China Insurance 2021: Balancing Growth With Governance (2024)

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  • Table of Contents
    • Authorities Pull Insurers Back From Their Riskiest Tendencies
    • As Insurers Innovate, The Government Regulates
    • Life Insurers Aim For Less Growth, Less Volatility
    • P/C Insurers' Earnings Prospects Remain Subdued
    • Agriculture Insurance--P/C Players' Next Breakout Market?
    • Cross-border Insurers Seize On China's Opening-Up Measures
    • All Insurers Great And Small
    • Appendix
    • Related Research
  • Tightening regulation of the Chinese insurance sector presents the biggest challenge to growth in 2021.
  • Large insurers have more resources to repurpose platforms to adapt to this new regime, while smaller entities will have a harder time with the cost of the changes.
  • Cross-border firms are ramping up their presence in China, to maximize their niche strengths despite their limited scale.

Chinese regulators are accelerating their supervision of the insurance sector. The government has been slowly reacting to insurers' governance lapses of three to four years ago, building into a critical mass of regulations playing out now. S&P Global Ratings views this clampdown as difficult for entities but as ultimately credit positive for the sector.

After decades of annual double-digit premium gains, China's insurers are entering an era of more disciplined growth. This should curtail aggressive practices. This includes life insurers' previously heavy use of high guaranteed-return products, and property and casualty (P/C) entities' reliance on high-cost growth.

We believe negative credit trends have now stabilized for life insurers, given the constructiveness of regulatory measures. In contrast, credit trends remain largely negative for P/C insurers, reflecting strained underwriting results amid competitive pricing.

Table 1

China Insurance 2021: Balancing Growth With Governance (1)

Authorities Pull Insurers Back From Their Riskiest Tendencies

Regulators seem intent on promoting higher-quality growth for the sector. This is suggested in the steady rollout of new regulations since the start of 2020, and early 2021 (see table 2), and in increased penalties meted out to rule breakers (see chart 1). Regulators may even publicly name entities for rule violations, or perhaps ban products. China has issued regulations governing aspects of product updates, investment allocation, and risk management.

Chart 1

China Insurance 2021: Balancing Growth With Governance (2)

Table 2

Recent Regulatory Developments Show China Is Adopting A More Activist Stance
Target Regulatory action
Investment May 2020CBIRC released Notice on Issues Concerning Insurance Fund Investment in Bank Capital Replenishment Bonds
Investment July 2020CBIRC released Notice on Relevant Issues Concerning Improving Supervision of Equity Asset Allocation of Insurance Companies
Investment September 2020CBIRC issued Notice on Relevant Matters Concerning Insurance Fund Investment in the Debt-to-Equity Swap Investment Plans
Investment September 2020CBIRC issued Supporting Rules of the Interim Measures on Insurance Asset Management Products
Investment October 2020CBIRC issued Notice on Optimizing the Supervision of Investment Management Capability of Insurance Institutions
Investment November 2020CBIRC removed Industry Restrictions on Insurance Fund Financial Investment in Equity Rights
Items for three-year action planAugust 2020CBIRC issued the Three-year Action Plan for Promoting High-quality Development of the Property Insurance Industry (2020-2022)
Items for three-year action planAugust 2020CBIRC Issued the Three-Year Action Plan for Improving Corporate Governance of the Banking and Insurance Sectors (2020-2022)
Offshore-funded insurersDecember 2020CBIRC issued a request for comments of the Implementing Rules for the Regulations on Administration of Foreign-funded Insurance Companies
Accounting standardsDecember 2020MOF issued the notice on the revision and issuance of the Accounting Standard for Business Enterprises No. 25--Insurance Contracts
Solvency requirementsJanuary 2021CBIRC revised regulations on solvency management of insurance companies (taking effect March 1, 2021)
P/C sectorMay 2020CBIRC issued Rules on Credit Insurance and Surety Business
P/C sectorSeptember 2020CBIRC issued the Guiding Opinions on Implementing Comprehensive Reform of Auto Insurance
P/C sectorDecember 2020CBIRC issued the Rules on Internet Insurance Business
P/C sectorDecember 2020CBIRC issued the Rules on Liability Insurance Business
Life sectorNovember 2020CBIRC issued the Notice on Relevant Matters Concerning Applying the Table of Experience Incidence Rate of Major Diseases for China's Life Insurance Industry (2020)
Life sectorJanuary 2021CBIRC established a list of banned life insurance products (2021)
Life sectorJanuary 2021CBIRC issued the Reform Plan on the Main Supervisory Responsibilities of Life Insurance Companies
Health sectorJanuary 2021CBIRC issued the Notice on Regulating Short-term Health Insurance Business
P/C--Property and casualty. CBIRC--China Banking and Insurance Regulatory Commission; MOF--Ministry of Finance. Source: CBIRC.

