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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
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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
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Chinese Primary Insurance Market – The Growth Story
Chinese Primary Company year to year premium growth 40.0%
800,000.0 34.4% 700,000.0
35.0%
31.9%
30.0%
600,000.0 500,000.0
25.0%
22.3%
21.9%
400,000.0
17.5%
16.9%
300,000.0
17.4%
16.3%
20.0% 15.0%
17.1%
200,000.0
10.0%
100,000.0
5.0% 0.0%
0.0 2005
2006 Property
2007
2008 Motor
2009 Liability
2010 Marine
2011 PA
2012 Others*
2013
2014
Trendline CAS Spring Meeting Weishu Fan
15-18 May 2016
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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
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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
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China is a highly competitive reinsurance market
Top 10 Registered Reinsurers Domiciled Regions
1 Lloyd'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
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CAS Spring Meeting Weishu Fan
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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
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Market Portfolio Composition Primary Insurer Premium by LOB
Marine 2% Liability 4%
Reinsurer Premium by LOB
Property 7%
PA 2%
PA 0%
Others* 12%
Others 8%
Property 19% Motor 58% Motor 73%
Marine 9% Casualty 6%
Motor
Marine
Casualty
CAS Spring Meeting Weishu Fan
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CAS Spring Meeting Weishu Fan
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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
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Market Share for Onshore Reinsurers – Property & Casualty
Lloyd's China 1% Munich RE 12% Swiss Re 27%
China P&C Re 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
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CAS Spring Meeting Weishu Fan
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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
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Comparing booming primary market – Reinsurers less Cheerful P&C Reinsurance Penetration 20.0%
140,000
18.0% 120,000 16.0% 100,000
14.0%
80,000
12.0%
11.4%
10.0% 60,000
8.4%
8.7% 7.9%
7.2%
8.0% 6.0%
40,000
4.0% 20,000 2.0% 0.0%
2010
2011
2012
Reinsurance industry
Primary Market
2013
2014
Reinsurance Penetration CAS Spring Meeting Weishu Fan
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CAS Spring Meeting Weishu Fan
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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
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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
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