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  1. 1. Asia-Pacific | Autumn 2006 Asia-Pacific | March 2008 Asia-Pacific | May 2007 Inside INTRODUCTION Industry statistics Welcome to the fourth edition of Watson Wyatt’s quarterly newsletter covering developments in the Chinese insurance market. This edition Market update covers news reported up to the end of March 2008. Two major developments in this edition are additional licenses for new New entrants companies, and the uncertainty surrounding the latest policy on closer Potential entrants bank-insurer alliances. Expansions We understand that the applications for a dozen insurance licenses are Corporate development currently on the desks of the insurance regulator. Although no names of prominent foreign companies are included, more entrants into the Regulatory update market will further promote competition, and will place more pressure on the current challenge for existing companies of recruiting and retaining office and sales staff. Bank investment in insurer Micro-insurance The new regulation (in fact it is an MOU jointly signed by the banking and insurance regulators) to allow commercial banks to take equity Insurance product pricing interest of more than 20% in existing insurance companies is regarded Insurance investment as the most important development in the past quarter. The top four Cross selling domestic banks have all announced their intention to move into this arena. Distribution With most of the growth generated by foreign and joint venture life companies in 2007 coming from bancassurance, the move to allow commercial banks to form their own insurance business is predicted to Agency have a major impact on current relationships and business levels. Bancassurance At this stage, the China Insurance Regulatory Commission (“CIRC”) Telemarketing has not yet finalized the full details on the above mentioned rules, and Broker we will continue to report on this development over the coming months. We hope you continue to find the newsletter interesting and informative. Products We would particularly like to receive your feedback on how we can improve this document over time to increase its value to you. Personnel changes Watson Wyatt Insurance and Financial Services Practice, China Corporate Contacts
  2. 2. INDUSTRY STATISTICS  GWP for health insurance reached companies, hospitals and policy RMB38.4 billion, an increase of holders. First quarter 2008 2.39%. GWP for accident insurance reached RMB19.0 billion, Potential entrants China’s insurance industry generated an increase of 17.4%. gross written premium of RMB297.91 Applications for a dozen new billion in the first quarter of 2008, an Most of the life insurance growth came insurance companies are being increase of 51.6% as compared with from the sales of universal life and processed by the CIRC. These the same period in 2007, according to unit-linked products. companies include Li’an Life, Guo Rui the China Insurance Regulatory Life, Bang Cheng Life, Tian Bao Life, Commission (“CIRC”).  Of the RMB494.9 billion GWP Dekang Life, Hengtai Life, Centennial generated by life insurance Life, as well as Zhong An Insurance  This included RMB213.06 billion for companies (which includes parts of and Zhong Jin Insurance. life insurance, an increase of accident and health business), 62.1%, and RMB64.15 billion for universal life contributed RMB84.6 Many of these new companies will be general insurance, an increase of billion, an increase of 113.4% jointly sponsored by State-owned and 24.6%. compared with a year ago, and private enterprises, a major departure representing 17.1% of life GWP. from previous practices.  The CIRC also reported that in the first quarter of 2008, health  Unit-linked products generated  Li’an Life, sponsored mostly by insurance generated GWP of GWP of RMB39.4 billion, an State-owned and private RMB15.14 billion, an increase of increase of 558.4% compared with enterprises based in Jiangsu 66.3%. GWP for accident a year ago, representing 7.9% of Province, has a registered capital insurance reached RMB5.56 billion, life GWP. of RMB600 million. an increase of 26.3%.  Total market share of universal life  Zhong’an Insurance will have  The growth rate of life insurance is and unit-linked products was registered capital of RMB535 43 percentage points higher than a 25.0% in 2007, compared with million, and one of its major year ago, mostly due to the 10.1% in 2006. Universal and unit- shareholders is Ningbo United. booming of unit-linked business, linked products contributed to which generated GWP of RMB22.5 87.3% of the overall growth of life  Centennial Life will be sponsored billion, or six times that of a year business. by Oriental Asset Management and ago. a number of companies based in MARKET UPDATE Dalian in the northeast. If  In the first two months of 2008, the successful, Oriental AMC will market share of foreign and joint New entrants become the second AMC to venture companies was 5.72%. venture into life