Page 22 - Digital Edition SIRC Supplement

MARKET REPORT - CHINA

New normal, new opportunities

Changing growth trends in the Chinese economy have figured prominently in
the media recently. In fact, the developments may be part of a larger trend: in
2014, China’s economy grew at 7.3% its slowest pace in 24 years. But, to place
things in perspective, we must consider that growth at that rate remains the
envy of many Western economies. Most economists agree that the long-term
outlook for China is good, with some even seeing the slowdown as a healthy
correction. With its low insurance penetration, this is music to the ears of our
industry, says Mr Steven Chang, CEO of Munich Re China.

The recent turmoil on China’s stock markets and for non-life and CNY157.5 billion for life, up by 149% and
devaluation of the Yuan have triggered jitters in the 257%, respectively. Total assets for the insurance sector
West. The IMF places China’s 2015 growth rate at increased by 12.5% from December 2014 to reach CNY11.4
6.8%, below the 7% growth target the Chinese government trillion in June 2015. As of June 2015, there were 69 P&C
had set for this year, reinforcing concerns over the country’s insurers, 75 life insurers and nine reinsurers in mainland
economy. Yet it is important not to generalise. The weak China. There were almost one million insurance professionals
statistics are mainly driven by the slowdown in real estate in the workforce, and 3.8 million insurance agents nationwide.
and manufacturing investment, due to an oversupply
problem. Despite continuously strong growth, the Chinese insurance
market is still at an early stage. Its low penetration and density
In addition, senior government officials have frequently coupled with increasing affluence within the population point
stated that China has now entered the “new normal” phase, to huge growth opportunities.
characterised by medium-to-high growth and a shift to C-ROSS and what it means
quality and efficiency from quantity and speed. This new As the market gears up for the C-ROSS regulatory regime, large
paradigm involves a structural change in the economy from and diversified players are in a position to benefit. Not only are
investment-driven to greater domestic consumption. Although they better prepared for C-ROSS due to the superior risk and
the government must maintain a certain level of investment capital management practices and systems they have in place,
growth to support job creation, slower fixed-asset investment they will also be rewarded through lower capital requirements
growth supports the overall plan. The employment market has for diversification across lines of business (LoBs), assets and
clearly not been negatively influenced, with 13.2 million new geographies.
urban jobs appearing in 2015, exceeding the 10 million target.
By contrast, small insurers, mono-liners and multinationals
One potential development that has emerged is deflation, may face challenges. Insurers that are more concentrated in
which was unforeseeable a year ago. At around 1.5%, China’s particular lines or regions could come under capital pressure,
inflation rate (CPI) was flat in fourth quarter 2014 and first as they will not enjoy the diversification benefit afforded their
quarter 2015, due to weak domestic demand and a slump in larger counterparts. Multinationals, which usually write a
commodity prices. The People’s Bank of China responded with bigger proportion of property business due to their limited
two rate cuts and by lowering the reserve requirement ratio service/distribution capability on motor segment, may come
(RRR) in first quarter 2015. under pressure due to the higher capital charges on property.
Insurance strong
throughout
The insurance industry
has clearly remained
unworried by Western
concerns that a Chinese
downturn would hobble the
global financial recovery.
In the first half of 2015
China’s insurance market
recorded a premium
of CNY1.37 trillion
(US$215.56 billion), up
19.3% y-o-y. Non-life
premiums increased
10.9% y-o-y to CNY402
billion, while life rose
21.3% to CNY811 billion.
Combined profits more
than tripled in the same
period, reaching CNY230
billion, up by 204% y-o-y.
This breaks down into
profits of CNY59.6 billion

20 SIRC Supplement • November 2015 • www.asiainsurancereview.com Back to Contents