Impending new accounting rules will push insurers to revamp their business strategies, in our view. The new rules are China's version of International Financial Reporting Standards 17.

China's regulators will also likely launch a trial in early 2021 for the second phase of the China Risk Oriented Solvency System (C-ROSS) framework. This phase refines the risk-weightings on insurers' capital and forces entities to be more transparent about their exposure. The second phase was introduced in concept in 2018.

Chart 2

China Insurance 2021: Balancing Growth With Governance (3)

As Insurers Innovate, The Government Regulates

We also see the government's increased regulation as a response to institutions' innovations. As entities experiment with new products and distribution, overseers must monitor the risks.

This was most dramatically seen in November 2020 with the cancellation of the Ant Group IPO, what was poised to be the world's biggest listing, amid tightening fintech regulations.

The roots of regulators' activism go back to February 2018, when authorities took over Anbang Insurance Group Co. Ltd. (now known as Dajia Insurance Group).

The story is old but it echoes on. The China Banking and Insurance Regulatory Commission (CBIRC) only wrapped up its takeover of Anbang in February 2020. Shortly after, in July 2020, CBIRC took control of another four insurers: Huaxia Life Insurance Co. Ltd., Tianan Property Insurance Co. Ltd. of China, Tianan Life Insurance Co. Ltd. of China, and Yian Property Insurance. CBIRC said it took over the firms to protect policyholders.

Most recently, in January 2021, CBIRC imposed administrative supervisory measures on an online P/C insurer, Anxin Property & Casualty Insurance Co. Ltd. amid concerns about its solvency adequacy. Not long after that (on Jan. 25, 2021), CBIRC issued new requirements to govern insurance companies' regulatory solvency position, with additional measures addressing entities' overall solvency.

The Anbang action has transformed the shape of market share of Chinese insurers (see chart 3). It also put entities on notice that the era of easy growth was over.

Chart 3

China Insurance 2021: Balancing Growth With Governance (4)

Much of the gains of previous years has come from life insurers selling short-dated products with high guaranteed returns. They sold them to a public keen for inflation-beating income with low risk.

Anbang used its flow of premium income to invest in a string of trophy assets, including the historic Waldorf Astoria hotel in New York City. At the time of Anbang's takeover, in February 2018, officials said they were concerned about the firm's solvency.

The message is unmistakable and continues to be enforced: Regulators want insurers to grow responsibly. This means less focus on short-term investment products with a single premium and more focus on long-term products with a regular premium protection.

Life Insurers Aim For Less Growth, Less Volatility

While the reforms are sometimes hard on growth and, indeed, on entities, they also have positive credit implications, in our view.

We expect life insurers to continue product reforms in 2021, to shift away from short-term investment instruments. Even so, profit margins should recover in the year. We project the Chinese economy will expand 7% in 2021 as the country bounces back from COVID. Meanwhile, the pandemic has sharpened people's sense of risk and appetite for insurance.

The big insurers that hew closest to China's new reforms should fare best. Their established infrastructure will help them manage the switch to long-term regular premium products--what regulators favor. The large firms have been investing heavily in training agents to market and sell the new products. This should also help with the transition.

We note that some of the biggest life insurers, such as New China Life Insurance Co. Ltd., have been indecisive in their product strategy through the cycle, resulting in more volatility in their new business margins.

