension or retirement funds (generically known as 401(k) accounts) has provided a financial foundation for millions of retirees. This helps alleviate some of the responsibilities of the government and the retirees families, while increasing savings for investment. Enterprise annuities fulfill this function in China, but tax deductibility of contributions is required to make them more popular. US specialist pension insurers have extensive experience in this field and are eager to be licensed so that they can assist its development. Health Insurance AmCham China welcomes the government s expansion of healthcare through health insurance following promulgation of the National Healthcare Reform Guidelines. These guidelines recognise the importance of commercial health insurance as a supplement to the government-supported basic health insurance system. As with pension insurance, we would note that tax incentives are an important stimulus to the purchase of commercial health insurance, especially indemnity products. If US specialist health insurers could obtain licenses, they could help advise further on how to promote industry development. Foreign insurance companies in China

115 American Chamber of Commerce in China White Paper Insurance Section 2012 Health Insurance Products, operations, and risk controls differ significantly between life insurers and specialist health insurers. The major products offered by specialist health insurers are indemnity products which have no parallel in life insurance. Health insurers have expertise in managing medical treatment to optimise health outcomes and control costs, while life insurers have expertise in investment management. Given the expansion in dependence on health insurance in China, AmCham China believes that regulating health insurance in a separate department, rather than as a division in CIRC s Life Insurance Department, can further the efficient development of health insurance. Remuneration AmCham China s member companies understand that CIRC is drafting remuneration standards for insurance company personnel. AmCham China acknowledges that the adoption of such standards is a prudential supervisory measure. We believe, however, that it would be inappropriate to set rigid remuneration standards based on market levels, as this would inhibit competition for talent to the detriment of service quality and competition. In general, we urge CIRC to allow insurance companies flexibility in formulating remuneration standards to reward performance while controlling risk. Investment in Unsecured Bonds Many high-quality corporate bond issuers have shifted from issuing secured bonds to unsecured bonds, causing the secured corporate bond market to shrink. To be able to trade unsecured bonds, an insurance company has to either meet the credit capability standards, which are hard for joint ventures to meet, or outsource their funds to IAMCs. However, when a company itself is not yet eligible to invest directly in unsecured corporate bonds, it can be difficult to outsource because IAMCs have not been expressly allowed to manage unsecured corporate bond investments for third parties. Conclusion China has made significant progress in developing an insurance industry that was virtually non-existent 30 years ago. There continues to be a need, however, for much greater reform and internationalisation, as shown in this chapter. 112 Foreign insurance companies in China 2012

116 European Business in China Position Paper 2012/ Insurance Working Group Key Recommendations 1. Increase Flexibility on Ownership for Foreign Investment in Insurance Services Discontinue the formal obligation for foreign life insurers to establish their own market presence in the form of an equity JV. Liberate the level of shareholding within JVs in cases where foreign insurance investors voluntarily decide to enter the market with a JV partnership and permit sovereign changes in the shareholding structure during business development of such JVs beyond 50% foreign participation; likewise, liberalise the option of taking more than one domestic investor into the JV sharing the Chinese investment participation. Liberate the level of permitted equity investment by foreign insurers in existing domestic insurance companies. Increase the options for foreign insurers to maintain more than one equity engagement in an insurance company in China, including concurrent operation of a wholly foreign-owned institution and participation in another licenced insurer. 2. Facilitate Geographical Network Expansion Simplify the time-consuming licence application process for foreigninvested insurers and ensure an equal treatment to all market players with the following two actions: Decentralise the setup verification for foreign insurer s new branches, allowing the CIRC s local counterparts to process each approval request. 3. Improve Market Access 3.1 Abolish the Monopoly of China Export & Credit Insurance Corporation (Sinosure) for Export Trade Credit Insurance Abolish the monopoly of Sinosure for short-term export credit insurance and grant licences to local insurers who have been offering domestic trade credit insurance for at least two years in China. 3.2 Remove Market Access Restrictions for Foreign Insurance Brokers Remove the licence restrictions for foreign brokers, so that they can operate on the same basis as local brokers and make a full contribution of their capabilities to clients in all areas of the insurance market. 3.3 Remove Market Access Restrictions for Foreign Loss Adjusting Companies Clarify access by foreign-invested Companies to the loss adjusting sector and confirm that the establishment of wholly foreignowned loss adjusting companies can be approved in China. Revise/reduce the current level of total assets required for the establishment of a representative office of a foreign loss adjusting company. Streamline the approval process for foreign insurers so that multiple provincial expansions may be approved in parallel. Foreign insurance companies in China

