China Getting Set To Open Its Doors To Foreign Reinsurers

"The CIRC will finalize this year a set of detailed implementation methods for each commitment made [to the WTO] about the insurance sector opening and see to it that they are carried out," CIRC Chairman Ma Yongwei announced at a conference on insurance held in Beijing recently.

The state-controlled China Re also has decided to reshape itself to face the new challenges and recently announced that it wants to transform into a shareholding group in three years by introducing foreign and domestic investors.

China Re General Manager Dai Fengju said he was open to the idea of joining hands with another insurer, whether foreign or domestic, to set up an independent specialized reinsurance company. He said he would welcome such a move as long as it was clear that China Re had controlling rights in the proposed venture.

This move is actually quite astute if seen in the light of a recent announcement of plans to open up the huge market for industrial projects run by state-owned corporations to coverage by the insurance industry, since most publicly run industrial projects are not currently insured.

Ding Xiaoyan, deputy director of the Property Insurance Department under CIRC, said only 2% of industrial projects are covered by insurance. Insured assets of key construction projects amounted to about $40 billion in year 2000 and $52 billion in 2001.

The estimated annual premium that this market can generate is a whopping $120 billion, according to Wang Zaosheng, director of the Market Management Department with the Ministry of Construction, who made the announcement at a recent conference on project risk management held in Beijing.

This move offers huge opportunities for the direct general insurance and reinsurance business. But China Re does not have enough capabilities for specialized risk assessment, product development, and servicing the complex needs of industry. Hence, there is a search for a foreign partner to set up a specialized reinsurance outfit, sources say.

Wang said the authorities now expect project developers to buy comprehensive insurance that would cover the assets and also extend insurance on aspects like workers occupational safety and occupational liabilities. However, state-owned corporations in China have no tradition of buying insurance.

There is need to cover the major infrastructure and industrial projects for construction defects, market risks, credit risks, and even political and legal risks, Wang said.

With competition coming into the Chinese market, the government authorities want China Re to play a more effective role in enhancing the underwriting capabilities of domestic insurers and to promote healthy development of the Chinese reinsurance market through the handling of inward and outward reinsurance businesses, sources say.

Besides its head office in Beijing, China Re has branches in Shanghai, Shenzhen and Chengdu as well as representative or liaison offices in London, Dubai, New York and Hong Kong. It handles reinsurance for both life and non-life segments.

Reproduced from National Underwriter Life & Health/Financial Services Edition, September 23, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.