insurance, after down from the 8% for 2007. Taiwan Life has gained regulatory Cinda’s sponsor of Happy Life. Foreign companies were led by approval to set up its joint venture in AIA, Cigna-CMC and Aviva-Cofco. Xiamen, Fujiang Province. The CIRC has announced that a number of Skandia-BSAM, which relies Chinese partner, Xiamen C&D, and commercial banks have forwarded exclusively on unit-linked product Taiwan Life each contributed half of their applications to invest in existing sales, dropped to 14th and 16th in the total of RMB240 million registered life insurance companies. CIRC overall ranking of foreign and joint capital. Earlier, Taiwan Life held Chairman Wu Dingfu said that “five to venture companies in January and negotiations with Southern Airlines and six” commercial banks will be February. The company ranked 8th Changhong Electronics on setting up approved this year for this pilot in gross premium in 2007. life joint ventures. It is likely that the program. (See “Regulation” for company will have some of its back detailed policy explanations.) Whole year 2007 office functions in Shanghai. Bank of Communications President Earlier, CIRC reported that in the WellPoint, the largest U.S. health Jiang Chaoliang announced that whole year of 2007, the insurance insurer and parent company of Anthem entering insurance business is “the key industry generated gross written Insurance Companies, has established development strategy” for the fifth premium of RMB703.6 billion, an the Anthem Insurance Companies largest bank in China in 2008. Jiang is increase of 25% compared with 2006. Beijing Representative Office, in its confident that the Bank of move to establish working Communications will be among the  GWP for life insurance business relationships with Chinese insurance first batch of commercial banks to gain reached RMB446.4 billion, an companies. The application to set up regulatory approval. increase of 24.5% compared with the representative office was approved the same period in 2006. by CIRC in August 2007. WellPoint ICBC also announced that it has and Swiss Re have respectively been finished selecting its insurance partner,  GWP for general insurance stood approved to set up their own health and its investment in insurance could at RMB199.8 billion, a year-on-year insurance consulting companies in be completed before the end of this growth of 32.6%. China to provide third party year. The media reported that there administration services for insurance are possibilities that ICBC and China
  3. 3. International Insurance Holdings headquarters from the Shanghai 50% of Fortis Asset Management, (“CIIH”) might be working to jointly operation. whose name will be changed to Ping control Taiping Life, with Fortis, An Fortis Investment. Ping An Taiping’s existing shareholder,  Aviva-Cofco has obtained purchased 4.18% of Fortis in reducing its stake. approval to open Xianmen November 2007 and has since Branch. increased its shareholding to 4.99%. China Construction Bank has also  United Metlife has been expressed its intention to take control Ping An Life has increased its agency approved to set up Zhejiang of Happy Life. Happy Life, which force from 205,437 in 2006 to 301,801 Branch. opened for business in November at the end of 2007. Agency 2007, is 55% owned by Cinda Asset Samsung Air China Life has productivity per month has also risen Management, which in the 1990s was increased its registered capital by from RMB4,733 to RMB5,316, with 13- formed to take over the bad loans from RMB300 million to a total of RMB500 month persistency ratio moving up China Construction Bank. million. from 89.0% in 2006 to 90.4% in 2007. Average number of policies sold per Bank of China Chairman Xiao Gang Skandia-BSAM has also increased its agent has reached to 1.3. has announced that the bank’s aim is registered capital by RMB100 million to become a financial holding company to a total of RMB420 million. China Pacific Insurance Group that comprises banking, fund insisted that its IPO plan in Hong Kong management, securities and insurance. Corporate developments has not been delayed. A number of Xiao said that the bank expects to set individual and institutional investors up a new life insurance subsidiary or China Life has reported its 2007 gross have reportedly expressed interest in purchase equity in an existing life premium rose 12.5% to RMB111.89 investing in the Hong Kong IPO, insurance company in 2008. Whether billion and investment income grew by including sovereign wealth fund Abu regulations will allow this to happen 68% to RMB78.25 billion. The Dhabi Investment. The company remains unclear. company has grown its agency force generated RMB20.7 billion in life and to approximately 638,000, and the total non-life gross premiums in the first two Expansion number of bank outlets selling China months of 2008. Life products has grown to about There have been a number of branch 90,000. Bohai Insurance has been successful approvals and openings for new in