117 European Business in China Position Paper 2012/ Insurance Working Group 4. Treat Health Insurance as a Distinct Category of Insurance Treat health insurance as a distinct category of insurance. In this way, regulations can be developed to address the specific needs of the health insurance sector. A company should be able to hold both life insurance and health insurance licences as they will be of separate categories. Allow foreign specialist health insurers ownership beyond the current 50% foreign ownership restriction. Reduce the minimum capital requirement for health insurance. 5. Reduce Regulation Constraints on Bank Insurance Business Reduce the regulatory constraints on the number of insurers to cooperate with banks on selling insurance products. Return the decision to the banks to decide on the number and which insurers to cooperate with on bank insurance business. 6. Exempt/Waive Foreign Insurers Representative Offices from Readjusted Taxation Method Improve coordination and channels of communication between regulators. Create industry-specific regulation, particularly regarding representative offices. Issue an official announcement waiving/exempting representative offices of foreign financial services from the readjusted taxation method. Introduction to the Working Group The Insurance Working Group represents leading European insurers, brokers and other insurance service providers engaged in life, non-life, reinsurance and specialty insurance. Its members have different operational structures, but all of them consider China as a long-term priority market. They are fully committed to contributing to the sustainable growth of the Chinese insurance market. They are aware of the crucial role commercial insurance plays in China s sustainable economic growth and social stability. To this end, they are willing and prepared to provide added value to the industry by introducing best practices and technical know-how. Recent Developments In May 2011, the Working Group met with the China Insurance Regulatory Commission s (CIRC) Assistant to the Chairman, Mr. Chen Wenhui (current Vice Chairman) and later with CIRC Development and Reform Department. The Working Group appreciates CIRC s willingness to an open and constructive dialogue that will not only benefit European insurers, brokers and other service providers, but also China s insurance industry and, most importantly, the Chinese people. The Working Group welcomes the efforts in reforming and opening up the market In December 2011 and April 2012, the Working Group met with the International Taxation Administration Division (Large Business Administration Division) of Beijing Municipal Office State Administration of Taxation. The European Chamber s Insurance Working Group delegation highlighted the legal framework of insurance representative offices and the strict supervision of CIRC. During 114 Foreign insurance companies in China 2012

118 European Business in China Position Paper 2012/ Insurance Working Group the meeting, both sides discussed the issue of financial services representative offices taxation. The Working Group also met the Shanghai Municipal Government Financial Services Office in Market Developments In 2011, industry premium income was CNY 1.43 trillion, a 10.4% increase over The original premiums in life insurance increased by 6.8% to CNY billion and premiums in property and casualty insurance increased by 18.54%2. Foreign insurance enterprises account for 4.04% in the life insurance market and 1.09% in the property insurance market, compared with 5.63% and 1.06% in Despite the decline of their market share, premium income is growing consistently and foreign companies still benefit from the overall growth of the insurance market in China. Another highlight of 2011 is the development of the insurance intermediaries market. During the period of the 11th Five-Year Plan, this market became increasingly open and since 2005, insurance intermediaries are the fastest-growing sub-industry. The average increase on the rate of revenue was at 41.17% per year. In 2011, the premiums collected through insurance intermediaries accounted for 74%.4 Regulatory Developments In a major positive development, it was announced that China would open up mandatory third-party liability insurance for motor vehicles to foreign-invested insurance companies as of 1st May, This means that all insurance companies, including foreign insurers, will be allowed to sell mandatory minimum coverage for motor vehicles. The Working Group looks forward to the details of the implementation of this change. In another positive development, the approval process for the geographical network expansion of foreign insurance companies has seen some progress, although it remains an issue (as detailed below in Key Recommendation No. 2). The CIRC s Outline Plan for the Development of the Insurance Industry under the 12th Five-Year Plan was released in August During the 12th Five-Year Plan period, it is stated that the market will be more open and foreign companies will be encouraged to contribute in the development of rural China. On the 1st July, 2011, the PRC Social Insurance Law was released. The Working Group believes that it will improve the pension system for rural residents and the pension system for non-working urban residents. It will also provide more chances for endowment insurance for commercial insurance companies. In March 2011, the new Guidelines for Regulation of the Bancassurance Business of Commercial Banks was released7. This new regulation explains in part the decrease in the growth rate for life insurance. The premium income collected through Bancassurance is large, however, the new rule expressly prohibits insurance companies to sell in bank branches, prohibits the mixed sale of insurance products and limits to no more than three co-operative insurance companies for each bank outlet. Foreign insurance companies in China

