China to allow viatical settlement on trial basis

Positively-received move meant to make insurance policies more valuable and boost premium income

China to allow viatical settlement on trial basis

Insurance News

By Gabriel Olano

China’s insurance regulator has announced that it will run a trial of viatical settlement, which is meant to increase premium growth and strengthen returns.

Viatical settlement refers to a third-party investor buying the life insurance policy of another person (often terminally ill) for a discount from its face value. The buyer will continue paying the monthly premium and will receive the full amount of the policy when the original policyholder dies.

The China Insurance Regulatory Commission (CIRC) posted a draft on its website, detailing the upcoming two-year trial program allowing viatical settlement. It is also gathering reactions from the public until January 26.

The trial program states that institutions offering viatical settlement must have a minimum registered capital of RMB500 million (US$77 million).

Analysts said that the trial will boost premiums and provide more incentive to buy life insurance, as these policies become tradeable. 

“The new practice, once put into effect, can make insurance products more attractive,” said Kelvin Chu, an analyst at Shanghai-based UBS, told South China Morning Post. Chu added that mainland China’s insurance penetration remains much lower than other major world economies.

In 2016, mainland China’s insurance penetration was at 4%, compared to over 7% in the US, and 12% in the UK. Hong Kong’s insurance penetration is at almost 18%.

In a positive response to the CIRC announcement, shares of several major Chinese life insurers rose, with China Life Insurance’s value rising by 2% and New China Life rallying by 1.2%. Hong Kong-listed Ping An Insurance also saw its stocks appreciate by 2.5%.

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