An Introduction of China Non-life Insurance Market · 2013. 4. 30. · 7 $79,722 Netherlands 11.30%...

Introduction of P/C Insurance Market in China

Context

Economic Environment in China

P/C Insurance Market in China – Development Status

– Market Potential

P/C Insurance Regulation in China – Overview

– Solvency Regulation

– Reserve Regulation


Rapid Economy Growth

• The world's second-largest economy since 2010.

13582

26581 40151

51932 10.0% 10.1%

11.3% 12.7%

14.2%

9.6% 9.2% 10.4%

9.30% 7.80%

0%

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4%

6%

8%

10%

12%

14%

16%

0

10000

20000

30000

40000

50000

60000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GDP Development of China in Last Decade

Nominal GDP Growth Rate of Real GDP ( RMB Billion )

Rapid Economy Growth

• Consumption and investment are rising continuously and rapidly.

• And their growth rates reach 16.3% and 21.3%, respectively.

• Net export maintains a stable growth.


2008 2009 2010 2011 2012

Total Retail Sales ofConsumer Goods

11483 13268 15700 18392 21031

Fixed Assets Investment 17283 22460 27812 31149 37468

Amount of Export 10039 8203 10702 12324 12716

05000

10000150002000025000300003500040000( RMB Billion )

P/C Insurance Market in China

Development Status

Market Structure

Highly Concentrated Market

Investment

Rapid Growth – Premium, Sum Insured, Assets and Equity, Companies

Profitability

Auto Insurance

Market Structure -- Companies

• Foundation of new insurance companies must been approved by CIRC, with at least 0.2 billion RMB registered capital.

• Insurance companies must been organized as limited liability company or wholly state-owned company.

• By 2012, there are 11 insurance groups, 138 insurance companies, and 16 insurance asset management companies in China.

P/C Insurance Market in China -- Development Status

Domestic P/C, 42

Foreign P/C, 21

Domestic Life, 45

Foreign Life, 30

Domestic Re, 3 Foreign Re, 5

Numbers of insurance companies in 2012


Highly Concentrated Market

Top 3 cover over 65% market share in 2012.

PICC, the largest P/C company in China, ranks the first in Asia, and second in the world, among all single brand P/C companies.

Auto insurance accounts for over 70% marker share in 2012.

Company Direct Premium

Written 2012 (RMB Billion)

Market Share

Cumulated Market Share

PICC 193 34.9% 34.9% Pin An 99 17.9% 52.8% CPIC 70 12.6% 65.3%

China United 25 4.4% 69.8% China Life 24 4.3% 74.0%

Coverage

Direct Premium

Written 2012 (RMB Billion)

Market Share

Cumulated Market Share

Commercial Auto

289 52.3% 52.3%

CTPL 111 20.1% 72.4%

Enterprise Property

36 6.5% 78.9%

Agriculture 24 4.4% 83.3% Liability 18 3.3% 86.6%


Investment

4.3% 3.1% 2.7% 3.0%

3.6%

5.8%

12.2%

3.4%

6.4%

4.8% 3.6% 3.4%

0%

2%

4%

6%

8%

10%

12%

14%

Return on Investment

Cash at bank

32.0%

Bonds 47.1%

Stocks 6.9%

Funds 5.3% Other

8.8%

Insurance Industry Investment Portfolio in 2011


Rapid Growth -- Premium

• The growth rate of P/C direct written premium reaches 22.6%.

• Growth trend tends to be stable.

245 299

403

478

553

0

100

200

300

400

500

600

2008 2009 2010 2011 2012

Direct Written Premium of P/C Insurance Sector

( RMB Billion )

Rapid Growth -- Sum Insured

The growth rate of Sum Insured reaches 22.3%.


187562

258332 264300

369273

419605

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2008 2009 2010 2011 2012

Sum Insured

( RMB Billion )

Rapid Growth -- Assets and Equity

– Assets and equity of P/C industry increase by 19.7% and 42.3% , respectively, in 2012.


2008 2009 2010 2011 2012

Assets 469 489 584 792 948

Equity 50 69 97 155 221

0100200300400500600700800900

1000Assets and Equity of P/C Industry

( RMB Billion )

Rapid Growth -- Companies


47

52 53

59

62

40

45

50

55

60

65

2008 2009 2010 2011 2012

Number of P/C Insurance Companies

Profitability

• Underwriting profit has been falling since 2010 .

• The most profitable year in underwriting is 2011.

• Combined ratio jumped 4.26% from 2011 to 2013.


