5/9/2016
China Reinsurance Market Overview
CAS Spring Meeting May 15th – May 18th, Seattle, WA Weishu Fan, FCAS, MAAA
Agenda
1. Brief History of Chinese Reinsurance Market 2. The function of reinsurance 3. Current market situation 4. Regulatory impact 5. Future outlook 6. Q & A
CAS Spring Meeting Weishu Fan 15-18 May 2016 2
1 5/9/2016
Major Milestones of Chinese Reinsurance Industry
1. Prior to 1986, no professional domestic reinsurance company as independent legal entity 2. 1986, reinsurance department was founded within PICC (then the only state owned insurance company) 3. 1996, PICC Group formed its first reinsurance subsidiary, PICC Reinsurance limited (not confused with PICC Re) 4. 1999, China Re incorporated (separated from PICC), the first domestic reinsurer in China 5. 2003 Munich Re Beijing Branch became the first licensed foreign reinsurer in China 6. Now, all the major worldwide reinsurers have established their footprints in China
CAS Spring Meeting Weishu Fan 15-18 May 2016 3
Chinese Primary Insurance Market – The Growth Story
Chinese Primary Company year to year premium growth 800,000.0 40.0% 34.4% 700,000.0 31.9% 35.0%
600,000.0 30.0%
500,000.0 21.9% 22.3% 25.0%
400,000.0 17.5% 17.4% 20.0% 16.9% 16.3%
300,000.0 17.1% 15.0%
200,000.0 10.0%
100,000.0 5.0%
0.0 0.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Property Motor Liability Marine PA Others* Trendline
CAS Spring Meeting Weishu Fan 15-18 May 2016 4
2 5/9/2016
The function of reinsurance
1. Risk sharing 2. Retention management 3. Risk protection 4. Accumulation control 5. Solvency management 6. Customized solutions 7. Value added services
CAS Spring Meeting Weishu Fan 15-18 May 2016 5
Regulatory Influences on the Development of Chinese Reinsurance Industry
1. 1996 – 2006 (Government nurturing the newly established domestic reinsurer – China Re) stipulated the mandatory cession for China Re; 2. Post 2006, due to WTO concession, Chinese reinsurance market opened up to foreign competitors. 3. 2008, Solvency I – min capital requirement implemented 4. Insurance law regulation . Premium/surplus ratio requirement . One tenth risk retention ratio rule 5. 2016 the implementation of C-ROSS . Introduction of counter-party default risk . Reinsurance registry requirements 6. Insurance law revision (abolish the premium/surplus ratio requirement)
CAS Spring Meeting Weishu Fan 15-18 May 2016 6
3 5/9/2016
China is a highly competitive reinsurance market
Top 10 Registered Reinsurers Domiciled Regions
1Lloyd's 92 2 United Kingdom 42 3 Bermuda 34 4 China 34 5 United States 31 6 Switzerland 27 7 Hong Kong 22 8 Singapore 22 9 Germany 13 10 Korea, Republic of 10 Other 80 Total 407
CAS Spring Meeting Weishu Fan 15-18 May 2016 7
Licensed Reinsurance Entities
Licensed Reinsurers Domestic/Foreign China Re Group Domestic Munich Re Foreign Swiss Re Foreign China Taiping Re Domestic Hanover Re Foreign PICC Re Domestic General Re Foreign Scor Re Foreign RGA Foreign Qianhai Re Domestic Lloyd's Foreign
CAS Spring Meeting Weishu Fan 15-18 May 2016 8
4 5/9/2016
Market Portfolio Composition
Primary Insurer Premium by LOB Reinsurer Premium by LOB
Property PA Others 7% Marine PA 0% 8% 2% 2% Others* Liability 12% 4% Property 19% Motor 58% Marine Motor 9% 73% Casualty 6%
Motor Marine Casualty
CAS Spring Meeting Weishu Fan 15-18 May 2016 9
Major Reinsurance Types
Traditional Proportional Reinsurance dominant (over 90%) Regular QS Surplus Treaty Excess of Loss gradually picking up Cat XL Per Risk XL Aggregate XL Non Traditional Parametric Cover Cat Bond
CAS Spring Meeting Weishu Fan 15-18 May 2016 10
5 5/9/2016
Market Share for Onshore Reinsurers – Property & Casualty
Lloyd's China 1%
Munich RE 12%
Swiss Re China P&C Re 27% 49%
Scor 6%
Hannover Re 5% Munich RE Swiss Re Scor Hannover Re China P&C Re Lloyd's China
CAS Spring Meeting Weishu Fan 15-18 May 2016 11
The Influences of Brokers are increasing
Major Reinsurance Brokers
Guy Carpenter & Company Limited
Aon Hong Kong Limited
Willis Hong Kong Limited
JLT Reinsurance Brokers Limited
江泰再保险经纪有限公司
太平再保险顾问有限公司
FP Reinsurance Brokers Limited
CAS Spring Meeting Weishu Fan 15-18 May 2016 12
6 5/9/2016
Comparing booming primary market – Reinsurers less Cheerful
P&C Reinsurance Penetration 140,000 20.0%
18.0% 120,000 16.0%
100,000 14.0%
12.0% 80,000 11.4% 10.0% 60,000 8.4% 8.7% 7.9% 8.0% 7.2% 40,000 6.0% 4.0% 20,000 2.0%
- 0.0% 2010 2011 2012 2013 2014
Reinsurance industry Primary Market Reinsurance Penetration
CAS Spring Meeting Weishu Fan 15-18 May 2016 13
The Outlook for Chinese Reinsurance Industry
1. Solvency driven reinsurance demand gradually tempered 2. Expanded onshore reinsurers’ list 3. Buffet wannabes are lining up 4. Competition is heating up 5. Warren Buffet on Reinsurance . Low to negative interest rates on the reinsurance industry . Amplified reinsurance capacity
CAS Spring Meeting Weishu Fan 15-18 May 2016 14
7 5/9/2016
What’s the future for Chinese reinsurance industry?
Innovation
Telematics, E-car insurance, weather index, insurance pooling schemes, package policies, Internet of Things, Cyber, etc.
CAS Spring Meeting Weishu Fan 15-18 May 2016 15
8