Better Access to Reinsurance for Foreign Companies

The restrictions over foreign insurance companies in the reinsurance field have been weakened, providing greater opportunities for foreign insurance companies to expand their business.

From the first day of July, the Chinese reinsurance companies were derived from the preferential rights of accepting insurance.

The China Insurance Regulatory Commission (CIRC) published the revised “Management Stipulations over the Reinsurance Industry” on June 30, in which the clause about “preferential insurance for domestic companies” is left out. According to analysts, the tiny change illustrates weakened restrictions over foreign insurance companies in expanding their reinsurance business in China.

The reinsurance refers to the activity of an insurance company to shift part or all of its insurance businesses to other insurance companies in order to decentralize the underwriting risk. Previously, the Chinese domestic insurance companies saw better development in this field than foreigners because of the favorable policies.

Some foreign insurance companies, represented by Munich Re Group and Swiss Re-insurance Company, were involved in China’s reinsurance market in 2002. However, due to restrictive policies, the foreign reinsurance companies only earned quite a small part in this market.

According to the experts, the market share of all the foreign reinsurance companies is only 10% and the remaining 90% are taken by the Chinese companies. The only domestic-funded reinsurance companies in China China Reinsurance (Group) Corporation takes 80% of the market. PICC and Pingan Insurance Corporation take 18% shares of the market.

“To give bigger access to the foreign reinsurance companies is China’s fulfilling its commitment made when joining in the WTO in 2001,” said an insurance expert. This is the policy orientation showing the impending connection of China’s reinsurance market with the international market.

Obviously, the issuance of the new policy can create conditions for fair competition among Chinese and foreign reinsurance companies. However, a director from a foreign reinsurance company said that it was hard for foreign reinsurance companies to change the Chinese companies’ dominant place in a short while despite the better access. “To get the reinsurance business in China mostly depends on the relationship, though the foreign reinsurance companies can get the projects with big risk and large premium by its strength,” said the director.

The new policy gave out stimulations for the reinsurance companies to provide services for agricultural insurance and catastrophe insurance such as earthquake, typhoon and flood. Correspondingly, Nikolaus von Bomhard, chief executive of Munich Re Group said in June that his company would support China in building a co-insurance body for the catastrophes.

The experts point out that the Chinese reinsurance companies also need to adapt themselves to the changed policy as soon as possible. Zhou Yanli, vice president of the CIRC, said that the Chinese reinsurance companies should start the offshore reinsurance actively and were engaged in the integration and cooperation with the big companies to build a service network covering the globe.

In addition, the insurance companies are also required to select the reinsurance companies carefully and avoid a situation in which too much reinsurance business is given to one company. The new rule also requires the insurance companies to list new information items.