Shares of Shanghai-listed insurers rise as regulator plans to test new means of policy settlement

China Insurance Regulatory Commission said plans to allow the trial of viatical settlement could boost insurers’ premium growth

PUBLISHED : Wednesday, 10 January, 2018, 7:31am
UPDATED : Wednesday, 10 January, 2018, 7:31am

Shares of mainland-listed insurers rose on Tuesday after China’s top insurance regulator said it would allow the trial of viatical settlement that could lead to an increase in premiums and strong returns.

A viatical settlement allows a third party to invest in another person’s life insurance policy at a discount from its face value. The buyer of the policy however continues to pay the monthly premium but receives the full benefits when the original policy holder dies.

China Life Insurance jumped 2 per cent to 30.25 yuan, New China Life rallied 1.2 per cent to 64.47 yuan and China Pacific Insurance Group rose a modest 0.2 per cent to 38.93 yuan, higher than the 0.13 per cent rise of the Shanghai Composite Index on Tuesday. Shares of mainland insurers listed in Hong Kong also climbed, with Ping An Insurance adding 2.5 per cent to HK$84.30 and China Life Insurance inching 0.6 per cent higher to HK$24.50.

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Market watchers also expect premium growth and investment return to remain strong this year.

The China Insurance Regulatory Commission (CIRC), which on Monday posted a draft rule on its website on the upcoming two-year trial programme of viatical settlement, is soliciting public opinion until January 26.

Under the new trial planned by CIRC, analysts said consumers will have an incentive to buy insurance products as policies become tradeable thus shoring up premiums for insurers.

“The new practice, once put into effect, can make insurance products more attractive,” said Kelvin Chu, an analyst at UBS, in Shanghai on Tuesday.

Insurance policy financing is common in overseas market, and generally accounts no more than 5 per cent of total premium incomes, he said.

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Under the new trial, institutions running the services must have a minimum registered capital of 500 million yuan (US$77 million).

Mainland’s insurance penetration, or the ratio of insurance premiums to gross domestic product, is still much lower than major economies, Chu said.

In China, the indicator sat at around 4 per cent in 2016, compared with more than 7 per cent in the United States, or over 12 per cent in Britain. While in Hong Kong, it was nearly 18 per cent.

In the first 10 months of 2017, insurance premiums grew by 20 per cent, according to latest available data from CIRC. It was slower than the 30 per cent growth in the same period a year ago, after the regulator’s scrutiny on risky and short-term insurance products hit their sales.