-13 -10 8 18 12

106.7% 104.5% 97.3% 95.3% 97.2% 99.5%

-16.2%

2.8%

21.5% 18.6% 13.6%

-30%

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50%

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90%

110%

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-5

5

15

25

35

2008 2009 2010 2011 2012 2013Jan.&Feb.

Underwriting Profit and Combined Ratio

Underwriting Profit Combined Ratio ROE

( RMB Billion )

Profitability

Decomposition of combined ratio

Combined Ratio = Loss Ratio + Expense Ratio


2009 2010 2011 20122013

Jan.&Feb.

Loss Ratio 66.3% 63.1% 61.2% 61.3% 63.2%

Expense Ratio 38.2% 34.2% 34.0% 36.0% 36.3%

Combined Ratio 104.5% 97.3% 95.3% 97.2% 99.5%

88%

92%

96%

100%

104%

108%

0%

20%

40%

60%

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Combined Ratio Loss/Expense Ratio

Decomposition of Loss Ratio


Payment per claim Claim frequency Premium per policy

__

_ Pr

Claim IncurredLoss Ratio

Earned emium

_

_ _

Claim Incurred

Number of Claims

_ _

_ _

Number of Claims

Number of Policies

_ Pr

_ _

Earned emium

Number of Policies

Auto Insurance

Auto insurance accounts for over 70% marker share in 2012, with rising loss ratio.

Claim severity in 2012 increased by 3.4%.

• Compensation for body injury went up by 10%;

• Auto parts price rose by 10%;

• Hourly wage for Mechanic increased by 13.5%.

Claim frequency in 2012 increased by 2.3%.

• NCD became less and less effective on reducing claim frequency.

• Deductible clauses were not strictly enforced.

• Competition between companies got more intense.


Auto Insurance

Premium adequacy is declining.

• Discount rate rises since 2010.

• Premium per policy has a slight growth of 0.78%, caused by rapid increase in sum insured of commercial insurance (18.68%).


2009 2010 2011 2012Q12012

Q1-Q22012

Q1-Q32012

Discount Rate 18.2% 14.6% 15.9% 17.5% 17.9% 18.0% 18.2%

13%

14%

15%

16%

17%

18%

19%

Growth Trend of Discount Rate

Market Potential

Penetration and Density of P/C Insurance Sector

Changing Coverage Structure

Oversupply and Undersupply of Products

Enormous Demands

P/C Insurance Market in China

Penetration and Density of P/C Insurance Sector

– Penetration in China is 17% of U.S.

– Density is only 3% of U.S.

Rank Nonlife

Premiums Country

P/C Insurance Penetration

P/C Insurance Density

1 $667,107 U.S. 4.44% $2,126

2 $131,292 Germany 4.26% $1,615

3 $130,741 Japan 2.98% $1,026

4 $109,486 U.K. 4.87% $1,737

5 $98,359 France 4.44% $1,499

6 $87,319 China 0.77% $65

7 $79,722 Netherlands 11.30% $4,765

8 $69,045 Canada 4.97% $2,013

9 $55,426 Italy 3.04% $905

10 $51,223 South Korea 3.30% $1,048

Top Ten Countries by P/C Direct Premiums Written (2011)

P/C Insurance Market in China -- Market Potential

Changing Coverage Structure

• Over 70% of P/C premium comes from auto insurance.

• Auto’s contribution to premium increment is decreasing.

• Other coverage is emerging, e.g. agriculture insurance.


2008 2009 2010 2011 2012

Premium Contribution 69.6% 72.0% 74.6% 73.3% 72.4%

Contribution to new business 60.7% 82.9% 82.1% 66.5% 66.7%

50%

55%

60%

65%

70%

75%

80%

85%

Contribution of Auto Insurance


2008 2009 2010 2011 2012

Premium ofAgricultural Insurance

11.1 13.4 13.6 17.4 24.1

Contribution tonew business

15.9% 4.3% 0.2% 5.1% 8.9%

0%2%4%6%8%10%12%14%16%18%

0

5

10

15

20

25

30

Contribution of Agricultural Insurance

Premium ofAgricultural Insurance

Contribution tonew business

GR:21.4%

Premium

(RMB Billion)

Changing Coverage Structure -- Agriculture

• Premium volume of agriculture insurance ranks No.2 over the world.

Oversupply and Undersupply of Products

Over 18,000 products in market, with 90% products barely have premium income.

Lack of product innovation;

Short of customized products according to region, season or special need of

consumers.


Enormous Demands

• Booming macro economy of China stimulates domestic demand, which leads to rapid development of insurance industry.

• Growth rate of P/C premium is highly related to growth rate of GDP, with correlation coefficient of 0.8 during past three years.


