China is a target market for insurance and reinsurance players, but lately it hasn’t been particularly easy-going, with reports of major reinsurers pulling-back as domestic players begin to dominate the market.
Today, China Re, the largest domestic player in both insurance and reinsurance, has reported its premium income for the first two months of the year and the large figure reported is a clear reflection of the size of the opportunity for re/insurers in China.
China Re said this morning that it has underwritten around RMB 5.814 billion (roughly $845m) of property casualty insurance premiums in 2017 up to the end of February through its China Land Property Insurance subsidiary.
That’s a considerable chunk of Chinese largely property insurance risk which would be extremely attractive to the global reinsurers of the world.
China is viewed as an opportunity for global insurance and reinsurance firms, with its fast growing economy, significant industrial and infrastructure development, a growing middle-class and rising wealth, all of which signal the need for increasing volumes of risk capital and more reinsurance protection.
But international players are not finding it as easy-going as they thought, with domestic players having increased in number and supported by major institutional investors and conglomerates from China, ramping up the competition for business.
Of course this positions China Re and other domestic Chinese re/insurers very well for growth, enabling them to soak up premium income both on the primary and reinsurance side, while leveraging international reinsurers appetites for risk and diversification.
The end result has been that terms and pricing of reinsurance quota shares in China are no longer deemed all that attractive by many of the major global players, which will cascade down to impact pricing in other reinsurance layers and primary P&C insurance, we’d imagine.
However, with so many Chinese re/insurers launching out of conglomerates, which have many other industrial, retail, financial and construction related businesses and assets, the domestic Chinese players may be able to sustain declining pricing for longer than a global reinsurer can benefit Chinese business due to its diversification.
Of course the threat to Chinese players in future will be that they lack diversity, as they are concentrated on underwriting within their own country, but in time we’d expect them to expand their remit and perhaps begin to buy up international re/insurance assets more meaningfully to acquire diversification.
That could help to make their overall capacity even more efficient, thus continuing the pressure on domestic pricing as well, which means the opportunities for global players to expand back into the Chinese market may not be as clear-cut as was thought just a few years ago.