turning itself quickly into a national domestic and joint venture companies China Life (Group) is reportedly in company. The company announced in recent months, including: touch with Agricultural Bank of China that it has opened 21 branches by mid- (“ABC”) and China Development Bank March, with 155 sub-branches and  Happy Life has been approved with the prospect of becoming a field offices. There are additional 83 to set up branches in Shanghai strategic investor in either of these two branches of various levels that are and Anhui and Shanxi Provinces. entities. China Development Bank is being prepared. The company’s considered as a favorite. Earlier national coverage is expected to be  Taiping Life has been approved reports suggest that China Life has completed by the end of this year. to prepare for the setup of its interest in taking 20% ownership of branch in Inner Mongolia. ABC before the latter goes for public Taikang Life has overtaken New listing. China Life to become the fourth largest  Yingda Taihe has been approved to establish Shanxi and life insurance company in China. In Fujian Branches. China Life, in a clear strategic move, 2007, Taikang’s gross written premium grew its unit-linked business by only reached RMB34.3 billion, an increase  Sunshine Life will be planning 3% in 2007, in sharp contrast with of 65%. A major growth engine has new branches in Zhejiang, many of the major market players. been the sale of unit-linked products, Guangdong, Shanxi, Hubei, The weighting of first year regular which generated RMB700 million Hunan and Shandong Provinces premium stood at 92.5%. gross written premium, representing and in the city of Chongqing. 55% of bancassurance business. Ping An Insurance plans to inject  Huatai Life has been approved additional capital to all of its nine Taikang Life has completed its to set up Guangxi Branch. subsidiaries in 2008, including Ping An national consolidation of underwriting Life, Ping An Insurance, Shenzhen and claims administration, with major  Guohua Life has been approved Ping An Bank, Ping An Asset benefits in risk control, standardization to set up Zhejiang and Beijing and efficiency. The company started Management, Ping An Trust, and Ping Branches. An Securities. It also plans to apply to to centralize its underwriting business set up a mutual fund company. from November 2007.  AEGON-CNOOC has opened its Guangdong Branch. The company has already increased Ping An Insurance (Group) has PICC Group is moving closer to listing its registered capital by RMB100 signed a memorandum of itself on the stock market. The million to RMB900 million. understanding with the Fortis Group in company is reportedly conducting an setting up partnerships in global asset internal feasibility study on the issue.  Allianz China Life has been management business. Ping An will PICC Property and Casualty is already approved to set up a Shanghai invest Euro2.15 billion to purchase branch, separating its
  4. 4. listed in the Hong Kong Stock to finish national expansion by the end REGULATORY UPDATE Exchange. . of 2010, and aims to be among the top 10 life insurance companies in the Bank investments in Minsheng Life expects to generate nation by that time. insurers gross premium exceeding RMB5 billion in 2008 and to become The number of foreign non-life China’s insurance and banking profitable for the first time. The companies authorized to conduct regulators, the CIRC and CBRC, company reported that the weighting of commercial auto insurance has published a joint Memorandum of its regular premium business increased to eight. Aioi of Japan, Understanding on January 22 on represented 22.35% of its gross GroupAMA of France and Hyundai furthering the insurance and banking premium in 2007, and its 13-month Insurance of Korea have been recently cooperation and cross-sector persistency ratio reached 77%. approved for this business, joining the regulation. Commercial banks will be ranks of AIU, Allianz, Winterthur allowed, on a pilot program basis, to Ping An Life has launched “Ping An (AXA), Tokio Marine, and Mitsui invest in existing life insurance VIP Club” as part of its initiative to Sumitomo. companies. The current commercial promote customer loyalty. The banking law does not allow banks to company currently has more than 40 Willis Insurance Broker has been invest more than 20% in insurance million customers, and the VIP Club promoting its China Turbo Plan – a companies. CIRC, in conversations will be used as the platform to provide three-year business development, with the media afterwards, stressed what the company describes as “long investment and human resources plan that the new policy only applies to term incentive planning and value that aims to improve the company’s banking investments in existing life added services”. market position. Willis generated insurance companies, and not in income in excess of RMB90 million in respect of banks aiming to set up new The CIRC has published, for the first 2007, a growth of 