119 European Business in China Position Paper 2012/ Insurance Working Group On 8th March, 2012, CIRC issued the Circular on Strengthening the Administration of Commercial Auto Insurance Clauses and Rates8. This Circular stipulates that insurance companies should negotiate and confirm the actual value of insured automobiles based on fair market value. Insurance companies should agree on the insured amount after consulting with policy holders. Moreover, the Circular emphasises that insurance companies cannot refuse to fulfil their insurance liabilities through waiving their right of subrogation. In order to promote the regulation and healthy development of online insurance services by insurance agents and brokerage companies, CIRC promulgated the Supervisory Measures for Online Insurance Services of Insurance Agents and Brokerage Companies The Measures clarify that insurance agents and brokerage companies engaged in online insurance services should adopt the after-the-fact reporting method. Moreover, the Measures establish the entry threshold for insurance agents and brokerage companies engaged in online services. The Measures also establish basic business rules such as centralised online business operations, reasonable insurance procedures, strict implementation of obligations under insurance contract specifications, and service quality guarantees. In addition, the Measures call for full information disclosure. On 8th April, 2012, CIRC released the Plan for Constructing China s Second Solvency Regulation System10. These new mechanisms will strengthen insurers capital adequacy supervision, risk management and information disclosure to ensure they retain good financial condition and can pay claims on time. The document has made it clear that China will use three to five years to build up new supervisory mechanisms on insurers compensatory capability. In March 2012, CIRC held a meeting on consumer protection for the insurance industry. This is the first time this has been discussed in China and brings China closer to building a consumer rights policy in the insurance sector. Key Recommendations 1. Increase Flexibility on Ownership for Foreign Investment in Insurance Services Concern The obligation for foreign life insurers to establish their own operations in China in the legal form of a joint venture (JV) with a maximum foreign shareholding of 50% imposes artificial limits for sovereign market participation and has caused operational problems in managing such ventures. Confining foreign insurers to one single engagement in the same branch of business prevents the spread of service and creates an unfair playing field for foreign companies. Assessment According to the Foreign Investment Catalogue11 some foreign financial investments are categorised as restricted. For foreign life insurance companies this policy is reflected in the obligation to establish their own business, as opposed to investment into existing domestic companies, in the legal form of an equity JV in which their shareholding is capped at 50%. Since China s admission to WTO this restriction has not always proved advantageous either for wider spread of international risk management 116 Foreign insurance companies in China 2012

120 European Business in China Position Paper 2012/ Insurance Working Group standards or for consistent operational strategies in cases where JV partners failed to agree on longer term business objectives or capital funding. However, the concept of strategic partnerships between foreign and domestic investors may very well prove effective if the JV partners provide complementary competencies in developing sustainable business models, share common long-term objectives and are capable of consistently providing capital for funding organic growth. There may be changing individual circumstances for either shareholder during business development of their JV. If this cannot be reflected in adjustments of the shareholding structure it may cause inconsistencies and instabilities in managing the company. While the market regulator has already admitted changes in shareholding of foreign-funded JVs towards a higher equity participation of domestic partners, including splitting up domestic investment among several Chinese shareholders, the same should in principle be applicable to foreign shareholders who wish and agree with their partners to increase their initial shareholding to an equity majority. Likewise, foreign life insurance investors should be permitted from the inception of their JV to include several domestic partners, while retaining equity majority. Several domestic insurers have established multi-line engagements in personal insurance based on financial holding structures. Similarly, Chinese banks are permitted to establish insurance operations besides their original banking and securities businesses. These positive developments reflect growing market maturity and improve consumer choice. For foreign insurers, however, such comprehensive market engagement is not yet possible as they can only operate one insurance company in one branch of business. This imposes administrative limitations for foreign insurers that are not justified in the light of widening opportunities for domestic market players. Recommendation Discontinue the formal obligation for foreign life insurers to establish their own market presence in the form of an equity JV. Liberate the level of shareholding within JVs in cases where foreign insurance investors voluntarily decide to enter the market with a JV partnership and permit sovereign changes in the shareholding structure during business development of such JVs beyond 50% foreign participation; likewise, liberalise the option of taking more than one domestic investor into the JV sharing the Chinese investment participation. Liberate the level of permitted equity investment by foreign insurers in existing domestic insurance companies. Increase the options for foreign insurers to maintain more than one equity engagement in an insurance company in China, including concurrent operation of a wholly foreign-owned institution and participation in another licenced insurer. Foreign insurance companies in China

121 European Business in China Position Paper 2012/ Insurance Working Group 2. Facilitate Geographical Network Expansion Concern Recently, sub-branch opening approvals for foreign insurers have been delegated to CIRC s provincial level. These new measures reflect continuing efforts to open up the insurance industry market, but approval processes for foreigninvested insurers into new provinces remain complicated when compared to that faced by domestic insurers. Assessment No formal regulation restricts the number of new branch opening by insurers, and foreign invested insurers can also apply for several new branch approvals at the same time. However in practice, additional provincial branches for foreign insurers are only approved consecutively, with relatively long processing times between two approvals. In contrast, domestic insurers can expand as rapidly as they like. Furthermore, domestic insurers branch setup verification is handled by the CIRC s local counterparts, meanwhile, the setup verification for foreign insurers new branches are still centralised by the CIRC s head office. Despite the low market share, most foreign insurers still have confidence in the Chinese market. Foreign insurers are active in provincial expansion plans and in developing new products to meet consumers insurance demands in different provinces. This will contribute to the healthy development of the insurance industry in China. Recommendation Simplify the time-consuming licence application process for foreigninvested insurers and ensure an equal treatment to all market players with the following two actions: Streamline the approval process for foreign insurers so that multiple provincial expansions may be approved in parallel. Decentralise the setup verification for foreign insurers new branches, allowing the CIRC s local counterparts to process each approval request. 3. Improve Market Access 3.1 Abolish the Monopoly of China Export & Credit Insurance Corporation (Sinosure) for Export Trade Credit Insurance Concern Chinese companies have only one choice of export trade credit insurer to consider in order to protect their company against the risk of bad debts arising from insolvency or default of buyers outside China. Assessment Under current market access conditions, no local insurer is permitted to offer export trade credit insurance to its customers. If insurance coverage is required, then this can only be issued by Sinosure. China still has a major reliance on exports to sustain its growth and it follows that protection against the risk of non-payment is vital to ensure that Chinese companies are not adversely affected by non-payments caused by such events as the global financial crisis and currently the Eurozone crisis. Trade credit insurance is a crucial stabiliser for the economy, it protects against volatility. During the Global Financial Crisis, a large number of Chinese exporters faced financial losses stemming from defaulted 118 Foreign insurance companies in China 2012

