Chinese insurers to get income boost from reform

Lifting of life insurance rate cap and more product diversity will encourage stable and decent growth, analysts say

PUBLISHED : Monday, 30 December, 2013, 12:03pm
UPDATED : Tuesday, 31 December, 2013, 2:46pm

Regulatory reform this year is positioning mainland insurers for solid growth in premium income, with prospects for next year boosted by expectations of more diverse products to flow from a key change on pricing.

"We expect life insurers to launch more innovative products next year after the pricing deregulation, and that will help boost their premium income," said Lillian Zhu, a research manager at investment consulting firm Z-Ben Advisors.

The China Insurance Regulatory Commission announced in August the removal of a 2.5 per cent cap on predetermined rates for standard life insurance products, allowing insurers to offer higher returns to policyholders. The 2.5 per cent ceiling on dividend- and universal-type life insurance products remains.

The move, which marks a step towards pricing deregulation under the mainland's financial reforms, had stirred up competition, Zhu said, but it would encourage life insurers to launch more new products to maintain their market share.

The sector had been in a transition stage since 2011, with some reforms putting pressure on premium income, said Zhu, adding that such income had started to increase in recent months after new products were launched.

"The premium growth is likely to pick up next year when the insurers get used to the new rules," she said, forecasting a 15 per cent gain this year and up to 20 per cent growth next year.

Premium income increased 11.53 per cent to 1.59 trillion yuan (HK$2 trillion) in the first 11 months of this year from last year, the CIRC said. In 2012, it rose 8 per cent to 1.55 trillion yuan. However, these growth rates pale in comparison to the gain of 30.4 per cent seen in 2010 before the reforms.

Yang Jianhai, an analyst with Essence Securities, is also upbeat on premium income growth next year. Sales of products that offered higher returns after the removal of the cap could see strong growth next year, he said.

Mainland insurers had launched various products offering annual returns of 3.5 to 4 per cent, while also raising agents' commissions to boost sales, Yang said.

Sales of bancassurance - insurance products sold through banking networks - would likely pick up after an expected approval from the banking regulator for insurance companies to place sales staff in bank branches, Yang said.

Chen Xingyu, an analyst with Phillip Securities, also expects product diversity amid fierce competition. Large players such as Ping An Insurance and China Life Insurance would have an edge in boosting market share because of better brand recognition and flexibility in launching high-return products, he said.

Recovery in investment income had lifted insurers' earnings this year, said Chen, who believes the momentum in the capital market will be sustained.

"Insurers' investment income is likely to maintain stable growth next year," he said. The investment channels for insurance funds were expected to further widen and that would provide more room for investment income growth, he added.

The CIRC started in October to seek industry opinion on draft rules that allow insurers to invest a bigger share of their portfolios in equities and real estate.