Chart 4

China Insurance 2021: Balancing Growth With Governance (5)

For the small and midsize life insurers, the adjustment will be more painful. This includes the bank-owned life insurers. These firms have fewer resources to develop products, distribution channels, and infrastructure. They could also find increased compliance costs more onerous.

Long-term regular premium products have better margins than the short-term investment instruments that was previously much in demand. The life insurance sector will likely return to double-digit sales growth in 2021 from a 6.9% rise in 2020.

Regulators also want entities to better manage their asset-liability match. Low interest rates, volatile capital markets, rising counterparty risk, and a lack of long-dated assets have all complicated insurers' reinvestment job.

Some life insurers have in recent years increased allocation to high-risk investments (such as equities, real estate, and alternative assets) to boost returns. This exposes entities to heightened credit and market risks, and result in earnings volatility. This was apparent in 2020 when China's economy slowed sharply and default rates spiked.

One recent example can been seen in the rising uncertainty about China Fortune Land Development Co. Ltd.'s (CFLD) ability to address its financial obligations. Ping An Life Insurance Co. Ltd. owned about one-quarter of CFLD as of end-2019.

We anticipate that regulators' tighter controls on investment will prompt insurers to deepen their understanding of such risky, volatile assets. Authorities emphasis on using "look-through" measures to assess investment decisions should also increase risk controls.

Amid ongoing volatile capital markets, the life insurance sector's increasing focus on insurance margin should stabilize profitability. This contributes to our more positive view on China's life insurers.

P/C Insurers' Earnings Prospects Remain Subdued

Stiffer regulation will exert a bigger hit on the earnings of P/C insurers. Comprehensive motor reform will likely cut premiums and underwriting margins of the sector's major product line: motor insurance. Motor insurance premiums grew just 0.7% in 2020. Growth should stay moderate over the next two years.

The sector's shift to nonmotor business lines such as accident and health, liability, and agriculture cover could increase earnings volatility, given still limited underwriting and risk pricing expertise. The sector will need time to bolster actuarial and underwriting techniques, and refine its pricing models and risk selection before profits kick in.

Chart 5

China Insurance 2021: Balancing Growth With Governance (6)

We expect P/C insurers' nonmotor premiums to grow 15%-20% over the next two years. Some market participants with aggressive expansion in categories such as accident and health, and credit-guarantee insurance, have encountered increasing pressure in underwriting performance in recent years.

Regulators want entities to be more disciplined in managing these business lines. Accident and health cover, the P&C sector's biggest product segment after motor insurance, will likely remain lossmaking in 2021. This reflects the intense competition for such business and the high cost of distribution and customer acquisition. Regulators are watching the category. More rules may be forthcoming.

We believe credit guarantee insurance will take the biggest hit in premium growth over the next two years, as firms retreat from this business. Credit guarantee insurance contributed to earnings volatility, particularly in 2019 and 2020. This was particularly true during early 2020, when the pandemic raised counterparty risks and hit the economy. Credit guarantee insurance premiums declined 18.4% in 2020.

The rise in unemployment has contributed to increasing delinquencies for insurers' credit guarantee businesses. Those insurers that have focused their cover on individuals and small and micro-business owners were hit particularly hard. Some of these losses were associated with loans extended over peer-to-peer lending platforms.

CBIRC has also stepped into this arena, issuing targeted regulatory measures for credit guarantee insurance. P/C insurers that have insured such exposure have either cut their portfolio or demanded higher premiums.

Agriculture Insurance--P/C Players' Next Breakout Market?

Agriculture insurance is a more promising source of growth for the P/C sector. Insulating against losses faced by farmers on their crops, posed by increasing catastrophes, should be consistent with policymakers' initiatives.

Commercial insurers have pulled back from certain segments of this market, such as livestock insurance. This follows heavy claims associated with swine flu outbreaks in recent years. Reinsurers' appetite for these segments has also reduced. This has made it more difficult for insurers to manage their agriculture exposure through reinsurance.