122 European Business in China Position Paper 2012/ Insurance Working Group payment of credit accounts. In order to reduce these risks, trade credit insurance protects local companies against these defaults. Generally speaking, accounts receivables account for around 40% of a company s balance sheet. Traditionally, Chinese companies relied on letters of credit; however recently open account sales for export business has now become widespread. Export trade credit insurance provides protection against the risk of non-payment at a favourable rate compared to the cost of letters of credit. The additional benefit of export trade insurance is that capacity in the banking sector is freed up that would otherwise be used for letter of credit. In 2012, the Chinese government announced that export sales could be denominated in Chinese Yuan (CNY). This will stimulate more open account export sales in CNY. By abolishing the monopoly of Sinosure and allowing other local insurers to underwrite this business, there will be greater opportunity for Chinese export companies to receive more services throughout China and have easier access to export insurance because local insurers have a wider geographical spread and servicing network than Sinosure. Secondly, the financial burden on the Chinese Government as a result of claims is dissipated throughout the private sector. Recommendation Abolish the monopoly of Sinosure for short-term export credit insurance and grant licences to local insurers who have been offering domestic trade credit insurance for at least two years in China. 3.2 Remove Market Access Restrictions for Foreign Insurance Brokers Concern Domestic and foreign insurance brokers should enjoy the same level of market access, as agreed between China and the WTO. However, the licences granted to foreign insurance brokers in China restrict them in working with medium- and large-sized companies only. Assessment The CIRC License for foreign brokers restricts them to doing business with companies with investment capital of more than CNY 150 million (EUR 18.1 million) and more than CNY 400,000 (approximately EUR 48,000) premium spend (with exceptions for reinsurance, international shipping, aviation and transportation insurances). Thus small and mediumenterprises (SME) would fall outside the scope of the business licence; from a marketing point of view, it is difficult for foreign brokers to target just the larger companies in this segment. As a result, foreign brokers are prevented from using their global experience of developing the SME business to contribute to the further development of the Chinese insurance market. It should be noted that foreign brokers will not normally be able to access this widespread market alone, using their existing distribution strategy. This is because SME business is both local in nature and very dependent on relationships also foreign brokers only have a limited network of local offices, restricting access to clients and the ability to provide the necessary local servicing. They would therefore need, as elsewhere in the world, to work in cooperation with smaller, local brokers and make use of technology to access clients in this sector. Foreign insurance companies in China

123 European Business in China Position Paper 2012/ Insurance Working Group Recommendation Remove the licence restrictions for foreign brokers, so that they can operate on the same basis as local brokers and make a full contribution of their capabilities to clients in all areas of the insurance market. 3.3 Remove Market Access Restrictions for Foreign Loss Adjusting Companies Concern 1 Although there are no restrictions on foreign ownership in this sector, in practice, it seems that foreign ownership a loss adjusting institution is limited. Assessment The main regulations relating to loss adjusting include the Insurance Law of the People s Republic of China (promulgated in 1995 and most recently revised in 2009) and the Provisions on the Administration of Insurance Adjusting Institutions, which were issued by CIRC on 25th September, 2009, and took effect from 1st October, Although in practice there are no specific restrictions on foreign investment in loss-adjusting institutions, there was also no approval issued by CIRC for foreign-invested insurance adjusting institutions in the past few years. According to an initial inquiry with CIRC, foreign ownership in a loss-adjusting institution is currently capped at 25% and a wholly foreign-owned, loss-adjusting institution is not permitted. Recent difficulties in the claims area have been a key concern for the Chinese insurance regulator as Mr. Xiang Junbo, Chairman of the CIRC, observed. Speaking at a conference in Beijing in February 2012, he said that difficulties with claims settlements and low-quality service have affected the reputation and image of insurance companies12. As a result, he called for a comprehensive action plan to resolve the issues, and automobile insurers in China have been given three years to improve their claims management practices. This determined approach from the CIRC urging insurers to manage claims more effectively is designed to protect and improve the legitimate rights and interests of insurance consumers. More recently, CIRC has supported insurance services companies with their plans to form ancillary insurance groups after it described the current state of the sector as small, fragmented, chaotic and inferior (Asian Insurance Review, 4/5/2012). The objective is to expand servicing capability and shows that the CIRC is determined to increase the level of discipline and professionalism in the insurance intermediary sector. Given rising standards in the claims area of the Chinese insurance market, the demand for claims management services provided by loss adjusting companies could expand rapidly. Insurers are also likely to have greater expectations with regard to service providers, and will demand that the loss adjusting market improves and develops in order to meet these growing requirements. Foreign loss adjusting companies should be able to provide claims management services to the Chinese market. By allowing them access to the Chinese market they can share best practice procedures and customer service procedures that would in turn enhance compliance with regard to accepted professional standards. Limiting foreign ownership in a loss adjusting institution would, however, hinder such developments. 120 Foreign insurance companies in China 2012