24%. A major life entities. However, at least one of time, the statistics on enterprise strategic option for Willis is to the major banks has indicated its annuity business in 2007. The total purchase equity stakes in existing intention to start a new insurance assets under management for broker or agency companies. Willis company. enterprise annuities by pension currently operates a 51/49 joint companies stood at RMB8.4 billion in venture with Pudong Insurance Broker On March 31, 2008, CIRC circulated 2007, and Ping An was the market in Shanghai. the second draft of Administration of leader in all three major areas: fee Equity Ownership of Insurance income, asset size and investment Sino-Life Insurance has moved its Companies. This is a draft for peer performance., with market shares at registration location from Shanghai to review. In comparison with the earlier 57.1%, 59.3% and 63.3% respectively. Shenzhen. China Life (Overseas) draft issued about a year ago, this Shanghai represents 20% of China’s moved its registration location to draft further relaxed qualification enterprise annuity market, although Shenzhen and was granted a reward requirements for domestic investors in more than 80% of companies in of RMB20 million by the Shenzhen investing in insurance company equity Shanghai still do not have enterprise Government. stakes, but requirements for overseas annuity schemes. investors remain unchanged: assets at China Reinsurance Group has set up above US$2 billion, three consecutive Taiping Life produced its highest its representative office in London in a years of profitability, long term credit levels of net profit ever in 2007 (at major step described by the company rating at above A. Detailed solvency HK$1,018.06 million), with its towards becoming an international requirements, as previously listed, performance mainly attributable to player. China Re received an injection have been taken out. The new strong premium growth (at of US$4 billion in April 2007 by the regulation also eliminated three-year HK$16,245.25 million) and improved State-owned Central Huijin Company. non-tradable restrictions of shares. returns on investment assets, Its total assets are close to RMB90 The most important change is as particularly from China’s A share billion. follows: the previous draft stipulated market, according to China Insurance that a legal entity investor (except International Holdings. Key premium Sunlife Everbright Life registered State Council approved insurance drivers during the year included 604% growth in new business from its groups and insurance companies) regular premium and unit-link premium agency channel in January 2008, with cannot own in excess of 20% of an sold through individual agents and gross premium reaching RMB190 "insurance company". The new draft bancassurance. million, leading all joint venture replaced the word "insurance companies in the same period. The company" with "financial institution". Hua’an Insurance is set to expand its company’s gross premium grew by The change is believed to permit “chain store” concept in 2008. In 2007, 214% in 2007. commercial banks to own more than the company recruited 2,291 staff for 20% of an "insurance company", but 168 field offices. Hua’an regards its Tian’an Insurance has applied to set not more than 20% of the "financial self-owned franchise-style “chain store up its own asset management institution" which owns an insurance field office platform” as its major company. About 20% of its gross affiliate. differentiator. income in 2007, at RMB7.4 billion, came from investment gains. Huaxia Life has finalized its three year Micro-insurance strategic plan. The company expects
  5. 5. CIRC is set to publish its first guideline Cross selling The number of insurance agents on the promotion of microinsurance. reached 2.01 million at the end of 2007, The regulator has been encouraging CIRC plans to publish new rules on an increase of 29.3% compared with qualified life insurance companies to cross selling of life and non-life the end of 2006. This includes 1.77 partner up with banks and postal insurance products for companies not million life agents, an increase of offices to test microinsurance pilots affiliated with the same insurance 28.4%. across the country. group. CIRC lifted its ban on cross selling for insurance group companies,  Life insurance agents generated  Particular attention will be on and the major beneficiaries have been gross premium of RMB319.4 billion promoting low premium protection China Life, PICC and Ping An. Ping in 2007, up 20.5% compared with products targeting low income An is reportedly generating the most the same period last year. population. revenue from cross selling.  Life agents generated total  The regulator will also adjust the DISTRIBUTION commissions of RMB39.5 billion in qualifications for sideline agency 2007, with average commission per companies in taking on Business written by insurance person of RMB22,400 per annum. microinsurance business. intermediaries (banks and postal offices, as well as brokers and The number of life agents working  The regulator also encourages agencies, etc.) reached RMB579.3 for independent brokers reached local CIRC offices, insurance billion in 2007, an increase of 29.4%, approximately 60,000 in 2007, a associations and life companies to representing 82.3% of gross written dramatic increase of 18,500 compared conduct feasibility studies on premium for the industry. with 2006. It is believed that most of microinsurance pricing. the increased manpower has been Shandong Insurance Association has from existing life companies. It is also  China Life reported that it identified five major mis-selling reported, however, that independent generated RMB1.2 billion in behaviours that have the most serious agents performed better than tied microinsurance premium in 2007 in impact on sales compliance, including: agents in manpower growth, premium its pilot run. growth, income growth, per capita  Failing to explain in detail the productivity (two times) and per capita Life insurance pricing contents of insurance contracts to income (1.6 times). policy holders, including exclusions, CIRC is encouraging the claims settlement, grace period, A joint survey by the CIRC and LIMRA commercialisation of life insurance and definition. of insurance agents in Beijing, pricing and has started to run pilot Shanghai, Guangdong and Sichuan programs for selected product  Exaggerating product returns, indicated that 76% of insurance agents categories in certain regions. especially those for participating were satisfied with their career and investment products, without development and 74% were satisfied  A major overhaul is believed to be mentioning investment risks and with the company they work for. The on the 2.5% minimum interest rates unpredictability. survey, which was conducted in June for life policies, which has been in 2007 and included more than 5,600 force for nine years. A series of  Confusing bancassurance products insurance agents from 20 different interest rate hikes and inflation with bank’s financial planning insurance companies, also showed have intensified the need for such products, with the impression that that the average annual income of changes. customers will be able to get back insurance agents was RMB52,000, or their money when needed. 1.89 times the average income in  China Life was approved in March these locations. to sell its new simplified  Less than truthful contents of microinsurance policies, with brochures and other publications Bancassurance crediting rates as high as 3.3%, in on product and investment returns Hebei, Jiangsu and Henan by individual agents, while only The number of bank branches selling provinces. insurance provincial branches are bancassurance products grew by a net usually authorized to publish 2.1% to 77,149 in 2007. The number Insurance investment product brochures. of postal offices that sell insurance products grew by 1.9% to 18,853 CIRC is set to expand insurance  Misleading policy holders to hide during the same period. investment pilot programs in certain facts or conditions that are infrastructure and equity investment in not insurable, or insurance agents The combined market share for banks 2008. The regulator is also conducting signing insurance contracts for and postal offices as well as travel feasibility studies in insurance their customers, which lead to agencies, auto dealer, and railway investment in derivatives as well as potential contract disputes or other sales offices was 31.9%. other financial vehicles. CIRC also legal problems. encourages domestic companies to Standard Chartered (China) has purchase equity stakes in overseas Agency predicted that its bancassurance fee companies. income will represent more than 30% of its total income from financial
  6. 6. planning business by 2011. The bank regional arrangement for the broker medical consultation by top rated launched bancassurance in August and it is expected to help Generali to institutions based in North America. 2007 and currently sells six further penetrate the Dongguan market. bancassurance products from Citic- CN Insure has also signed a PERSONNEL CHANGES Prudential and Allianz China Life. comprehensive strategic cooperative agreement with Ping An Life. CN Corporate China Construction Bank has started Insure reportedly promised to generate to sell a mutual fund product RMB60 million in gross premium for Wang Yi has resigned from his manufactured by Ping An Asset Ping An, the largest of any deal position as President and CEO of Management Company. This is between a broker and a life company. PICC Property and Casualty. His China’s first mutual fund product replacement is yet to be announced. manufactured by an affiliate of a life PRODUCTS insurance company. Its initial charge Tan Kar Hor has been appointed the of 1% is similar to fund products China Life has launched its major unit CEO of Citic-Prudential Life Insurance. offered by