Transcript China Ins seminar Oct 04

Asia-Pacific Insurance Outlook
2006 - 2007
Connie Wong
Director, Financial Services Ratings
Standard & Poor’s
Copyright © 2006 Standard & Poor's, a division of The McGraw-Hill Companies.
All Rights Reserved.
Ready for the Next Down Cycle
More so now than the last down cycle
• Stronger balance sheets
• Regulatory enhancements (RBC, reserving)
• Improved ALM
• Stronger corporate governance/risk management
• Greater underwriting discipline
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Asia-Pacific Insurance Market
Characteristics
• Mature, with satisfactory profitability and
capitalization
• Developing, with reasonable profitability
• Emerging, with low profitability and
capitalization
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Regional Insurance Markets
Penetration (Premiums/GDP)
2005
Market
Japan
Korea
China
Australia
Taiwan
India
Hong Kong
Singapore
Malaysia
Thailand
Philppines
2015/7/7
Life
USD Bil.
375.9
58.8
39.6
27.6
38.8
20.2
15.3
7.2
4.8
3.5
0.9
Premiums
Nonlife
USD Bil.
100.5
24.1
20.5
24.3
10.2
4.8
2.3
3.1
2.4
2.8
0.5
Total
USD Bil.
476.5
82.9
60.1
51.9
49.0
25.0
17.6
10.2
7.2
6.4
1.4
5
Premium / GDP
Life
Nonlife
total
8.3%
7.3%
1.8%
3.5%
11.2%
2.5%
8.6%
6.0%
3.6%
2.0%
0.9%
2.2%
3.0%
0.9%
3.1%
2.9%
0.6%
1.3%
1.5%
1.8%
1.6%
0.6%
10.5%
10.2%
2.7%
6.6%
14.1%
3.1%
9.9%
7.5%
5.4%
3.6%
1.5%
Industry Risks - definition
Analysis of industry risk is an important element in
insurance rating analysis.
Standard & Poor’s gauges the dynamics of the
insurance industry and to what extent those dynamics
lead to more or less risk from the policyholders’ or
creditors’ point of view.
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Economic and Industry Risk in Asia
Pacific Life Insurance Markets
Economic Risk
Very high
High
Moderately
high
Moderate
Moderately low
Industry Risk
Low
Moderately
low
Singapore
Hong Kong
Moderate
Moderately
high
China
High
India
Philippines
Very high
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Australia
Thailand
Indonesia
Vietnam
7
Malaysia
Japan
Taiwan
New Zealand
Low
Outlook
Regional Life Insurance Markets
Negative
Stable
Positive
Philippines
Australia
China
New Zealand
Japan
Hong Kong
Korea
Singapore
Thailand
Taiwan
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Regional Life Insurance Trends
Outlook: Stable
• Supported by more favorable operating
environment
• Expect stable operating performance in 2006/7
• Strengthened balance sheet
• Good mortality experience
• Main growth driver: wealth management type
products
• Growing markets
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Regional Life Insurance Trends
Challenges
• Top line growth for more developed market
• Negative spreads burden in some life insurance
markets
• Enhancement of asset and liabilities management
• Limited capital sources for rapidly growing
markets
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Economic and Industry Risk in Asia
Pacific Nonlife Insurance Markets
Economic Risk
Very high
High
Moderately
high
Moderate
Moderately low
Industry Risk
Low
Moderately
low
Australia
Japan
New Zealand
Moderate
Moderately
high
China
High
India
Philippines
Very high
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Thailand
Indonesia
Vietnam
11
Korea
Hong Kong
Taiwan
Singapore
Malaysia
Low
Outlook
Regional Nonlife Insurance Markets
Negative
Stable
Positive
Philippines
Australia
China
Japan
Hong Kong
Korea
New Zealand
Singapore
Malaysia
Thailand
Taiwan
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Regional Nonlife Insurance Trends
Outlook: Stable
• Expect stable performance in 2006/7
• Strengthened balance sheet
• Growth markets – related to upturn in regional economies
• Increased reinsurance support
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Regional Nonlife Insurance Trends
Challenges
• Heightening competition
• Weak market discipline in some markets
• Need more advance technical know-how in some
markets
• Less stringent reserving practices in some markets
• High focus in personal lines
• Changing claims pattern, especially in some
developing markets
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Regional Nonlife Insurance – Recent
Pricing Trends
• Expect to remain in soft cycle in coming two years
• Particularly noticeable in profitable and non-tariff business
lines
• Sign of stabilization in some markets (regulatory intervention,
market adjustment expectation of low profit margins)
Why?
• Weak market discipline
• Increased reinsurance capacity and softer pricing (except
property catastrophe)
• Increasing competition
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The Next Milestones for China’s
Insurance Industry
by Connie Wong
Director
Financial Services Ratings
Standard & Poor’s
China’s Insurance Market:
Outlook and Industry Risks
Outlook: Positive
• The credit profile of the overall industry is
expected to improve over the medium term
• However, some smaller or financially weak
companies may face financial stress under
disruptive conditions
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China’s Insurance Industry
Supporting factors
• Improving operational fundamentals
• Strong and sustainable growth potential
• Proactive regulatory development
• Change in management focus
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China’s Insurance Industry
Improving operational fundamentals
• Focus on shareholder value
• Profitability vs. underwriting control
• Asset and liability management
• Pursuit of technical reserving
• Solvency awareness
• Corporate governance
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China’s Insurance Industry
Challenges
• Weak operating performance
• Weak capitalization
• Increasing competition
• Adequacy of reserving
• Increasing complexity of risk
• Investment restrictions
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China’ Insurance Market
Potential Growth
China insurance market - premium
500
450
400
Nonlife insurance premiums (RMB Bil.)
Life insurance premiums (RMB Bil.)
350
300
RMB Bil. 250
200
150
100
50
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
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China’s Insurance Market:
Potential Growth
China insurance market - premium growth
(%)
%
70
60
Life insurance
50
40
30
Total premium
20
Nonlife insurance
10
0
1995
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1996
1997
1998
1999
2000
22
2001
2002
2003
2004
2005
China’s Insurance Market:
Potential Growth
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China’s Insurance Market:
Life Insurance Sector – Top 10
Rank
2015/7/7
Company name
Market share in terms of
premiums May 2006 (%)
1
China Life Ins and its group
53.6
2
Ping An Life
16.5
3
China Pacific Life
8.7
4
New China Life
6.6
5
Taikang
5.0
6
Tai Ping Life
2.9
7
Generali China
149
8
AIA
1.41
9
Sino Life
0.95
10
CITIC-Prudential
0.32
Domestic sub-total
98.6
Foreign sub-total
1.4
Total
100
24
China’s Insurance Market:
Nonlife Insurance Sector – Top 10
Rank
Company name
Market share in terms
of premiums May 2006
(%)
1
PICC P&C
48.3
2
China Pacific P&C
11.7
3
Ping An P&C
10.2
4
China United
8.9
5
Tianan
3.7
6
China Continent
3.6
7
Yong An Ins
2.3
8
Anbang Ins
2.2
9
Sinosure
1.9
10
Sinosafe
1.8
Domestic sub-total
95
Foreign sub-total
5
Total
2015/7/7
100
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China’s Insurance Market:
Foreign Entrance
Foreign Entrance
• Barriers to foreign entrance have been relaxed.
However the playing field is not level compared with
conditions for domestic companies
• Foreign entrance may raise the sophistication of the
industry and bring in new capital
• Contributes to increasing competition
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Looking ahead
The Chinese insurance market is moving from the
development stage to a more established stage:

