Reinsurance News

Public-private Chinese reinsurance firm Qianhai Re rated

11th December 2016 - Author: Steve Evans

Qianhai Reinsurance Co., Ltd., the fourth reinsurer to gain approval for launch in China, has been rated A- by A.M. Best and now begins its task of seeking relevance within its domestic market, with global ambitions also on the cards we understand.

Launching with around RMB 3 billion (approximately US$460 million), the company is effectively a public-private partnership, as three state-owned organisations own 20% each of the reinsurance firm.

The state-owned enterprises (SOE) are: Qianhai Financial Holdings Co, Ltd; China Post Group; and Shenzhen Capital Co., Ltd. The other 40% interest in Qianhai Re is held between four private sector companies, Aishida Electric Co. Ltd (14.5%), Septwolves Industrial Co. Ltd (10.5%), Tempus International Business Services Co. Ltd (10%) and Qi Tina Holdings Co., Ltd. (5%).

The allure of the reinsurance business as a way to gain access to longer-term capital, while benefiting from a business model that demands global diversification, is strong for Chinese conglomerates.

Qianhai Re has been licensed as a composite reinsurer by the Chinese regulator and is headquartered in the Qianhai Free Trade Zone, Shenzhen, China.

The company does intend to begin with a focus on providing reinsurance domestically, but we understand from Chinese market sources that the longer-term strategy will call for diversification around the globe in order to reduce concentration risk to Chinese catastrophe perils and as part of the shareholders global ambitions.

China’s domestic reinsurance market is set for rapid growth, but focusing solely on underwriting risks within the country is not a sustainable strategy if the reinsurer wants to gain global relevance.

Not gaining global relevance could eventually put a Chinese domestic only reinsurer at risk of being undercut by competition from large, globally diverse players which can benefit from greater capital and capacity efficiency.

Qianhai Re intends to underwrite a portfolio of traditional non-life and life reinsurance business, as well as short-term life financial reinsurance business.

A.M. Best noted that retrocession will be important to Qianhai Re, expecting the reinsurer to retain underwriting risk at a conservative level relative to capital through the use of quota share and excess of loss retrocession programs over the medium term.

Challenges will face Qianhai Re as it seeks to grow its business, not least its start-up nature, the increasingly competitive market environment in China amid growing reinsurance capacity from new players, and the reinsurers’ investment strategy which is expected to feature equities and alternatives.

A.M. Best also noted Qianhai Re’s domestic exposure to catastrophe risks, saying that a series of catastrophe events could “expose the company’s capital strength to greater volatility during its early years of operations.”

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