2010Q1

2010Q2

2010Q3

2010Q4

2011Q1

2011Q2

2011Q3

2011Q4

2012Q1

2012Q2

2012Q3

2012Q4

Growth Rate of Premium

43.1% 38.1% 37.0% 40.0% 14.3% 17.1% 17.7% 18.7% 15.2% 14.7% 15.1% 15.7%

Growth Rate of GDP

11.9% 10.3% 10.6% 9.8% 9.7% 9.5% 9.6% 8.9% 8.1% 7.6% 7.4% 7.9%

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Growth rate of P/C premium and GDP

Enormous Demands

• The world's No. 1 vehicle producer & Emerging stage of vehicle industry.

• New car sales will continue to stimulate premium growth.

• New demand of auto insurance emerging

• Auto insurance is highly related to new car sales, with correlation coefficient 0.94 during 2008-2012.

• Recently, increasing rate of premium is larger than vehicle sales, which indicates new demand of auto insurance is emerging.


935

1380

1827 1842 1931

170 216 300 350 401

2008 2009 2010 2011 2012

Sales of vehicle and Premium of Auto Insurance

Sale of Vehicle (Million)

Premium of Auto Insurance (RMB Billion)

48%

32%

1% 5%

27%

39%

17% 14%

2009 2010 2011 2012

Increasing Rate

Increasing rate of auto insurance premium

Increasing rate of vehicle sales

Enormous Demands

Increasing fixed Investments demand engineering insurance

Correlation coefficient of cumulated fixed investment and sum insured of engineering insurance is 0.93 during 2010-2012.

Foreign trade demands export credit insurance

Correlation coefficient of gross export value and premium of export credit insurance is 0.7 during 2010-2012.


y = 0.0008x2 + 0.1674x + 853.11 R² = 0.8945

0

4000

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mu

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inve

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Sum insured of engineering insurance

(RMB Billion)

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1000150020002500300035004000

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Grossexport value

Premium of exportcredit insurance

Enormous Demands

Premium volume of agriculture insurance ranks No.2 over the world.

Potential

Crop insurance covers for 40% of arable area, with some region under 10%.

Start-up stage of livestock Insurance, forest insurance.

“Agricultural insurance act” officially carried out on March 1st, 2013

• Focus on crop insurance, livestock Insurance, forest insurance

• Supporting policy for seed production insurance, fishery insurance, agricultural machinery insurance, farm house insurance and

• Corporation of agriculture-related credit and insurance.


• Overview

• Solvency regulation

• Reserve regulation

P/C Insurance Regulation in China


Regulation Scheme: Three Pillars

Solvency

Establish dynamic solvency regulation system, complete actuarial system, unified statistical method and valuation standards.

Corporation governance

Establish corporate governance structure with general meeting, board of directors, board of supervisors and manager group which have their own responsibility, cooperate and counterbalance with each other.

Market behavior

Protection of consumers’ interests

Regulation of affiliate transaction of insurance companies, insurance sellers’ behavior, customers’ information management and etc.


Regulation with Chinese Characteristics

Adapting to international trend

Accounting principles

Actuarial technologies

Solvency

Adapting to the emerging market

Consideration of rapid growth and market order

Protection of consumer’s rights and interests

• Consumer Protection Bureau, including over 4400 Insurance Consumer Affairs Committees.

• Consumer hotline specialized in insurance: 12378

Products regulation

• Improper products lead to many market problems directly or indirectly

• Pre-sale review system of insurance product

• Promoting rating mechanism reformation


Five Pillars of Non-life Insurance Risk Regulation

Core capital

Premium retained should be no more than 4 times of the sum of book capital and provident fund.

Cash flow

The cash flow indexes of the insurance market, especially of the non-life investment insured productions should been under regulation.

Asset-liability matching

Asset-Liability management committee has been founded in 2013, doing research to establish a preliminary regulation system.

Solvency

Reserving

P/C Insurance Regulation in China -- Solvency

Overview of Solvency Regulation

Position

The core of insurance regulation

History

Stage 1 of China Solvency System was established in 2008, mutually recognized with European Solvency II.

• Mutual recognition questionnaire was replied to European Union in 2012.

Stage 2 of China Solvency System is around the corner.

P/C Insurance Regulation in China -- Solvency Solvency quota requirements of Stage 1 in China

Minimum capital requirements

• Based on premiums and claims

• Similar to Solvency I in Europe

Actual capital measurement

• Admitted assets: a discount of book value

• Admitted liabilities: measured on a statutory-accounting basis

• Similar principal to RBC

Comparison of solvency results

• Results of China Stage 1 is basically consistent with EU Solvency II and RBC.

• Solvency regulation in China now is quite strict, which conforms to international solvency regulation requirements.

