Page 334 - 2018 White Paper on the Business Environment in China
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8 White Paper on the Business Environment in China
global life insurance growth would have dropped issuing new products for three months as it singled out
from 4.7 percent to 2.3 percent in 2016. While China’s one of the insurer’s product designs it said “deviates
life insurance market expanded rapidly, its growth in from the fundamentals of insurance. “They were very
the property and casualty insurance market was more concerned about the product that was created by
measured. China’s property and casualty insurance Anbang that appeared to be a protection product, but
market grew 9 percent. Globally, the property and was really a wealth management product disguised
casualty segment expanded by 4 percent, which Allianz as an insurance product,” said Radwan. Anbang had a
Research said was the weakest rate of growth since high-risk appetite, with 20 percent of life insurance
2010, following five years of growth averaging more assets invested into equities — against 2 percent
than 5 percent. China’s property and casualty growth among peers in the U.S., noted Radwan. “If you look at
reflected one fifth of the global property and casualty their balance sheet, it looks more like a balance sheet
market growth in 2016 (Allianz). of a hedge fund as opposed to a balance sheet of an
insurance company,” he said. “It was a very aggressive
China passed Japan in 2009 and is the world’s investment approach that they took with their balance
second-largest economy behind the United States. sheet.” Despite its troubles, Anbang is still a “very cash-
The digital economy has been especially rapid in its rich company” and despite short-term revenue risks,
growth, with more than 20 percent annual growth since there is likely to be little immediate risk from a financial
2009 and about 47 percent of global retail e-commerce perspective, Radwan said (Tan).
sales. In this environment, the growth and change of
the insurance market is also striking. Gross premium Historically, like many developing insurance markets,
exceeded 3 trillion yuan in 2016, with annualized growth CIRC kept close control of policy pricing both in life
of more than 20 percent since 2013. Life is the largest insurance and property and casualty. The liberalization
market segment, but health is the fastest growing. It of interest rates allowed in pricing has been progressively
is estimated that during 2016, the insurance premium applied to different life product types between 2013
growth in China represented 47 percent of the global and 2015. While old regulations had a strict cap on the
growth in insurance premiums. With the local economy interest rates used in determining policy premiums,
still growing and much lower penetration rates than new regulations remove the cap but still require
more developed markets, China’s insurance industry still that products using rates higher than 3.5 percent for
sees great opportunities for further growth (Wagner). nonparticipating and 3.0 percent for participating
receive permission from CIRC (Wagner).
Anbang said in June 2017 that its Chairman, Wu
Xiaohui, was no longer able to fulfill his duties. The For property and casualty, the first emphasis of
brief statement cited unspecified personal reasons pricing liberalization has been on auto insurance, which
for the move. “This is part of an effort to clean house is the dominant product. A pilot of pricing liberalization
in the insurance industry. Ever since the Chairman of was rolled out to six provinces in April 2015, followed
the CIRC got detained, everybody saw this coming,” by national liberalization in July 2016. Commercial
said Sam Radwan, Partner and Co-founder of Enhance insurance rates are still controlled, but further
International. “It’s not just Anbang they are looking at; liberalization is expected. In addition to liberalizing
they are probably looking at other companies,” he told the pricing standards for insurance, CIRC also has
CNBC. Radwan’s management consultancy advises the greatly expanded the list of permitted investments,
CIRC and Chinese insurers China Life, Sunshine and allowing insurers to improve their investment returns,
Taikang. As part of the concerted effort to clean up create better diversification of risk and tools for risk
the insurance industry, particularly the life insurance management, and encourage insurance companies’
business, authorities are sending the message that investments to help overall economic growth. In 2010
“you’re not in the business of wealth management, and 2012, CIRC began permitting investments in
you’re in the business of providing insurance protection,” equity and real estate. Following the “Several Opinions”
he said. The Chinese government had tried to send paper in 2014, CIRC also allowed venture capital and
the same signal in 2016, cracking down on high-yield private equity investments. Insurers are required to
life insurance products, but “without a whole lot of meet various qualifications before investing directly in
luck,” said Radwan. Earlier, issues about such products nonstandard asset classes (Wagner).
