中国保险监督管理委员会China Insurance Regulatory Commission

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Industrial and Regulatory Developments of Insurance in China

ZHOU Yanli Vice Chairman of CIRC

2012-6-20, IIS Annual Seminar

CIRC

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Contents

I. Reform and development: past, present and future

Regulation: mission, system, tool and outlook

II.

I. Reform and Development: past, present and future

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CIRC

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1. Market structure

2. Industrial Size

3. Structural Reform

Reform and development: past, present and future

4. Opening up

5. Future development

CIRC

1. Market structure: 20 years ago

5 insurers in China in 1991 : PICC, the largest insurer with 96% of market share China Insurance; China Pacific; Ping’An Min’An;

6 insurers by 1992: the market entrance of AIA

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CIRC 1. Market structure: as of the end of April, 2012

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Market players

10 group companies

60 Non-life insurers

70 life insurers

7 reinsurers

13 insurance asset management companies

2550 insurance intermediaries

1 insurance cooperative

CIRC

1. Market structure – foreign players

55 foreign insurers (including 4 in preparation stage):

21 non-life insurers 29 life insurers 5 reinsurers

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CIRC 1. Market structure – more diversified Non-life insurers Life insurers Specialized insurers – health insurers pension insurers agricultural insurers liability insurers auto insurers

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CIRC 1. Market structure – greater competition

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CIRC

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1. Market structure

2. Industrial Size

3. Structural Reform

Reform and development: past, present and future

4. Opening up

5. Future development

CIRC

2. Industrial size – premium Premium income has grown by 40 times in 20 years (36.8 billion RMB in 1992 and 1.4 trillion RMB in 2011)Example: 2000 - 2010

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2000

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10000

12000

14000

16000

（亿元）

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（%）

保费收入 1609 2115.9 3048.3 3848.8 4323 4928.4 5640.2 7033.4 9789.1 11137.3 14528

增长率 11.4 31.5 44.1 26.3 12.3 14 14.4 25 39.2 13.8 30.4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

CIRC

2. Industrial size – assetsexample:2000-2010

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

总资产 3374 4591 6495 9113 11954152861970429200335724100050467

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10000

20000

30000

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60000（亿元）

CIRC

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1. Market structure

2. Industrial Size

3. Structural Reform

Reform and development: past, present and future

4. Opening up

5. Future development

CIRC

3. Structural reform

In 2003, PICC and China Life were successfully listed in overseas stock markets

2004, China Ping’An was listed as a group in Hong Kong

Altogether 6 insurers are listed in overseas stock markets

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CIRC

3. Structural reform Stronger capital base: PICC, China Life, Ping’An, and

China Pacific raised RMB 78.7 billion yuan through IPOs

Higher solvency ratio: PICC’s solvency ratio increased

from 47% to169%; China Life’s solvency ratio is 545.7%， three

times of that before the IPO

Greater competitiveness: China Life – No. 113 among

Fortune 500 in 2011; China Ping’An – No. 100 among Forbes Global 2000 in 2012

Better corporate governance: China Life and Sarbanes-

Oxley Act15

CIRC

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1. Market structure

2. Industrial Size

3. Structural Reform

Reform and development: past, present and future

4. Opening up

5. Future development

CIRC

4. opening up: 4 stages

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full opening up（ 2005-）

transition（ 2002-2004）

pilot （ 1992-2001）

preparation（ 1980-1991）

Since Dec. 11, 2004, all-round opening up full compliance with WTO commitments

Dec. 11, 2001， China entered WTO 2002-2004, 3-year transition period

1992, AIA branch launched in

Shanghai 2000, CIRC joined the IAIS From 1980 to 1991, first

group of foreign representative offices established in China

CIRC

4. Opening up: new trend

Since May 1, 2012, foreign players are allowed to sell compulsory TPL insurance in China

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CIRC

4. Opening up: benefits

Agents selling system Agricultural insurance experience Health insurance experience New products: participating products, unit linked

products and universal insurance

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CIRC

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1. Market structure

2. Industrial Size

3. Structural Reform

Reform and development: past, present and future

4. Opening up

5. Future development

CIRC

5. Future development – opportunities

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Growth of the economy and the middle class

Ageing and urbanization

Low density, low penetration

CIRC 5. Future development – opportunities

growth of the economy

The GDP per capita of China in 2011 is predicted to be greater than 5400 USD.