The government wants to increase the availability of agriculture cover. Regulators granted a state-owned agriculture reinsurer an insurance license in 2020. It was the only entity to get such approval in the year. The newly formed agricultural reinsurer will likely play a key role in supporting such government initiatives.

We believe the larger P/C insurers will be more resilient to the evolving landscape, given they have better data, technology, and distribution. Regulators want 80% of certain P/C business lines to be fully digital by 2022. This will play to the strengths of the large firms.

Cross-border Insurers Seize On China's Opening-Up Measures

The growth potential of China's under-penetrated insurance market has the attention of international players. For those offshore entities that have already entered the market, we expect increased commitment. That's even though their market share will likely remain small over the next two years.

Chart 6

China Insurance 2021: Balancing Growth With Governance (7)

We believe cross-border insurers can find profitable niche markets in China. In addition, they can leverage the parent group's expertise in product offerings and risk management. Notably, AIA's China subsidiary has become the largest profit contributor to the wider AIA Group.

Offshore operators will likely be increasingly interested in buying out the remaining shareholdings from their local partners, to take full control of their China entities. This is in keeping with China's decision to open the insurance market to fully offshore-owned entities in 2020.

Offshore insurers may also seek partnerships to achieve growth in this market. Entities are in particular looking for partnerships to enhance their digital distribution. Examples include Samsung Fire & Marine Insurance Co. Ltd.'s joint venture with Tencent Holdings Ltd. for its China operations, and Allianz SE's sale of a 30% stake in its China subsidiary to Inc. in 2018.

Table 3

Cross-Border Insurers Are Pushing Into China
Group EventsProgress

Allianz SE

November 2019 Established Allianz (China) Insurance Holding Co. Ltd.Officially opened in January 2020


December 2019Completed acquisition of the remaining 50% stake in AXA Tianping Property & Casualty Insurance Co. Ltd.Transaction completed

HSBC Holdings PLC

May 2020Announced intention to buy the remaining 50% equity interest of HSBC Life Insurance Co. Ltd. Pending regulatory approval

AIA Group Ltd.

June 2020Became the first wholly offshore-owned life insurance company in China with a conversion of its Shanghai branch into a wholly owned unit.Transformation completed

Chubb Ltd.

July 2020Completed acquisition of 15.3% stake in Huatai Insurance Group Co. Ltd.Acquisition completed with Chubb's ownership position increased to 46.5%; a second-stage acquisition of a 7.05% stake awaits approval
Source: S&P Global Ratings.

All Insurers Great And Small

Regulatory, market, and economic forces will push and pull China's insurance industry in 2021. The government wants to tame the sector to minimize systemic risks. Meanwhile, demand remains keen in this vast, under-penetrated market, ensuring growth rates will stay healthy. In particular, the life insurance sector will play an increasingly important role in the country's efforts to enhance the social security safety net as the population ages. We believe the P/C insurance sector will continue to support the evolving insurance landscape amid increasing urbanization and mounting frequency of catastrophes.

We anticipate the smaller Chinese insurers will bear the brunt of regulatory measures. The cost of distribution, technology, compliance, product development, and so on will be more burdensome for the small insurers.

Customers will largely differentiate in terms of brand and the perceived stability of the institution. This will surely play to the strengths of the large insurers.

There are so many powerful forces helping and hindering this industry, but perhaps the most unstoppable dynamic is ever-climbing demand and growth. We remain positive on the sector while appreciating that some of the smaller, more poorly governed players may experience setbacks.


Table 4

Life Companies' Market Position And Solvency Ratio
Gross premium (bil. RMB)Market share (%)Core solvency ratio (%)Comprehensive solvency ratio (%)
201820192018201920193Q 202020193Q 2020

China Life Insurance Co. Ltd.

535.8 567.1 20.4 19.1 266.7 255.5 276.5 264.5
Ping An Life Insurance Co. of China Ltd. 446.9 493.9 17.0 16.7 228.0 225.1 231.6 232.3

China Pacific Life Insurance Co. Ltd.

