5/9/2016

China 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 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 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 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 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