中国保险监督管理委员会 China Insurance Regulatory Commission 1 Industrial and Regulatory Developments of Insurance in China ZHOU Yanli Vice Chairman of CIRC , IIS Annual Seminar

CIRC 2 Contents I. Reform and development: past, present and future Regulation: mission, system, tool and outlook II.

I. Reform and Development: past, present and future 3

CIRC 4 1. Market structure 2. Industrial Size 3. Structural Reform Reform and development: past, present and future 4. Opening up 5. Future development

CIRC 1. Market structure: 20 years ago  5 insurers in China in 1991 :  PICC, the largest insurer with 96% of market share  China Insurance;  China Pacific;  Ping’An  Min’An;  6 insurers by 1992:  the market entrance of AIA 5

CIRC 1. Market structure: as of the end of April, Market players 10 group companies 60 Non-life insurers 70 life insurers 7 reinsurers 13 insurance asset management companies 2550 insurance intermediaries 1 insurance cooperative

CIRC 1. Market structure – foreign players  55 foreign insurers (including 4 in preparation stage):  21 non-life insurers  29 life insurers  5 reinsurers 7

CIRC 1. Market structure – more diversified  Non-life insurers  Life insurers  Specialized insurers – health insurers pension insurers agricultural insurers liability insurers auto insurers 8

CIRC 1. Market structure – greater competition 9

CIRC Market structure 2. Industrial Size 3. Structural Reform Reform and development: past, present and future 4. Opening up 5. Future development

CIRC 2. Industrial size – premium Premium income has grown by 40 times in 20 years (36.8 billion RMB in 1992 and 1.4 trillion RMB in 2011) Example:

CIRC 2. Industrial size – assets example:

CIRC Market structure 2. Industrial Size 3. Structural Reform Reform and development: past, present and future 4. Opening up 5. Future development

CIRC 3. Structural reform  In 2003, PICC and China Life were successfully listed in overseas stock markets  2004, China Ping’An was listed as a group in Hong Kong  Altogether 6 insurers are listed in overseas stock markets 14

CIRC 3. Structural reform Stronger capital base : PICC, China Life, Ping’An, and China Pacific raised RMB 78.7 billion yuan through IPOs Higher solvency ratio : PICC’s solvency ratio increased from 47% to169%; China Life’s solvency ratio is 545.7% ， three times of that before the IPO Greater competitiveness: China Life – No. 113 among Fortune 500 in 2011; China Ping’An – No. 100 among Forbes Global 2000 in 2012 Better corporate governance: China Life and Sarbanes- Oxley Act 15

CIRC Market structure 2. Industrial Size 3. Structural Reform Reform and development: past, present and future 4. Opening up 5. Future development

CIRC 4. opening up: 4 stages 17 full opening up （ ） transition （ ） pilot （ ） preparation （ ） Since Dec. 11, 2004, all-round opening up full compliance with WTO commitments Dec. 11, 2001 ， China entered WTO , 3-year transition period 1992, AIA branch launched in Shanghai 2000, CIRC joined the IAIS From 1980 to 1991, first group of foreign representative offices established in China

CIRC 4. Opening up: new trend Since May 1, 2012, foreign players are allowed to sell compulsory TPL insurance in China 18

CIRC 4. Opening up: benefits  Agents selling system  Agricultural insurance experience  Health insurance experience  New products: participating products, unit linked products and universal insurance 19

CIRC Market structure 2. Industrial Size 3. Structural Reform Reform and development: past, present and future 4. Opening up 5. Future development

CIRC 5. Future development – opportunities 21 Growth of the economy and the middle class Ageing and urbanization Low density, low penetration

CIRC 5. Future development – opportunities growth of the economy  The GDP per capita of China in 2011 is predicted to be greater than 5400 USD.  Saving ratio is expected to go down  Insurance participation ratio is expected to go up 22 the middle class  The growing middle class will be the main consumers of insurance products

CIRC 5. Future development – opportunities (ageing and urbanization)  By 2050, people above 60 will be 430 million in China  Urbanization ratio of China has increased from 18% in 1978 to 50% in It is expected to further grow to 80% by 2030  Family-based old age provision has changed profoundly during urbanization 23

CIRC 5. Future development – opportunities (the industry itself has great potential) DensityPenetration ChinaLess than 200 USD3.65% Japan, Korea and other more mature markets in Asia About 3000 USD10.74% World average554 USD7.5% China’s ranking in the world No. 70No

CIRC 5. Future development – opportunities (the industry itself has great potential) 25