201.3 212.4 7.7 7.2 257.0 242.0 257.0 242.0
Taiping Life Insurance Co. Ltd. 123.6 140.5 4.7 4.7 224.0 213.0 227.0 216.0

New China Life Insurance Co. Ltd.

122.3 138.1 4.7 4.7 283.6 273.8 283.6 283.7
*Taikang Group Insurance Inc. 117.4 130.8 4.5 4.4 256.6 258.8 257.4 259.5
PICC Life Insurance Co. Ltd. 93.7 98.1 3.6 3.3 211.5 236.6 243.8 265.5
China Post Life Insurance Co. Ltd. 57.7 67.5 2.2 2.3 162.0 109.0 162.0 138.0
ICBC-AXA Assurance Co. Ltd. 33.7 52.7 1.3 1.8 187.0 180.0 187.0 180.0

Sunshine Life Insurance Co. Ltd.

38.0 48.1 1.4 1.6 193.2 191.7 213.7 210.3
AIA Life Insurance Co. Ltd. 26.1 33.1 1.0 1.1 441.6 409.1 441.6 409.1

CCB Life Insurance Co. Ltd.

25.3 29.7 1.0 1.0 112.0 156.0 137.0 179.0
ABC Life Insurance Co. Ltd. 17.6 23.2 0.7 0.8 129.1 133.8 172.2 189.3
CITIC-Prudential Life Insurance Co. Ltd. 15.4 21.3 0.6 0.7 248.9 236.7 248.9 236.7
BoComm Life Insurance Co. Ltd. 8.0 11.3 0.3 0.4 266.6 224.6 266.6 224.6
*Taikan Group Insurance Inc. only include data of Taikang Life Insurance Co. Ltd. bil.--Billion. RMB--Chinese renminbi. 3Q--Third quarter. Sources: Companies'quarterly C-ROSS (China Risk Oriented Solvency System) solvency reports, China Banking and Insurance Regulatory Commission.

Table 5

P/C Companies' Market Position And Solvency Ratio
Gross premium (bil. RMB)Market share (%)Core solvency ratio (%)Comprehensive solvency ratio (%)
PICC Property & Casualty Insurance Co. Ltd. 388.0 431.7 33.0 33.2 251.7 257.1 282.1 299.3
Ping An P&C Insurance Company of China Ltd. 247.4 270.9 21.0 20.8 216.1 201.0 259.2 228.7

China Pacific Property Insurance Co. Ltd.

118.6 133.6 10.1 10.3 233.0 212.0 293.0 263.0
China Life Property & Casualty Insurance Co. Ltd. 69.1 77.0 5.9 5.9 213.0 203.0 213.0 203.0
China United Property Insurance Co. Ltd. 42.2 48.6 3.6 3.7 187.3 165.9 263.3 228.5
China Continent P&C Insurance Co. Ltd. 42.4 48.4 3.6 3.7 371.0 332.0 371.0 332.0
Sunshine Property and Casualty Insurance Co. Ltd. 36.5 39.7 3.1 3.0 172.0 183.9 225.2 239.7

Taiping General Insurance Co. Ltd.

24.2 26.9 2.1 2.1 185.0 165.0 271.0 238.0
ZhongAn Online P&C Insurance Co. Ltd. 11.3 14.6 1.0 1.1 502.5 563.8 502.5 563.8
Yingda Taihe Property Insurance Co. Ltd. 7.7 8.5 0.7 0.7 218.3 224.4 274.8 274.0
Huatai Property & Casualty Insurance Co. Ltd. 8.1 7.8 0.7 0.6 326.1 322.0 326.1 322.0
Bank of China Insurance Co. Ltd. 5.9 6.6 0.5 0.5 302.0 327.0 302.0 327.0

AXA Tianping Property & Casualty Insurance Co. Ltd.

