Research & Markets Issues Study of China’s Insurance Industry

Dublin-based Research and Markets has announced the addition of “China Insurance Industry Report (Investment & Merger)” 2006 to their offering.

R&M said the “report describes the status quo of China’s insurance industry and investment policies. It also analyzes the competitiveness of major domestic insurance corporations in full details. Moreover, it elaborates the investment of foreign insurance companies in China. Finally, it makes an analysis on risks for investments and acquisitions and presents some suggestions.”

The study highlighted the following conclusions concerning the status quo of China’s insurance industry:
— The market is still at the initial stage. It only accounts for a small proportion of the national economy. Since China’s insurance industry was resumed in 1980, more and more insurance agencies, independent regulatory mechanism and organizations have gradually emerged in the market, and the service scope has also been greatly extended.
— By the end of 2005, there are 93 insurance corporations altogether in China, among which six were insurance groups and 82 were insurance companies (including 40 foreign insurance companies and 5 insurance asset management companies).
— The national premium income had reached RMB 492.734 billion, (RMB 34.1 billion was from foreign insurance companies, accounting for 6.9 percent), up 13.95 percent over the year of 2004, and 3.09 times of the amount of 2000, which had a CAGR of 25.29 percent.

R&M indicated that the Chinese market is still experiencing fast growth. It notes that “by the end of 2005, the insurance capital got a capital balance of RMB 1413.584 billion (5.53 times of that in 2000), up by 31.15 percent over the year of 2004.” The growth parallels that in Chinese industry. “However”, the bulletin also cautions, “China’s insurance industry is still at the initial stage. The unbalanced development of economy caused the difference in the development of insurance industry in different areas. For instance, in Guangdong and Shanghai, the insurance market is abundant in both demand and supply, which is far more prosperous than that of Central and Western China. Currently, the major problem is that the development of China’s insurance industry does not accord to the development of the national economy, the society and the demand of Chinese people.”

Concerning mergers and acquisitions, R&M noted that “on December 11th, 2004, China ended the transitional periods according to the commitments to WTO, which indicated Chinas insurance industry had entered a new era because it would be completely opened to the world. But, from another angle, some problems still exist in China’s insurance industry,” identified as follows:
— Firstly, the reforms of some state-owned insurance companies are not sufficient. The product is in an unreasonable structure and lacks innovation mechanism, especially the life insurance such as medical care insurance and the insurance services in the countryside.
— Secondly, the risks in insurance industry can not be neglected. Some insurance companies are in trouble with the losses from old insurance contracts. The problem of unfaithful services in insurance companies is rather serious.
— Thirdly, the concentration of insurance company is deficient. Compared with that of some developed countries, the scale of Chinese insurance companies is rather small, whose total asset is far less than that of some large international insurance companies.

The report also notes that AIG “owns much larger amount of asset than that of the whole Chinese insurance industry. Deficient concentration is one of major reasons why Chinese insurance companies are weak in the resistance to risks.”

The report indicates that the “key to develop China’s insurance industry is the implementation of merger and acquisitions,” which it said would produce the following results:
— Firstly, merger and acquisitions can enlarge the scale of business, reduce costs, increase profits, and strengthen the capability of resisting risks and competitiveness.
— Secondly, merger and acquisitions can reduce competition and increase market share. Under the stress of intensive competition, merger and acquisitions is a good way to improve the structure of insurance products. Meanwhile, it is also a shortcut to realize cross-sector operations.
— Thirdly, merger and acquisitions between insurance companies can develop new services.
— Fourthly, the mixed operation in financial industry accelerates the capital integration between banking, securities and insurance industries and enlarges their service coverage. Insurance companies can have the functions of banking and investment at the same time. For insurance company, purchasing other financial institutions can not only reorganize the capital resource but also can optimize the resource configuration and absorb advantages from each other. Reorganization through merger and acquisitions is faster than internal investment adjustment and it can achieve economic synergies effect at the same time.”

For more information got to the R&M Website at:; or contact: Laura Wood, Senior Manager, Research and Markets Fax: +353 1 4100 980 e-mail: