Private firms urged to spur growth of mainland reinsurance
Guo Aibing in Beijing
The mainland's insurance regulator will encourage foreign players and private domestic firms to enter the reinsurance market in a move to bolster its sluggish development.
Private reinsurance companies with expertise in health, agriculture and medical care were especially welcome to invest in the sector, the China Insurance Regulatory Commission said in an online statement on Wednesday.
Domestic insurers on the mainland have been expanding quickly over the past few years due mainly to Beijing's efforts to replace the former cradle-to-grave social welfare system with a market-based model.
However, the reinsurance market has been lagging, with total assets amounting to 31.2 billion yuan by the end of last year, accounting for less than 2 per cent of the insurance industry.
The commission blamed the lacklustre development of the reinsurance sector on its slow start and reinsurers' lack of experience in marketing to insurers.
The regulator said insurance companies' lack of risk-management awareness also hampered the market's development, since their overseas counterparts tended to use reinsurers to hedge against risks.
'Almost 70 per cent of Chinese insurance companies' profits come from automobile insurance, and there is absolutely no need to reinsure for this because of the low unit value of automobiles,' said Hao Yansu, dean of the insurance school at the Central University of Finance and Economics.
The commission said the mainland planned to double its 2005 insurance premiums to one trillion yuan by 2010, while lifting the reinsurance total to 66 billion yuan by the same year.
Mr Hao said mainland reinsurance companies would have a hard time meeting the development goal largely because of the extremely low premiums for reinsurance.
'Cut-throat competition in recent years has forced large insurance companies to offer a very low rate to attract companies or face losing them which has made the price for reinsurance in China ridiculously low,' Mr Hao said.
International reinsurance giants, such as Swiss Re and Munich Re, have been operating on the mainland for a while but the same factors have hampered their business.
Mr Hao said multinationals usually charged high premiums for reinsurance in global markets but in the mainland market, no such opportunities were available in the short term.
Long way to go
The reinsurance market accounts for a fraction of the insurance industry
The total assets of the mainland reinsurance sector by last year 31b yuan