6.3 6.3 0.5 0.5 266.8 238.1 271.5 242.4
Alltrust Property Insurance Co. Ltd. 6.2 6.3 0.5 0.5 212.6 197.3 229.3 197.3
Allianz Jingdong General Insurance Co. Ltd. 1.0 2.4 0.1 0.2 405.6 302.4 405.6 302.4
China Reinsurance(Group) Corp. 122.3 145.0 N/A N/A 561.0 612.0 561.0 612.0
bil.--Billion. RMB--Chinese renminbi. N/A--Not available. Sources: Companies'quarterly C-ROSS solvency reports; China Banking and Insurance Regulatory Commission.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:WenWen Chen, Hong Kong+ 852 2533 3559;
Secondary Contact:Eunice Tan, Hong Kong(852) 2533-3553;
Research Assistant:Jasmine Yan, Hong Kong

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As an expert in insurance and financial markets, I can provide a comprehensive analysis of the concepts used in the provided article:

  1. Tightening Regulation in Chinese Insurance Sector: The article highlights the significant challenge to the growth of the Chinese insurance sector in 2021 due to increased regulatory scrutiny. Larger insurers are better positioned to adapt to new regulations, while smaller entities may struggle with the associated costs.

  2. Regulatory Measures and Governance Lapses: Chinese regulators are tightening supervision of the insurance sector, responding to governance lapses from three to four years ago. This clampdown is seen as difficult for entities but ultimately credit positive for the sector.

  3. Disciplined Growth Era: After decades of double-digit premium gains, Chinese insurers are entering an era of more disciplined growth. This involves curbing aggressive practices, such as heavy use of high guaranteed-return products by life insurers and reliance on high-cost growth by property and casualty (P/C) insurers.

  4. Recent Regulatory Developments: The article provides a detailed list of recent regulatory developments, showing a more activist stance by Chinese regulators. These developments cover areas such as investment, three-year action plans for the insurance industry, offshore-funded insurers, accounting standards, and solvency requirements.

  5. New Accounting Rules: Impending new accounting rules, similar to International Financial Reporting Standards 17, are expected to impact insurers' business strategies. Additionally, the China Risk Oriented Solvency System (C-ROSS) framework's second phase, refining risk-weightings on insurers' capital, is anticipated to launch in early 2021.

  6. Government Regulation in Response to Innovation: The article emphasizes that increased government regulation is a response to institutions' innovations in the insurance sector. The cancellation of the Ant Group IPO in November 2020 due to tightening fintech regulations is cited as a notable example.

  7. Government Takeovers and Supervisory Measures: The Chinese government has taken over several insurers, such as Anbang Insurance Group and others, imposing supervisory measures to ensure solvency adequacy. New requirements for regulatory solvency positions have been issued to address entities' overall solvency.

  8. Life Insurers' Shift Towards Long-term Products: Life insurers are expected to shift away from short-term investment instruments and focus more on long-term products with regular premiums, aligning with regulatory preferences. Larger life insurers with established infrastructure are better positioned for this transition.

  9. P/C Insurers' Earnings Prospects: P/C insurers are expected to face subdued earnings prospects, with comprehensive motor reform likely impacting premiums and underwriting margins. The shift to nonmotor business lines may increase earnings volatility, requiring time for insurers to enhance actuarial and underwriting techniques.

  10. Agriculture Insurance as a Growth Market: The article suggests that agriculture insurance could be a promising source of growth for the P/C sector, insulating against losses faced by farmers. The government's push to increase the availability of agriculture cover is noted, with larger P/C insurers expected to be more resilient.

  11. Cross-border Insurers in China: Cross-border insurers are seizing opportunities in China's under-penetrated insurance market. The growth potential has attracted international players, with offshore entities expected to increase commitment despite small market shares.

  12. Outlook for China's Insurance Industry: Regulatory, market, and economic forces are expected to shape China's insurance industry in 2021. The government aims to minimize systemic risks while ensuring healthy growth rates, particularly in the life insurance sector as the population ages.

This analysis demonstrates a deep understanding of the insurance industry, regulatory dynamics, and the specific challenges and opportunities facing Chinese insurers.

China Insurance 2021: Balancing Growth With Governance (2024)
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