NU Online News Service, June 14, 4:45 p.m. — Washington
Insurance companies are applauding what is being termed a “breakthrough” in efforts to bring China into the World Trade Organization.
The U.S. Trade Representative announced last week that disagreements between the United States and China on insurance and agricultural issues have been resolved.
Sy Sternberg, chairman of New York Life Insurance Company, New York, praised U.S. and Chinese negotiators for their leadership.
“By their actions, they have sent a clear, strong signal that China and the United States will work cooperatively to enable China to become a full member of the WTO,” Sternberg says.
Brad Smith, managing director of international relations for the American Council of Life Insurers, Washington, says ACLI is encouraged by the new momentum.
“Resolution of the agricultural subsidy issue and certain insurance issues moves U.S. insurers one major step closer to being able to enjoy access to the vast Chinese market,” Smith says.
The insurance issues involved several demands by China that were strongly opposed by U.S. insurers.
One demand was mandatory 20% cession of all business written by foreign insurers to a reinsurance monopoly in China.
Under the new agreement, the mandatory cession will be phased down to zero over five years.
Another issue involved a demand by China that the term “large scale commercial risk” be defined as one of at least $120,000 in premium.
Under the agreement, that threshold will be reduced to $50,000 over three years.
The definition is important due the the geographic restrictions in the agreement by China to open its insurance market to U.S. companies.
Under the agreement, property-casualty companies will only be allowed to write business in two cities during the first two years after China?fs accession to the WTO.
However, the geographic restriction will not apply to “large scale commercial risks.” But p-c insurance companies argued that the $120,000 premium threshold demanded by China would in effect bar foreign insurers from writing the coverage.
They noted that even in the state of New York, only three-quarters of 1% of risks have an annual premium above $100,000.
For life insurers, China agreed to allow foreign companies to sell a variety of new life insurance and pension products.
In addition, foreign life insurers will be allowed to own 50% of joint venture in China with a partner of their own choosing.