Data and analytics firm GlobalData is projecting that China’s reinsurance market will grow at a compound annual growth rate (CAGR) of 6.8% from 2019 to 2024, on the back of proposed revisions to its reinsurance regulatory regime.
The China Banking and Insurance Regulatory Commission (CBIRC) has put forward new rules that aim to strengthen the risk management framework for the reinsurance business and to help develop the industry.
Analysts at GlobalData believe the changes will drive growth in the local reinsurance market and aid the performance of the property and casualty (P&C) insurance sector.
“China offers a lucrative reinsurance market for local and foreign reinsurers. The proposed regulations aim to control loopholes that may lead to tax evasion, profit transfer, and high foreign reinsurance exposure,” Ashish Raj, Insurance Analyst at GlobalData.
CBIRC is also encouraging foreign reinsurers to establish offices in China. Currently, 13 reinsurers are operating in the country, which includes seven foreign reinsurers.
Of these, Korea Re and XL Insurance (China) Company Ltd, a subsidiary of AXA, obtained operating licenses in 2019 and 2020, respectively, while few others are awaiting approval.
The proposed regulations allow would an eligible insurer to establish an independent reinsurance department. Additionally, CBIRC has permitted onshore reinsurers to enhance their capital limits, which is expected to increase their reinsurance capacity.
To control and monitor overseas ceding, CRIBC is considering provisions to regulate the concentration of reinsurance business, exposure to overseas reinsurance risks, and liquidity management.
The regulation requires insurers to report details around the purpose of reinsurance placement, retention and reinsurance policy, risk management, and control mechanisms to ensure the placement complies with regulatory requirements.
Raj concluded: “Local reinsurance market in China is expected to grow due to favorable regulatory environment as the new revisions aim to increase local reinsurance capacity.”
