A Look At The Chinese Life Insurance Market

China (excluding Hong Kong and Taiwan) is the world’s fifth largest life insurance market. ^[1] With over $130 billion in premium volume, the country accounts for 5% of the world’s premiums and 14% of the premiums originating in Asia. ^[1] The industry consists of 30 domestic companies and around 28 foreign joint ventures ^[2] including Manulife (NYSE:MFC)- Sinochem Life Insurance, MetLife (NYSE:MET) Insurance, American International Insurance, AEGON-CNOOC Life Insurance and CIGNA CMC.

China led the world in terms of insurance premium growth from 2000 to 2010 with a compound annual growth rate (CAGR) of close to 20%, although the enforcement of regulations regarding distribution led to slower growth in 2011. ^[3] However, insurance penetration, measured by taking premiums as a percentage of GDP, is still quite low below 2%. In comparison, more mature Asian markets like Japan and South Korea have life insurance penetration close to 8%. ^[4]

See our full analysis of MetLife here

A Little History

The People’s Insurance Company of China (PICC) was established in 1949 shortly after the foundation of the People’s Republic of China offering both life and general insurance. ^[5] However, the insurance industry was suspended in 1958 by the State Council, stating that insurance was no longer needed in China. Life insurance and PICC were reintroduced in the country in 1982 and premiums collected by the state-run industry grew at a high 40% growth rate for the next 15 years. In 1995, PICC was broken down into a separate life insurance entity and 17 local companies were established. The China Insurance Regulatory Commission (CIRC) was set up in 1998 to regulate the insurance industry.

Domestic vs. Foreign

Foreign ownership in insurance companies is limited to 50%. Companies with foreign ownership above 25% are considered joint ventures and are subject to special restrictions and regulations. ^[5] Domestic companies dominate the life insurance market. The market share of foreign life insurance companies peaked at 8.9% in 2005 but has since dropped to just 4.3% in 2012. ^[2] Foreign life insurers reported just 6.85 million policyholders in 2012. Given the country’s population of over 1.3 billion, this figure represents tremendous potential for future expansion, especially considering the company’s economic growth. However, the emergence of bank insurance companies and regulations governing the market entry, expansion and product offerings will be deterrents to growth.

Distribution

Most companies in China rely on the “bancassurance” or The Bank Insurance Model (BIM) using the retail banking network for distribution activity with sales made via insurance agents. In November 2010, the China Banking Regulatory Commission (CBRC) issued a directive restricting a bank branch from selling insurance products from more than three companies. ^[2] As banks have also entered the insurance market, it is safe to assume that of the three companies allowed, one will be a bank-owned insurance company, one will be a domestic insurance company and the third may or may not be a foreign insurance company.

Other Hurdles

Regulations are the main hurdles in China. The Chinese government has imposed tight regulations on sales and administration, corporate and capital governance as well as risk management. Unlike the U.S., the Chinese government does not offer sufficient tax incentives on annuities – only 10% of the premiums paid can be deducted. Tax incentives are one of the product’s main selling points, encouraging people to purchase annuities.

MetLife And Manulife

Manulife-Sinochem Life Insurance, established in 1996, was the first insurance joint venture in China. The company has a market share of 5% of the foreign-owned life insurance market in China. Participating life insurance policies in which the policyholders gets a share of excess profits earned on investment are the main products offered by the company, accounting for nearly 80% of its premium income. The insurer operates in 13 provincial regions with close to 1,500 employees and has registered capital in excess of RMB (Renminbi) 1.6 billion. ^[2]

MetLife Insurance Company is a collaboration between MetLife and Shanghai United Investment Company Limited. The latter holds a 50% stake while MetLife of Connecticut and MetLife hold  27.8% and 22% stakes respectively. MetLife has a market share of 10% of the foreign-owned life insurance market in China and regular life and participating life insurance are its main offerings. The company has registered capital of RMB 2.12 billion and 1,100 employees. ^[2]

Our Forecast

The Chinese GDP is expected to grow at a rate of close to 6% for the next five years, according to Conference Board. ^[6] Given this high growth rate and the low insurance penetration, particularly outside Tier 1 cities, the potential for expansion is immense.

We expect insurance penetration to reach 3.5% in the next five years. Based on a survey conducted by PwC, foreign insurers are targeting a collective market share of 5% during this time frame. This would make China a $190 billion life insurance market by 2018.

We currently do not have a separate forecast for the Chinese market, but you can modify the interactive charts in this article to gauge the effect a change in our forecast for international market share would have on the companies within our coverage.

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1. Swiss Re’s World Insurance [↩] [↩]
2. Life Insurance In China, Forbes [↩] [↩] [↩] [↩] [↩]
3. Foreign Insurance Companies In China, PWC, December 2012 [↩]
4. Swiss Re’s World Insurance and figures for GDP growth are taken from the World Bank’s website. [↩]
5. ref:1 [↩] [↩]
6. Comparison of Base Scenario with Optimistic and Pessimistic Scenarios, 2013 – 2025 (January 2013) [↩]