Company Premium 2011

(100 Million RMB) Market Share

Solvency quota

MCR quota of EU SII

SCR quota of EU SII

RBC quota

1 PICC 1,734 36.3% 184% 137% 34% 275%

2 Pin An 833 17.4% 166% 153% 38% 251%

3 CPIC 616 12.9% 233% 209% 52% 337%

4 CCIC 163 3.4% 154% 144% 36% 202%

5 Sunshine 133 2.8% 172% 172% 43% 343%

6 Sino safe 49 1.0% 479% 450% 113% 566%

7 Huatai 48 1.0% 152% 137% 34% 324%

8 Tianpin 40 0.8% 152% 146% 36% 222%

P/C Insurance Regulation in China -- Solvency Framework of China Stage 2

Regulation Foundation

Enterprise Solvency Management

Refer to 26 Insurance Core Principles, and Common Framework for the Supervision of Internationally Active Insurance Groups published by IAIS

Three Regulation Pillars: Consistent with international trends

Quantitative capital requirements,

Qualitative regulatory requirements,

Market restraint mechanism.

Characteristic

Unified regulation;

Risk oriented, balance with valuation of insurance companies

Includes operation risk, systemically important risk and countercyclical risk in the second pillar

Attach importance to emerging market: considering a lower confidence level of VaR.

A Glance at First Pillar: Quantitative capital requirements

Capital requirements of insurance risk, market risk, credit risk; Prudential regulatory capital requirement on macro level; And adjustable capital requirement.

Consideration of correlation between risks

P/C Insurance Regulation in China -- Reserving

Mature Reserving Regulation

Legal Basis:

Feb. 2009, “Law of Insurance”

Accounting Standard:

Aug. 2008, “Accounting Standards for Business Enterprises No. 2”, adapted to international accounting standards

General Requirements:

Definition, valuation methods, reporting system of reserve

Feb. 2004 “Reserving Regulation for P/C Business of Insurance Company” and its implementing rules


Mature Reserving Regulation

Responsibility Supervision:

Jul. 2010 Standard for Appointed responsible actuary for P/C company, who should sign actuarial statements of reserving reports, rating reports of new product and etc.

Reference Requirements:

Jul. 2010, “Standard of Reference Marital of Valuation Process for P/C Business”

Valuation Process:

Mar. 2012 “Internal Control Standard of Reserving for P/C Business of Insurance Company”

Valuation Results: Reserving adequacy regulation, insight into reserving quality in time.

May. 2012 “Retrospective Analyses for P/C reserve of Insurance Company”

Third-party Audits


“Internal Control Standard of Reserving for P/C Business of Insurance Company”

Principles

responsibility assignment : actuarial, financial, underwriting, reinsurance, IT, investment departments and etc.

Fundamental Data

Compulsively automatic registration of reported claims

• Time limit: 3 days for auto insurance, 15 days for others;

• Automatic assignment of case reserve and ,

• Update in time according to development of the case;

• Case reserve compulsively raised according to delay of loss assessment.

Update automatic assignment rules in time according to claim experience

Valuation

Data extraction and reconciliation, assumption setting, reinsurance analysis, volatility analysis, adequacy analysis, corporation of financial and actuarial teams and etc.

Accounting

Compare actuarial valuation results with accounting statement

Retrospective analysis requirement


Empirical Study of the Non-life Reserve Adequacy Pretest

financial ratio method

Some financial index is related to retrospective analyses result, e.g. “Outstanding Reserve/Claim Paid”

Choose the best financial ratio from more than ten selections in consideration of stability, accuracy and economic interpretation.

Triangle method

Use uniform assumption and method to evaluation reserves

claim management index method

Speed of claim payment,

Sufficiency of loss assessment,

Management of claims in transit and

Reopened claims

Welcome to Round-table Discussion for Details and Share Your Idea!


Regulation Results

Elimination of Solvency Deficiency

In 2012, all P/C companies meet solvency requirements.

Industry risk is under control.

Major Risks including solvency, investment and surrender are under control.

Elimination of Regional Risk


Future Development of Regulation

Reserving and margin setting of agriculture catastrophe risk

Unearned premium reserving rules of agriculture insurance

Third-party audits regulation for reserving

Instruction and standard of compulsively automatic registration and adjustment, as a supplement for “Internal Control Standard of Reserving “

Internal control cycle of pricing

An Introduction of China Non-life Insurance Market · 2013. 4. 30. · 7 $79,722 Netherlands 11.30%...

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Transcript of An Introduction of China Non-life Insurance Market · 2013. 4. 30. · 7 $79,722 Netherlands 11.30%...