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China

Supportive government policies and rising risk awareness to buffer COVID-19 induced slowdown

sigma-4-2020-extra-china, premium growth rates

Life

  • Primary life insurance premiums in China grew by 6.7% in 2019, reversing a 5.4% contraction in the previous year due to tightened regulations on sales of universal life products. Growth in 2019 benefited from strong demand for protection-type products.
  • The impact of COVID-19 on life insurance is mixed. Economic slowdown and implementation of stringent containment measures are hindering agent sales, the predominant distribution channel. But demand will benefit from rising risk awareness and increasing focus on protection products, as volatility in the financial markets is undermining the appeal of savings products.
  • Insurers are fast adopting digital channels in lieu of face-to-face sales and accelerating product development to better align with public demand for protection. Overall, life premium growth is expected to average around 2% this year before picking up to close to 10% in 2021.  
  • Life insurers in China enter this year’s economic crisis in a relatively good shape. Their average comprehensive solvency ratio was 235% as at the end of October 2019, significantly higher than the regulatory minimum of 100%.
  • China further liberalised the life insurance sector in 2019 by lifting the cap on foreign shareholdings to 51%. The China Banking and Insurance Regulatory Commission (CBIRC) confirmed that China will remove all limits on foreign equity ownership in life insurance companies in 2020. In February this year, the CBIRC issued new actuarial rules for the pricing of ordinary life products. We expect that premium rates of protection-type products, including term life and whole life, will be lowered by 3%–5%.

Non-life

  • Non-life insurance premiums continued to grow strongly in 2019 (+11.8%). Health, guarantee, agricultural and liability insurance outperformed. Supportive government policies are a key driver behind growth of agricultural and liability insurance. In contrast, motor premium growth slowed to below 2% in 2019.
  • The unfolding economic crisis will see China’s economy grow at its slowest pace in more than three decades (at around 3%) this year. We expect non-life premium growth to fall to around 8% in 2020, the slowest growth since 1998. Motor insurance will remain under pressure due to a sharp drop in car sales in early 2020 amid ongoing motor insurance liberalisation.
  • We expect non-motor lines to be more resilient. In particular, agriculture and liability insurance will maintain fast growth on the back of the government’s rural revitalisation strategy and a strong push on compulsory liability insurance in areas such as environmental pollution and food safety.
  • China may launch more fiscal stimulus to support growth, including investment in new infrastructure. This will bring opportunities for many commercial lines including property & engineering, credit & surety, and some liability lines.
  • The industry’s loss ratio increased to 62% in 2019 from 59% in 2018. The combined ratio remained to 100%. Profitability is coming under pressures from lower investment yields and an ongoing decline in the pricing of motor insurance caused by motor de-tariffication. Profitability could benefit from lower loss frequency in early 2020 due to the imposition of lock-down measures.

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