Global reinsurance brokerage and consultancy JLT Re has released a report examining China’s regulatory landscape, finding that recent developments, such as the creation of a joint banking and insurance regulator, will accelerate change in the market.
“This report examines some of the more impactful regulatory changes in China, such as new asset-liability regulations and motor insurance pricing reform, alongside market developments, mergers and acquisitions (M&A) activity and technological innovation,” said Jeremy Fox, CEO for Asia-Pacific at JLT Re. “All these point to a highly dynamic environment not only in China but also in Asia-Pacific and globally.”
According to the report, the formation of the China Banking and Insurance Regulatory Commission (CBIRC) is a positive development that is particularly appropriate for China, due to the entrenched linkages between its insurers, banks, and other financial institutions.
“The CBIRC has implemented a number of key changes specific to the insurance sector in the last 12 months,” said Ernest Eng, head of analytics and strategic advisory for Asia at JLT Re. “A drive for risk management, transparency, market discipline and overseas investments whilst simultaneously encouraging greater foreign direct investment (FDI) into China’s financial sector are all positives for the re/insurance industry.”
Chinese general insurers are facing similar conditions and challenges to those confronting global insurers: capital oversupply, competition from alternative capital, and regulatory pressure in the face of margin compression, the report said.
However, it argued that the pace and magnitude of change in China is unique. The country’s insurance industry not only faces substantial regulatory change but also greater demand for product digitalisation. Furthermore, China’s increasingly influential technology sector is emerging as a key supplier of capital and innovation.
All these are happening amid an economic slowdown, debt deleveraging within state-owned enterprises, and the uncertainties of the trade war with the United States.
“While the Chinese insurance industry is currently on course to meet the government’s target of 5% of GDP by 2020 profitable growth will not be shared evenly across the market,” Eng said. “Gaps in performance and access to capital between large and small insurers is expected to widen between the top tier of insurers and the rest of the market. In short, the industry can expect to operate in an increasingly complex and highly dynamic environment in the near to medium term.”
Meanwhile, Fox said that as the CBIRC adopts a more transparent and prescriptive approach to regulation, the Chinese insurance industry is expected to stabilise and gain greater access to overseas capital and expertise.
“The opportunity that the China market could offer, have been discussed for many years but it now feels like a number of positive developments that are critical for laying the foundations for a more mature and profitable market place are coming to fruition,” he said.