Saving ratio is expected to go down

Insurance participation ratio is expected to go up

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the middle class The growing middle class

will be the main consumers

of insurance products

CIRC 5. Future development – opportunities (ageing and urbanization) By 2050, people above 60 will be 430 million in

China Urbanization ratio of China has increased from

18% in 1978 to 50% in 2011. It is expected to further grow to 80% by 2030

Family-based old age provision has changed profoundly during urbanization

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CIRC 5. Future development – opportunities (the industry itself has great potential)

Density Penetration

China Less than 200 USD 3.65%

Japan, Korea and other more mature markets in Asia

About 3000 USD 10.74%

World average 554 USD 7.5%

China’s ranking in the world

No. 70 No. 47

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CIRC 5. Future development – opportunities (the industry itself has great potential)

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CIRC

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Insurance assets only have a share of 3% in the total financial assets in China

40 3833 28

18 18 15 14 133

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5556 68

6672 77

72 7296

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7 114

1610 8

14 15

1

US UKSwitzerland

Japan France

Korea

Chinese Taipei

Germany

ItalyChina

Insurance and pension companies

banks

Fund management institutions

5. Future development – opportunities (the industry itself has great potential)

CIRC

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Insurance contributes only 6.42% of the GDP growth of the whole financial industry in China

In developed countries, it is 30%

China US

Financial industry 100%

Financial industry 100%

Insurance 6.42%

Insurance 30.25%

5. Future development – opportunities (the industry itself has great potential)

CIRC

5. Future development

Based on the external environment and the internal conditions, China’s insurance industry will have good prospects in the coming years.

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II. Regulation: mission, system, tool and outlook

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CIRC

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1. CIRC’s mission

2. Regulatory system

3. Major tool

Regulation: mission, system, tool and outlook

4. FSAP

5. Future development

CIRC

China’s insurance regulation

mission

system

tools

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CIRC

1. CIRC’s mission

Consumer protection

• Market order and fair competition

• Healthy development

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CIRC

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1. CIRC’s mission – consumer protection

Solvency regulation to make sure that insurers can fulfill their obligations

1.good products sold to right customers

2.appropriate price

3.good services

CIRC

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1. CIRC’s mission – market order and fair

competition

1 1to optimize market structure by increasing or decreasing market entities

3 3To crack down upon illegal behaviors

2 2

to encourage product

innovation ；

CIRC

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1. CIRC’s mission – healthy development

To create good external environment

To strengthen infrastructure

The State Council promulgated Several Opinions on the Reform and Development of the Insurance Industry in 2006

Mortality tableActuarial requirements for life and

non-life insuranceRequirements on corporate

governance

CIRC

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2. Regulatory system – three pillars

Solvency regulation

Market conduct supervision

Corporate governance regulation

To protect insurance consumers

CIRC

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2. Regulatory system – solvency regulation1995

2003

2004

2008

The concept of solvency regulation was first put forward in the Insurance Law.

The first rules of insurance solvency regulation were formally introduced.；Measures were taken against 3 insolvent insurers.

The first generation of insurance solvency regulation took shape.

CIRC

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2. Regulatory system – solvency regulation

2008

2007

Before

2003• 3 major insurers, namely China Life, Ping’An and

China Pacific were threatened by insolvency due to negative interest spread. But now, they are financially resilient companies.

• The plunge of the capital market made 13 insurers insolvent.

• The skyrocketing capital market misled insurers to sell policies at irrationally low prices. 10 insurers hence could not meet solvency requirement.

• By the end of the 1st quarter 2012, the number of insolvent insurers has decreased to 4.

CIRC 2. Regulatory system – market conduct supervision Priority of the CIRC in 2011 Major areas:

1. Misselling behaviors in life insurance

2. reluctance of claims settlement of auto insurance

3. Bancassurance irregularities

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CIRC

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2. Regulatory system – corporate governance regulation

Risk management

Market entrance and exit

Internal control

Controlling right

Transparency and information disclosure

the Board

Prudence

CIRC

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3. Regulatory tool – risk rating

Category

A

• Solvent• sound

corporate governance

• secure asset management

• good market conduct

Category

BCategory

C

Category

D

• Solvent

• Minus problems in other areas

• Insolvent

• Risks found in other areas

• Severely insolvent

• Serious problems found in other areas

CIRC

4. FSAP assessment

China’s insurance regulation

IMF World Bank

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CIRC

4. FSAP assessment

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observed

Largely observed

Partially observed

Not observed

China got 11 “observed”, equal to the US, more than Switzerland and India.

Outstanding areas: regulatory enforcement, regulatory risk rating system, market research, risk management, consumer protection, etc.

China got 8 “largely observed”

China got 9 “partially observed”

None

CIRC

4. FSAP assessment

“Insurance companies in China are closely supervised and subject to appropriate regulation.”

-- FSAP report Within 10 years, the CIRC has achieved what the

regulatory authorities in the advanced countries had achieved in 80 to 90 years.

-- FSAP experts

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CIRC 5. The outlook of insurance regulation in China

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1.Consumer protection

misselling behaviors

difficulty in claims settlement

2.Update of solvency regulatory system

CIRC

5. The outlook of insurance regulation in China – consumer protection a consumer protection department has been established a national complaint hotline “12378” has been launched Guidelines on the management of auto insurance claims

settlement were promulgated in February, 2012 A consultation paper of the Rules on operation of personal

insurance business has been issued A dispute settlement institution will be established in every

jurisdiction

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CIRC 5. The outlook of insurance regulation in China – solvency regulation The first generation of China insurance regulatory

system was launched 4 years ago It will be updated within 3 to 5 years It will be a three-pillar system:

1. quantitative requirements

2. qualitative requirements

3. transparency

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I

IIIII

-- Premier WEN Jiabao

“Insurance gives people a predictable future.”

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中国保险监督管理委员会China Insurance Regulatory Commission

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