A more sophisticated market
One of the leading insurance systems globally
More foreign participation

Improved balance sheets

Improved market discipline

Still heavily regulated but more flexibility


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China Nonlife Insurance Sector
Performance
Nonlife
• Combined ratio below 100%, with hidden risks
of under-reserving
• Under-pricing
• Dominated by motor class, which is highly
competitive
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China Life Insurance Sector
Performance
Life
• Return on average assets was about 0.3% in 2004,
below international standards
• Leading insurers had a better performance
• Investment performance is relatively poor,
restrained by under-developed asset and liability
management
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China Insurance Market
Performance - Nonlife
Insurance company name Loss ratio (%)
Expense ratio
(%)
Combined
ratio (%)
PICC P&C
76.8
24.6
97.5
China Pacific P&C
59.5
33.2
92.7
Tianan
54.4
41.8
96.2
Huatai
58.6
43.5
102.1
Tai Ping Insurance
85.0
59.0
139.0
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China Insurance Market
Performance - Life
Company name
ROAA%
2004
China Life *
2.3
Ping An Life*
1.4
China Pacific Life
-0.4
New China Life
-1.1
Taikang
0.3
*2005 HK GAAP
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China Insurance Market
Soft, but improved, capital level
• Capitalization of the major players has significantly
improved followed their listing and restructuring
• However, the capital strength of insurance
companies in the sector remains thin in relation to
their rapid expansion
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China Insurance Market
Capitalization
• The rapid growth of the system over the past decade has
built on a fundamentally weak capital base
• Although the listing of a few major insurers has helped to
reduce the system’s weakness, the system’s overall capital
base remains soft
• The regulator has allowed insurers to issue debt to help
regulatory required solvency (Standard & Poor’s does not
considered subordinated debt to be part of a company’s
capital)
• Hidden charge for capital: inadequate reserving
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China Nonlife Insurance Market
Capitalization
Company name
Shareholders funds/ NPI ratio (%)
2004
PICC P&C (2005)
33.8
China Pacific P&C
47.8
Tianan
26.5
Huatai
215.7
China Re
20.6
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China Life Insurance Market
Capitalization
Company name
Equity/Assets (%) 2004
China Life (2005)*
14.3
New China Life
2.7
Taikang
3.8
*2005HK GAAP
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Business vs. Financial Profile
Scatter Diagram
Criteria:
•Business profile: include market position,
competitive advantages and distributional channels
•Financial profile: include operating performance,
investment, capitalization and financial flexibility
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Business vs. Financial Profile
Scatter Diagram
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Appendix
Global Ratings Criteria Issues Update
Our Recent Criteria Initiatives
Initiatives
Purpose/Changes
Enterprise Risk Management
(ERM)
To enhance processes by
increasing our analytical focus
on insurers’ risk management
practices
Updating Capital Model
From existing risk base capital
model to “target capital” based
on insurers’ risk profile
Property Catastrophe Criteria
Catastrophe charges: net
aggregate 1/250 year property
PML for in/reinsurers
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