124 European Business in China Position Paper 2012/ Insurance Working Group Recommendation Clarify regarding access by foreigninvested companies to the loss adjusting sector and confirm that the establishment of wholly foreignowned loss adjusting companies can be approved in China. Concern 2 A foreign loss adjusting company may establish a representative office (RO) in China providing it satisfies certain requirements, an example being that the company s total assets of the preceding year should be in excess of USD 2 billion (approximately EUR 1.4 billion, CNY 13 billion). Assessment The current regulation for the establishment of a RO of foreign loss adjusting company is set out in the Measures on the Administration of Representative Office of Foreign Insurance Institutions (the Measures ) in As defined in the Measures, foreign insurance institutions include insurers, re-insurers, intermediaries, associations and other insurance-related organisations. With regard to the establishment of a RO, one of the requirements refers to other prudential criteria stipulated by CIRC. In November 2008 the CIRC issued an interpretation ruling which stated that prudential criteria included a total asset value of USD 2 billion. This particular restriction applies equally to insurers, reinsurers and intermediaries, and includes loss adjusting companies without due regard to the actual risk profile of each profession. Requiring a total asset value of USD 2 billion as a prerequisite for establishing a RO undoubtedly restricts access to the Chinese market for many foreign loss adjusting companies, and also penalises the Chinese loss adjusting market in general. Recommendation Revise/reduce the current level of total assets required for the establishment of a representative office of a foreign loss adjusting company. 4. Treat Health Insurance as a Distinct Category of Insurance Concern Foreign specialist health insurers have been unable to enter the market. They are encountering difficulties both due to the bundling of health insurance with life insurance and also because of foreign ownership restrictions placed on health insurance. Assessment The Working Group supports China s push to develop a specialist health insurance market that will cater to customers growing demand for quality healthcare funding, while ensuring that their interests are protected through appropriate regulation. The nature of health insurance differs markedly from that of life insurance, and therefore requires a tailored set of regulations. Health insurance requires special operational expertise and risk management, particularly with respect to the management of medical risk and medical costs. Its mono-line product nature also means its operating scale and asset scale are not comparable with life insurance. In fact, given the short-term nature of traditional medical indemnity products, the risk profile of health insurance more closely resembles property insurance than it does life insurance. In most jurisdictions in Europe, health insurance is actually Foreign insurance companies in China

125 European Business in China Position Paper 2012/ Insurance Working Group regulated as a form of general insurance (referred to as property insurance in China). In China, the similarity of health and property insurance is already somewhat reflected in the regulations, in that property insurers are permitted to sell short-term health insurance products. In contrast with property insurance, where foreign insurers may apply for a wholly -owned foreign enterprise licence, foreign ownership of health insurers is restricted to 50%. European specialist health insurers are keen to share their expertise with China but are delayed in entering the market by foreign ownership restrictions and finding a partner similarly committed to the sector, while property and casualty insurers who have no particular expertise in health insurance are already offering health products. Recommendation Treat health insurance as a distinct category of insurance. In this way, regulations can be developed to address the specific needs of the health insurance sector. A company should be able to hold both life insurance and health insurance licences as they will be of separate categories. Allow foreign specialist health insurers ownership beyond the current 50% foreign ownership restriction. Reduce the minimum capital requirement for health insurance. 5. Reduce Regulation Constraints on Bank Insurance Business Concern In November, 2010, the China Banking Regulatory Commission (CBRC) issued a bank insurance policy that limited the number of insurance companies and barred insurance company employees from conducting business in banking outlets13. This policy might effectively exclude foreign or small insurers from the bank insurance business. Assessments In November 2010, CBRC s policy prohibited insurance companies from allowing insurance personnel to sell insurance at bank branches. Branches were also prevented from selling more than three insurance companies products at each branch. Under such a rule, it is fair to assume that one of these companies will be a larger domestic insurance company, one will be a bank-owned insurance company and the third company may or may not be a foreign JV company. Smaller domestic companies will also seek to be the third supplier of insurance product. Recommendation Reduce the regulatory constraints on the number of insurers to cooperate with banks on selling insurance products. Return the decision to the banks to decide on the number and which insurers to cooperate with on bank insurance business. 6. Exempt/Waive Foreign Insurer s Representative Offices from Readjusted Taxation Method Concern The State Administration of Taxation has not taken into consideration specific industry regulations that should have been taken into account in order to differentiate representative offices of foreign financial services (e.g. representative offices of foreign insurance companies) from ordinary trade/commercial representative offices. 122 Foreign insurance companies in China 2012

126 European Business in China Position Paper 2012/ Insurance Working Group Assessment The Insurance Working Group and its members believe that representative offices for foreign insurance companies should be differentiated from trade representative offices. The following support our argument: It is a regulatory requirement for foreign insurers to have a presence in China in the legal form of a representative office for at least two years before their application for the business licence (Article 8.2, Regulation of Foreign insurance Organisations, CIRC). No life insurer can generate revenue (including for their mother company) before being granted the business licence. This is the main difference with a trade representative office which can help increase business volume for the mother company. Last but not the least, stable and consistent tax policies are crucial for the healthy and sustainable development of China s economy. Recommendation Improve coordination and channels of communication between regulators. Create industry-specific regulation, particularly regarding representative offices. Issue an official announcement waiving/exempting representative offices of foreign financial services from the readjusted taxation method. As per China s regulation on foreign insurance organisations, the representative offices of foreign insurers should pay an annual supervision fee of CNY 20,000 to CIRC, which is a not negligible charge for a non-revenue generating entity. Most EU headquarters consider this fee to be a China presence tax. Any extra income tax based on expenses for representative offices might be interpreted negatively by the international financial services community, leading to misunderstanding of China s foreign trade policy and opening reform efforts. Foreign insurance companies in China

127 References: 1. China Insurance Market Grows in 2011, Faces Challenges in 2012, International Insurance News, 11th January 2011, viewed on 9th April 2012, globalsurance.com/blog/chinese-insurancemarket-grows-in-2011-faceschallenges-in html 2. The National original insurance premium income in 2011, CIRC, 7th February 2012, 3. The National insurance business data table in 2011, CIRC, 7th February 2012, 4. The research of Insurance Intermediate Market development & supervise during the 12th Five-year Plan, CIRC, 17th May 2011, attachments/2011/ Decision No. 618 on Revising Compulsory Traffic Accident Liability Insurance Regulations, State Council, 30th March 2012, gov.cn/zwgk/ /30/content_ htm 6. Outline Plan for the Development of the Insurance Industry under the 12th Five-Year Plan, CIRC, 3rd August 2011, web/site0/tab68/ i htm 7. Print and Distribute the Guidelines for Regulation of the Bancassurance Business of Commercial Banks, CIRC, 13th March 2012, circ.gov.cn/tabid/106/ InfoID/158279/frtid/3871/Default.aspx 8. Circular on Strengthening the Administration of Commercial Auto Insurance Clauses and Rates, CIRC, 8th March 2012, gov.cn/tabid/106/ InfoID/194826/frtid/3871/Default.aspx 9. Circular on Strengthening the Administration of Commercial Auto Insurance Clauses and Rates, CIRC, 27th September 2012, circ.gov.cn/ tabid/106/infoid/178478/frtid/3871/default.aspx 10. Circular on the Plan for Constructing China s second solvency regulation system, CIRC, 8th April 2012, tabid/106/infoid/197933/frtid/3871/ Default.aspx 11. Catalogue for Guidance for Foreign Investment, State Council, 24th December 2011, W pdf 12. CIRC Prepare New Investment Reforms for China Insurers, International Insurance News, 9th February 2012, viewed 5th May 2012, globalsurance.com/blog/circ-prepare-newinvestment-reforms-for-china insurers html govview_9a0f11a324ba4343bed0111 8DA2C0CA6.html 124 Foreign insurance companies in China 2012

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