resurfaced when the CIRC suspended Anbang from
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global life insurance growth would have dropped issuing new products for three months as it singled out
from 4.7 percent to 2.3 percent in 2016. While China’s one of the insurer’s product designs it said “deviates
life insurance market expanded rapidly, its growth in from the fundamentals of insurance. “They were very
the property and casualty insurance market was more concerned about the product that was created by
measured. China’s property and casualty insurance Anbang that appeared to be a protection product, but
market grew 9 percent. Globally, the property and was really a wealth management product disguised
casualty segment expanded by 4 percent, which Allianz as an insurance product,” said Radwan. Anbang had a
Research said was the weakest rate of growth since high-risk appetite, with 20 percent of life insurance
2010, following five years of growth averaging more assets invested into equities — against 2 percent
than 5 percent. China’s property and casualty growth among peers in the U.S., noted Radwan. “If you look at
reflected one fifth of the global property and casualty their balance sheet, it looks more like a balance sheet
market growth in 2016 (Allianz). of a hedge fund as opposed to a balance sheet of an
insurance company,” he said. “It was a very aggressive
China passed Japan in 2009 and is the world’s investment approach that they took with their balance
second-largest economy behind the United States. sheet.” Despite its troubles, Anbang is still a “very cash-
The digital economy has been especially rapid in its rich company” and despite short-term revenue risks,
growth, with more than 20 percent annual growth since there is likely to be little immediate risk from a financial
2009 and about 47 percent of global retail e-commerce perspective, Radwan said (Tan).
sales. In this environment, the growth and change of
the insurance market is also striking. Gross premium Historically, like many developing insurance markets,
exceeded 3 trillion yuan in 2016, with annualized growth CIRC kept close control of policy pricing both in life
of more than 20 percent since 2013. Life is the largest insurance and property and casualty. The liberalization
market segment, but health is the fastest growing. It of interest rates allowed in pricing has been progressively
is estimated that during 2016, the insurance premium applied to different life product types between 2013
growth in China represented 47 percent of the global and 2015. While old regulations had a strict cap on the
growth in insurance premiums. With the local economy interest rates used in determining policy premiums,
still growing and much lower penetration rates than new regulations remove the cap but still require
more developed markets, China’s insurance industry still that products using rates higher than 3.5 percent for
sees great opportunities for further growth (Wagner). nonparticipating and 3.0 percent for participating
receive permission from CIRC (Wagner).
Anbang said in June 2017 that its Chairman, Wu
Xiaohui, was no longer able to fulfill his duties. The For property and casualty, the first emphasis of
brief statement cited unspecified personal reasons pricing liberalization has been on auto insurance, which
for the move. “This is part of an effort to clean house is the dominant product. A pilot of pricing liberalization
in the insurance industry. Ever since the Chairman of was rolled out to six provinces in April 2015, followed
the CIRC got detained, everybody saw this coming,” by national liberalization in July 2016. Commercial
said Sam Radwan, Partner and Co-founder of Enhance insurance rates are still controlled, but further
International. “It’s not just Anbang they are looking at; liberalization is expected. In addition to liberalizing
they are probably looking at other companies,” he told the pricing standards for insurance, CIRC also has
CNBC. Radwan’s management consultancy advises the greatly expanded the list of permitted investments,
CIRC and Chinese insurers China Life, Sunshine and allowing insurers to improve their investment returns,
Taikang. As part of the concerted effort to clean up create better diversification of risk and tools for risk
the insurance industry, particularly the life insurance management, and encourage insurance companies’
business, authorities are sending the message that investments to help overall economic growth. In 2010
“you’re not in the business of wealth management, and 2012, CIRC began permitting investments in
you’re in the business of providing insurance protection,” equity and real estate. Following the “Several Opinions”
he said. The Chinese government had tried to send paper in 2014, CIRC also allowed venture capital and
the same signal in 2016, cracking down on high-yield private equity investments. Insurers are required to
life insurance products, but “without a whole lot of meet various qualifications before investing directly in
luck,” said Radwan. Earlier, issues about such products nonstandard asset classes (Wagner).
resurfaced when the CIRC suspended Anbang from
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