From Resource, September 2004 
Copyright by LOMA

A World of Opportunity
Local national and foreign insurers are taking advantage of new opportunities in South Korea, India and China. Here’s a look at who’s doing what and why.  

By Jennifer C. Rankin

Insurers everywhere are being squeezed by low interest rates, lackluster investment returns, and market saturation. The good news? Analysts believe an economic revival is well under way.  

According to Swiss Re’s annual world insurance report, the first signs of an economic revival began to appear in 2003: “Although continental Europe’s larger markets remained muted, growth in the U.S., the U.K., Japan and many of the emerging markets gained momentum. Corporate results improved… optimism took hold and confidence in the stock markets grew as they proved to be more bullish than anticipated.” Despite these positive trends, balance sheets continue to experience considerable pressure, primarily because insurers failed to fully capitalize on the bullish stock market and investment results are still unsatisfactory. Generally speaking, most markets are recovering, but the recovery will be slow.

That’s not the case, however, in South Korea , India , and China , where opportunities abound and both local-national and multinational insurers are positioning themselves to leverage them.  

Korean Bancassurance

Let’s start with South Korea , which is the world’s sixth-largest life insurance market.

At the end of 2003, assets held by insurance companies totaled 221.2 trillion won, of which 183.2 trillion won was held by life insurance companies and 38 trillion won by non-life insurance companies, according to the country’s Financial Supervisory Service (FSS). Asset growth slowed in 2003 as a result of the sluggish economy, weak policy sales, increases in policy surrenders, and the expiration of savings-type policies that were sold widely after the 1997 financial crisis.

Nevertheless, both life and non-life company assets have grown steadily in recent years, according to the FSS. Total life company assets grew from 164.2 trillion won in 2002 to 183.2 won in 2003, a 14.8 percent increase. Total non-life company assets grew from 35.4 trillion won in 2002 to 38 trillion won in 2003, an 8.3 percent increase.

For the FY2002 ended March 2003, life insurance company net income—that is, insurance income plus investment income—rose 64.7 percent to 2.8 trillion won, while non-life insurance company net income fell 37.5 percent to 500 billion won. During the same timeframe, life company insurance income jumped more than 100 percent due to higher sales of term life and other guarantee-type policies, stricter review of policy applicants, and lower claims costs; non-life company insurance income increased modestly.

In its most recent annual report, the Korean Life Insurance Association (KLIA) points out it is noteworthy that protection-type insurance accounted for 50.9 percent of premium income: “This result is very meaningful because it suggests that Korea’s life insurance industry is moving toward profit-based value management…and testifies to its potential for stable growth in the future.”

The industry does face several daunting challenges, however. For starters, there’s not much room for growth. According to the KLIA, the penetration rate for life insurance is 89.9 percent—in a nutshell, close to 90 percent of households have life insurance policies. The country, like much of the world, also must cope with continuing low interest rates, volatile stock markets, new competitors, and resistance to reform.

Enacted in 1962, the Insurance Business Act (IBA) governs insurance in South Korea . In 1977, the government’s Policy for the Modernization of the Korean Insurance Industry consolidated into the IBA all insurance-related laws, including those pertaining to insurance solicitation, foreign insurers, and Korean reinsurance corporations. The IBA was amended for the 16th time in 2002.

The insurance industry has evolved rapidly since South Korea joined the OECD in 1996. South Korea has begun to deregulate and open its financial services sector to outside competition. In response to the recent financial crisis, the country restructured several insurance companies. It also is chipping away the barriers separating the banking, securities and insurance industries.

In 1999, South Korea created the FSS as the country’s sole integrated financial supervisory authority. Its mission is to ensure a sound and orderly credit market, to promote fair financial practices, and to protect depositors and investors. At present, the FSS is focusing its efforts on the transition to risk-based supervision of insurance companies; an early warning system for insurance companies based on 156 key indicators of potential trouble; more effective supervision of insurance company asset management; clear disclosure statements on insurance policies; and more.

South Korea has a wide variety of financial institutions, according to the FSS. It’s important to understand what they are, not only because reforms are breaking down the walls that traditionally have separated them, but also because they are forging tie-ups for bancassurance.

At the end of 2003, there were 23 life insurance companies, including three foreign branch operations, and 27 non-life insurance companies, including 11 foreign branch operations.

On the bank front, there were eight national banks; six regional banks, which are called commercial banks; five specialized banks; and 62 branch operations maintained by 40 foreign banks.

Securities-related companies included 60 securities companies, including 15 foreign local branches; 14 futures companies; 32 investment trust companies; 13 asset management companies; 54 investment advisory companies; 58 corporate restructuring funds; and four corporate restructuring REITs.

Four financial holding companies—Woori, Shinhan, Dongwon and Sejong—were in business. Woori holds Woori bank and 15 other financial service providers as its subsidiaries. Shinhan has 23, Dongwon seven and Sejong two subsidiaries.

Non-bank financial institutions include merchant banks, brokerage houses, mutual savings banks, credit-specialized finance companies such as leasing and installment finance companies, credit unions, and credit cooperatives (agricultural, fishery and forestry).

South Korea ’s nascent bancassurance market is garnering lots of attention these days. In its simplest incarnation, bancassurance is insurance offered by banks. Bancassurance, which the government is introducing in three stages, made its debut in South Korea on August 30, 2003.

Generally speaking, savings-type products for individuals—that is any policy paying a benefit amount greater than the premium paid at maturity—are available for bancassurance first, followed by protection-type products—where the benefit payout amount is less than premiums paid—followed by all insurance products.

When the FSS and Ministry of Finance and Economy (MOFE) released the timetable, they also issued regulatory specifics regarding who would be allowed to do what:  

*To prevent banks from entering into exclusive arrangements with certain insurance companies and stifling competition, large banks and financial service providers with two trillion won or more in assets are barred from selling more than 50 percent of the products from a single insurance company. The FSS expects to come up with additional regulatory measures to prevent banks and insurers from engaging in anti-competitive sales tactics.  

*Banks, securities firms, mutual savings banks, and other financial service providers that have established distribution channels are allowed to offer bancassurance. The national agricultural cooperatives, fishery cooperatives, credit unions and postal services—all of which already offer some form of bancassurance-like services—are not allowed to offer bancassurance.

* Banks and other financial service providers may offer bancassurance by acting as either an agent or broker for an existing risk underwriter; by acquiring an insurer; or by creating a risk underwriter as a subsidiary unit.  

*Insurance products may be sold only at a specifically designated sales counter in the branches of financial service providers. Outside marketing activities such as door-to-door solicitations and telemarketing are prohibited.  

*Financial service providers are required to create appropriate sales structures staffed by qualified sales personnel. Each bancassurance service provider is required to continuously maintain a minimum of four qualified insurance agents at the head office and a minimum of one qualified insurance agent at the branch.  

*To prevent abuses by financial services providers and to protect customers, the FSS expects to come up with disclosure requirements that will provide for disclosure of the duties and liabilities of insurance agents and sales commissions. In particular, bancassurance service providers are expected to disclose to consumers that they are merely acting as sales agents and that it is the insurance companies that are underwriting the risks.

*Since 1987, domestic insurance companies have been restricted from establishing subsidiary insurance companies in the same line of insurance business as the parent—a life insurer creating a subsidiary life insurer, for example. As a step toward international norms and to promote specialized risk underwriters in certain business areas, the FSS plans to remove the restrictions on the incorporation of subsidiaries in the same line of insurance business and initially allow financial service providers to jointly form subsidiaries to offer bancassurance services. The regulatory provisions for the creation of a wholly-owned subsidiary by a parent insurance company will then go into effect.  

Well before the bancassurance implementation date, banks and insurers began to pursue alliances, with domestic banks and financial holding companies moving quickly to position themselves for the new market.

Woori is considering a joint venture with Samsung Life, the nation’s largest life insurer, or taking over a smaller life insurance company, according to Korea.net.

Kookmin Bank, another domestic bank, has launched KB Life, a bancassurance subsidiary, which offers life insurance and wealth management products via the bank’s 1,100 branches nationwide. Kookmin has been selling life insurance policies for ING Life Korea , Samsung Life, Kyobo Life, Tong Yang Life and Korea Life since the government authorized bancassurance. In April 2004, according to Korea.net, Kookmin raked in 54.9 billion won in first-month premiums for bancassurance policies—an astounding 41.8 percent of the new products sold by banks.

