China Reinsurance Company, which has a near monopoly on the mainland market, will undergo a major restructuring into a holding company to boost its competitiveness ahead of sector deregulation. Under a plan submitted to the China Insurance Regulatory Commission (CIRC), the firm will lure foreign and domestic investors to set up separate subsidiaries for the reinsurance of life and non-life policies, China Re officials said yesterday. The state-owned firm, which will see its state protection and grip on the mainland reinsurance market slip away in coming years, hopes to launch the two subsidiaries in the first half next year, company president Dai Fengju told Beijing's official China Daily. China Re's plan has surfaced at a time other major mainland insurers are gearing up for restructurings, stock listings and introduction of foreign strategic investors ahead of the eventual opening of one of China's most heavily shielded sectors. Three-year-old China Re took over the reinsurance arm of People's Insurance Company of China - for decades China's insurance monopoly. China Re remains the country's only reinsurer. Foreign giants such as Swiss Re and Munich Re have obtained licences to set up mainland branches but have not begun operations. Under China's so-called mandatory cession rules, domestic insurers are required to reinsure 20 per cent of their policies with China Re. On top of that, mainland insurers reinsure a small part of their policies, mostly catastrophe-related, with foreign insurers, said Clarence Wong, Hong Kong-based chief economist at Swiss Reinsurance. China Re collects 95 per cent of its revenue from compulsory reinsurance. It is expecting premium revenue of 18 billion yuan (about HK$16.86 billion) this year, with profits stabilising at last year's level of about one billion yuan, said a company official. In line with its agreement to join the World Trade Organisation (WTO) last year, Beijing is committed to allowing foreign players into the reinsurance market and cutting mandatory cession to China Re by 5 percentage points a year over the next four years. The change is expected to slash China Re's premium revenue to 16 billion yuan next year, Mr Dai told the China Daily. Most analysts, however, see the relaxation as a relief to China's underdeveloped and inefficient reinsurance market. Under existing rules, much of China Re's resources have been diverted to policies such as motor insurance, accounting for more than 60 per cent of China's property insurance market for which reinsurance is normally not necessary. 'A lot of capacity used to cover this kind of insurance should be used to cover natural catastrophes,' said Mr Wong. Historically, China Re was not able to reinsure itself. 'Difficulty can arise from the fact that its risk profile exactly mirrors the risk profile of China's primary insurers, which goes against the fundamental tenet of insurance, namely, the spreading of risk,' said John Wasty, head of insurance and reinsurance at law firm Lovells.
