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Life insurance reform in China set to boost country's overall financial system

2020-01-22 13:59 Wednesday


Earlier this month, China removed its longstanding limits on foreign ownership in the life insurance market. This move will have far-reaching implications beyond the sector, as international players bring their skills into what is set to be the world's biggest insurance industry by 2030, said commentators.

On January 1, the China Banking and Insurance Regulatory Commission (CBIRC) allowed foreign investors to raise their ownership in life insurance companies to 100 percent, from the previous ceiling of 51 percent.

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The greater participation of institutional investors who are focused on long-term outcomes will help reduce dependency on retail investors and bring more diversity to the domestic capital markets including insurance asset management, say experts.

Insurance companies in China collected premiums of a total of 3.96tn yuan (U.S.$ 574.3bn) in the first eleven months of 2019, growth of 11.8 percent year-on-year, according to the Commission.

Clarence Wong, Swiss Re Chief Economist Asia, said: "Global companies' home markets are growing at a low rate and China remains an attractive market from a growth perspective despite the economic slowdown."

"We're projecting China to be the largest insurance market in the world by mid-2030s. The foreigners will bring risk management, capital management expertise and corporate governance. They'll in turn benefit from the Chinese insurance market's strong underwriting, digital payments and use of technology. This will also lead to new products like investable infrastructure and insurance-linked securitization."

A May 2019 report published by Mckinsey said APAC is the fastest-growing market in the world, developing by 25 percent and 21 percent in 2016 and 2017. International markets grew at a much slower 1 percent and 3 percent. The pace is expected to slow in the APAC region in the short term, but will still be a robust 10 percent.

This intense pace of expansion is much needed in a rapidly-aging country. By 2050, experts estimate that 330m Chinese will be 65 years old or over.

The report commented: "The growth in the life insurance market in China was fueled by the previously unmet protection needs of the population and the aggressive sales of high-yield, short- to mid-term investment products."

Moody's Investors Service remarked that a rise in foreign participation will enhance the product scope of the industry and its asset and liability management capabilities. It pointed in particular to underserved segments such as pensions and retirement. In the coming transition phase, this will facilitate the development of the industry's own talent pool and risk management protocols.

But there are challenges, too, since the latest change of opening up the sector will only directly impact the market for life insurance and not others, warned some commentators.

Ellen Yang, Director of the Institutional Client Group for Greater China at Deutsche Bank, said: "For international players, the China market will still be challenging, particularly involving local digital platforms."

Those challenges will affect financial market tools as well. "At the moment, there's limited capital tools available for insurers to manage their liabilities and assets, both in terms of interest rate management and credit management" remarked Yang.

"Regulators will gradually tackle these structural challenges over time, particularly as regulators prepare for the country's aging population."


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