In June, Dutch powerhouse ING Group reached an agreement with Kookmin Bank to purchase a 49 percent stake in KB Life. This will be the third joint venture between ING and Kookmin in the South Korean market. Kookmin owns 20 percent of ING Life Korea and ING holds a 20 percent stake in Kookmin Bank Asset Management, a fund management company. ING also holds a direct 3.78 percent stake in Kookmin Bank.

Hana Bank has launched Hana Life, a joint venture with Germany ’s Allianz Group, to tap into the bancassurance market.

Shinhan Financial Group and French insurer Cardif Life Insurance, a subsidiary of BNP Paribas, created SH&C Life Insurance Company, a joint venture bancassurance company. The new company will be the 10th subsidiary of the Shinhan Financial Group.

Undaunted by the industry giants entering the bancassurance arena, local national life insurer Tong Yang Life Insurance Company formed partnerships with four lenders, including Kookmin Bank, the nation’s largest. A unit of the Tong Yang Group and South Korea ’s No. 5 life insurer, Tong Yang Life has emerged as a top bancassurance player. According to Korea Now, the company has raked in the highest profits in its history, beating many larger rivals in terms of bancassurance sales. According to the bi-weekly magazine, the mid-sized insurer sold about 40,000 contracts between August 30 and December 31, 2003, trailing only Kyobo Life’s 45,000. Tong Yang Life leveraged its My Angel brand, which features a guardian angel, to target parents who want to buy protection for their children and save money for their education. The insurer also sent staff members to bank branches to teach bankers how to handle the complexities of insurance products.

What effect has the government’s bancassurance launch had on South Korea ’s insurance sector? In a word, lots.

During the four months following the introduction of bancassurance, life insurance companies generated bancassurance premiums totaling 1.9 trillion won—about 10 percent of total premiums—and non-life insurers generated 37.2 billion won (0.5 percent).

Just one year after its inception, bancassurance now comprises more than 35 percent of new business in South Korea ’s life insurance market (and 70 percent in the savings and pension insurance market), according to an analysis in the August issue of Asia Insurance Review. For insurers in bancassurance tie-ups with local banks, this is great news; for others, not so great.

Some insurers fear they will lose ground to banks, especially since banks are not only allowed to sell the insurance policies of several insurers (for up to 49 percent of their insurance revenue), but also to establish their own insurance subsidiaries. In fact, data show that the top four banks—Kookmin, Woori, Hana and Shinhan—accounted for nearly 70 percent of about 430,000 insurance policies sold through the bancassurance channel between September 1, 2003 and July 31, 2004, according to Korea.net.

Life insurers seem to be less concerned than their non-life counterparts, who are facing the possibility, according to the Korea Life Insurance Association (KLIA), that more than half the country’s policyholders will renew their car insurance at a bank next year. About six weeks ago, several insurance executives asked the country’s Financial Supervisory Commission (FSC) to consider delaying the sale of car and guarantee insurance policies at banks from its original April 2005 deadline. Domestic bank executives are pressing the FSC to keep to its original schedule.

Another challenge is the market saturation previously mentioned. The fact that a financial company branch is not allowed to hire more than two insurance agents is another constraint. And regulators are getting very serious about penalizing banks that offer rebates and other benefits to their customers in an attempt to persuade them to buy a bancassurance product as well as insurers that pay excessive commissions to banks to move their products.

Look for the South Korean insurance sector to become increasingly competitive. In 1998, foreign life insurers held one percent of market share. That share grew to eight percent in FY2001, to 10.5 percent in FY2002, and to 30 percent in FY2003, according to the FSS. And foreign insurers’ share of the bancassurance market is about 32 percent, compared to the 39 percent share of the big three domestics. This is putting a great deal of pressure on domestic life insurers, whose market share is slowly dropping.

