Visions of China
In spite of the uncertainty caused by the trade war with the US, China remains a most attractive market for the world’s (re)insurance community because of its sheer size – and the amount of infrastructure that needs to be built and insured.
By Paul McNamara
Is it any wonder that China is the focus for so many businesses around the world looking for the prospect of fresh growth? According to Swiss Re’s first sigma report for 2019, “The outlook for insurance markets in emerging economies remains strong, even as cyclical and structural factors weigh on overall macro growth prospects. The share of global premiums from emerging markets lags their share of world economic output, indicating upside potential for insurance demand.”
The reinsurer went on to say, “We expect the emerging market share of global insurance premiums to increase by about 50% over the next 10 years. Our forecasts show that emerging Asia will lead the charge for premium growth, expanding by three times the world average over the next two years, and China becoming the biggest insurance market in 15 years.”
Big means big
The biggest insurance market in the world is big indeed – as the raw numbers show. In the first three quarters of 2018, non-life companies’ gross premiums increased 12.7% to $127.6bn, while life insurers’ gross premiums dropped 3.5% to $316.87bn, according to Willis Towers Watson’s 2019 Asia Market Report. Chinese insurers’ total premiums amounted to $125.3bn, and foreign non-life insurers’ total premiums, $2.3bn. Domestic capacity remains strong with intense competition among local insurers.
The report went on to say, “The insurance market, as part of the financial industry, will further open up with significant drive from the government. After Allianz Group was given the green light to set up China’s first wholly foreign-owned insurance holding company in Shanghai in 2019, AXA Group announced plans to buy out the partners of its China joint venture, AXA Tianping Property & Casualty Insurance.”
China, in other words, has all the hallmarks of the pot of gold at the end of the rainbow – for insurers and reinsurers alike. It is the reason that Allianz Re, Munich Re, Hannover Re and a host of others have joined Swiss Re in making regular pilgrimages to China.
Barriers to entry
It is important not to give the impression that China has simply thrown open its doors to competition – and some regional players have had to take it slowly. Some of the region’s smaller reinsurers only have representative offices in China and so can only offer liaison services in the country. This is why these same players keep most of their China teams in Singapore or Hong Kong.
There is a requirement in China before a reinsurer can set up a branch office that it must have $5bn of assets and not all local entities have that kind of heft – even though their parent company might.
Belt and Road Initiative
No conversation about China would be complete without mention of the vast swathe of infrastructure projects around the world promised by China’s Belt and Road Initiative (BRI).
“The BRI aims to create markets through connectivity, whereas the greater bay area development is concerned with coordinating the development of 11 cities. Hong Kong is designated by the central people’s government to provide insurance and reinsurance for the two mega initiatives,” said Hong Kong Insurance Authority CEO Clement Cheung.
He added, “The preferential treatment under the China risk oriented solvency system reached in July 2018 represents a significant step forward that enables our reinsurers to compete on an equal footing with counterparts in the mainland. Some big international names have already expressed an interest in knowing more about this game-changer.”
All eyes on China
The preoccupation for securing new business from emerging China is a global phenomenon and not merely restricted to neighbouring Asian markets. AXA XL chief executive Peter Schmidt said, “In terms of a lines of business perspective for us, we are looking at property insurance – and agricultural is a business which is growing fast, particularly in China and India. These are the two markets we watch and to some extent, we participate in these lines of business.”
“We have been in China over 10 years as reinsurers,” said Mr Schmidt. “At this point, we are looking at opportunities, but our appetite and our participation in China is not growing as quickly as the market is growing.”
And it is clear that the focus of the China market is not a transient affair – but one that will continue to grow as time goes by. “We are looking at maintaining and building our existing relationships as well as looking to build new relationships,” said Mr Schmidt. “This goes for the nationals and the more regional players. But there are new companies or new carriers opening almost on a quarterly basis in China. We are very interested to get to know them and find out about their risk underwriting strategies and potentially enter into new business relationships.”