CIRC 26 Insurance assets only have a share of 3% in the total financial assets in China US UK Switzerland Japan France Korea Chinese Taipei Germany Italy China Insurance and pension companies banks Fund management institutions 5. Future development – opportunities (the industry itself has great potential)

CIRC 27 Insurance contributes only 6.42% of the GDP growth of the whole financial industry in China In developed countries, it is 30% China US Financial industry 100% Insurance 6.42% Insurance 30.25% 5. Future development – opportunities (the industry itself has great potential)

CIRC 5. Future development  Based on the external environment and the internal conditions, China’s insurance industry will have good prospects in the coming years. 28

II. Regulation: mission, system, tool and outlook 29

CIRC CIRC’s mission 2. Regulatory system 3. Major tool Regulation: mission, system, tool and outlook 4. FSAP 5. Future development

CIRC China’s insurance regulation 31

CIRC 1. CIRC’s mission 32

CIRC CIRC’s mission – consumer protection Solvency regulation to make sure that insurers can fulfill their obligations 1.good products sold to right customers 2.appropriate price 3.good services

CIRC 34 1.CIRC’s mission – market order and fair competition 1 1 to optimize market structure by increasing or decreasing market entities 3 3 To crack down upon illegal behaviors 2 2 to encourage product innovation ；

CIRC CIRC’s mission – healthy development To create good external environment To strengthen infrastructure The State Council promulgated Several Opinions on the Reform and Development of the Insurance Industry in 2006 Mortality table Actuarial requirements for life and non- life insurance Requirements on corporate governance

CIRC Regulatory system – three pillars Solvency regulation Market conduct supervision Corporate governance regulation To protect insurance consumers

CIRC Regulatory system – solvency regulation The concept of solvency regulation was first put forward in the Insurance Law. The first rules of insurance solvency regulation were formally introduced. ； Measures were taken against 3 insolvent insurers. The first generation of insurance solvency regulation took shape.

CIRC Regulatory system – solvency regulation Before major insurers, namely China Life, Ping’An and China Pacific were threatened by insolvency due to negative interest spread. But now, they are financially resilient companies. The plunge of the capital market made 13 insurers insolvent. The skyrocketing capital market misled insurers to sell policies at irrationally low prices. 10 insurers hence could not meet solvency requirement. By the end of the 1 st quarter 2012, the number of insolvent insurers has decreased to 4.

CIRC 2. Regulatory system – market conduct supervision  Priority of the CIRC in 2011  Major areas: 1. Misselling behaviors in life insurance 2. reluctance of claims settlement of auto insurance 3. Bancassurance irregularities 39

CIRC Regulatory system – corporate governance regulation Risk management Market entrance and exit Internal control Controlling right Transparency and information disclosure the Board Prudence

CIRC Regulatory tool – risk rating Category A Solvent sound corporate governance secure asset management good market conduct Category B Category C Category D Solvent Minus problems in other areas Insolvent Risks found in other areas Severely insolvent Serious problems found in other areas

CIRC 4. FSAP assessment 42

CIRC 4. FSAP assessment  43 observed Largely observed Partially observed Not observed China got 11 “observed”, equal to the US, more than Switzerland and India. Outstanding areas: regulatory enforcement, regulatory risk rating system, market research, risk management, consumer protection, etc. China got 8 “largely observed” China got 9 “partially observed” None

CIRC 4. FSAP assessment  “ Insurance companies in China are closely supervised and subject to appropriate regulation.” -- FSAP report  Within 10 years, the CIRC has achieved what the regulatory authorities in the advanced countries had achieved in 80 to 90 years. -- FSAP experts 44

CIRC 5. The outlook of insurance regulation in China 45 1.Consumer protection misselling behaviors difficulty in claims settlement 2.Update of solvency regulatory system

CIRC 5. The outlook of insurance regulation in China – consumer protection a consumer protection department has been established a national complaint hotline “12378” has been launched Guidelines on the management of auto insurance claims settlement were promulgated in February, 2012 A consultation paper of the Rules on operation of personal insurance business has been issued A dispute settlement institution will be established in every jurisdiction 46

CIRC 5. The outlook of insurance regulation in China – solvency regulation  The first generation of China insurance regulatory system was launched 4 years ago  It will be updated within 3 to 5 years  It will be a three-pillar system: 1. quantitative requirements 2. qualitative requirements 3. transparency 47

“Insurance gives people a predictable future.” 48

中国保险监督管理委员会 China Insurance Regulatory Commission 49