commercial banks. linked product “China Life Yufeng Unit Linked Insurance” and has planned to Alan Wood has been appointed the Skandia-BSAM Life has launched a target selected regions with mature CEO of China Life CMG. high-end investment product with market acceptance. The product minimum investment at RMB3 million. includes four investment accounts and Brandon Caneer has been appointed Most unit-linked products in the market carries accidental insurance with to take charge of alternative carry a minimum investment of maximum coverage that equals to distribution for AIG’s businesses in RMB10,000. Skandia said that the 205% of account value. China Life’s Chinese mainland and Taiwan. He individual account cash value of 6% of launch was timed at what it believes also acts as the Deputy CEO of its current unit-linked product the near bottom of China’s equity Nanshan Life in Taiwan. customers already exceed RMB3 market. Previously, China Life had left million each. By the end of 2007, 21 the unit linked market to its domestic Chen Fang has taken on the role of insurance companies were selling unit- competitors and foreign companies. CEO for Dazhong Insurance. linked products with the total number of investment accounts exceeding 130. Great Wall Life has launched what it Gong Zhirong has been appointed the described as a universal health care CEO of Cathay Life. Telemarketing product which combines critical illness insurance with medical insurance. The Li Peng has been approved to be the Tianping Auto Insurance has been policy covers critical illness, death and chief actuary for Samsung Air China approved to sell auto policies through dismemberment until the policy holder Life. telemarketing. The approval follows turns 66 years old, after which it those by the CIRC for Ping An P&C covers both medical, critical illness as Zhao Jianxin has been approved to be and Continent Insurance. The well as dismemberment. the chief actuary for Minsheng Life. telemarketing operations of these insurers are based in Shanghai. Auto Heng An Standard Life has launched a Bobby Bo has been named the chief insurance represented 53% of non-life composite child protection plan, which actuary of Dragon Life. insurance premium in Shanghai in covers accident, medical and 2007, or RMB12.4 billion, a growth education that could be customized to John Atherton has been appointed the rate of 20.1% from 2006 levels. the different needs of policy holders. chief actuary for Heng An Standard These policies also carry the features Life. of participating as well as unit-linked Insurance brokers products. China Life has taken a 49% stake in a Huaxia Life’s new critical illness newly formed insurance broker China product has introduced the concept of Life Safety Insurance Broker. Its payment for second claims, which partner is China Coal International. covers no fewer than 22 critical The registered capital is RMB15 illnesses. The policy covers 35 million. China Coal International is the different critical illnesses in three broad leading company in coal project groups, and the critical illness covered engineering. Owning insurance by the second claim cannot be in the brokers is no longer new to insurance same group as the first claim. manufacturers. New China Life was the first to obtain a broker license in AIU has introduced a new health and 2003. PICC also owns three broker accident insurance plan targeting white licenses, in Beijing, Shanghai and collar females. The company Guangzhou respectively. describes the major feature of the new product as its low price (a monthly CN Insure, the Nasdaq listed broker payment of RMB11 for sum insured of company, has reached a regional deal RMB100,000 for a 24-year-old woman) with Generali China Life in Dongguan, and free long-distance access to Guangdong Province. This is the first
  7. 7. CONTACT DETAILS Watson Wyatt’s insurance and financial services practice in China is based in Shanghai and is managed by Michael Ross for life insurance, Verne Baker for non-life insurance and Nan Wang for distribution consulting. Michael Ross – Head of Life Insurance Consulting, China Region Verne Baker – Head of General Insurance Consulting, Asia Pacific Nan Wang – Director, Distribution Practice Watson Wyatt Consultancy (Shanghai) Ltd 11/F Floor, Kerry Center 1515 West Nanjing Road Shanghai, 200040 China Tel: (8621) 5298 6888 Fax: (8621) 5298 5161 Emails: Watson Wyatt is present in seven locations in Greater China, including Beijing, Shanghai, Shenzhen, Guangzhou, Wuhan, Hong Kong and Taipei. The Chinese Insurance Market newsletter has been prepared by Watson Wyatt for general information purposes only and does not constitute professional advice. The information, opinions and projections contained in this newsletter are derived from various sources and have not been independently verified by Watson Wyatt. If you require professional advice or require any further information, please contact any of the above named individuals. Errors and omissions excepted.