Multinational behemoth ING, a bellweather for emerging markets, is very active in South Korea , where it is active in banking, insurance and asset management. The wholesale banking arm under ING Bank NV offers lending and structured finance products, M&A advisory services, and capital market origination products to corporate and institutional clients. ING Life Insurance, Korea Ltd. Offers whole life insurance and annuity products via 82 branches and more than 4,100 financial consultants. As mentioned earlier, Kookmin Bank holds a 20 percent stake in ING Life Korea and ING holds a 20 percent stake in Kookmin Bank Investment Trust Management. When you find ING in a market, chances are good that most of the world’s leading multinationals either are there or will arrive shortly.

In fact, at press time, four financial services giants—AIG, HSBC, MetLife and Manulife Financial—were reported to be among the companies bidding to purchase SK Life, which generates 2.6 percent of South Korea ’s life insurance premiums. SK Group, its owner, hopes to complete the sale by year end.

Despite these and other challenges, many industry executives believe the South Korean insurance sector holds much potential. There’s plenty of room for insurance products with an investment component, such as variable life and universal life, for example. And the high penetration rate applies mostly to risk protection products, which leaves room for players to tap into the growing demand from an aging population for wealth management products and services. A limited social security system will create increasing demand for pension products. And the Internet channel of distribution is taking off in a huge way.

 Indian Pensions  

Another bright spot on the global horizon is pension reform in India .

Although the problems posed by aging populations differ greatly among individual countries, everyone is pensioners to workers—rises. As a result, governments face increased budgetary pressure as well as falling tax revenues. In addition, the pay-as-you-go financing many countries employ is no longer sustainable. Although the industrialized countries will face the problem first, emerging market economies will not escape it.

In fact, they may be hit even harder. Why? Because emerging markets, unlike mature markets, are trying to build economic strength and craft sustainable regulatory frameworks for business and, simultaneously, prepare for the pensions crisis all countries eventually will face.

As Anne O. Krueger, first deputy managing director of the International Money Fund (IMF) put it in her presentation at the August 2004 Jackson Hole Symposium, “I don’t want to underestimate the problems that industrial countries face as they grapple with the fiscal implications of aging populations. But they confront these issues from a position of relative economic strength—industrial countries grew rich before they started to age, the fiscal positions are generally stronger and their debt levels are mostly lower than the comparable figure for emerging markets. Even without the prospect of aging, many emerging market countries are struggling with large fiscal imbalances. They have large budget deficits. They have large public debt burdens that are not sustainable over time…[they] have pressing needs for publicly-financed expenditures on infrastructure, education, health and other items in addition to the need to address demographic change.”

India is no exception.  According to Krueger , India , which is not an IMF borrower, has a budget deficit in excess of 10 percent of GDP as well as the need for increased infrastructure and social spending. In addition the pace of demographic change in India is quickening. In 1950, its dependency ratio was 12.45 percent. Today, it is 16 percent. Analysts predict the ratio will reach 20 percent by 2020 and 37 percent by 2050.

Fortunately, India is laying the groundwork today for its changing demographics. Before we address the country’s plans for reform, let’s take a closer look at the pension and retirement programs in place today.

India does not have an integrated pensions or social security system. Around 90 percent of the country’s total work force fall under the “unorganized” category, which includes farmers, laborers and the self-employed. The 10 percent who have employers are categorized as “organized.”

Employers in India provide several benefits to workers in the organized sector:  

* Provident Funds (EPF). Launched in 1952, the EPF scheme covers 177 industries today. It consists of a lump-sum payment, made upon retirement, on a defined contribution (DC) basis. Early withdrawals are permitted and, as a result, the retirement proceeds are often inadequate to support the individual during his/her old age. Nonetheless, employees understand the system and the return on investment is comparable to safe fixed income products.  

*Employees Pension Scheme (EPS). Launched in 1995, the EPS is available to employees earning less than Rs 6,500 per month. The government is the main fund manager. It diverts a portion of the EPF contributions to the EPS system, which is a national defined benefit (DB) pension scheme.  

*Gratuity. A defined benefit lump-sum payment upon resignation, death or retirement.  

*Superannuation. Some employers provide voluntary superannuation (pension) benefits to their employers. For government employees, they are prevalent and generous. When they are used in the private sector, which is not often, they are likely to be limited to senior staff.  

In addition to these employer-sponsored programs, Indians also may invest voluntary contributions in the Public Provident Fund (PPF) system—more of a long-term savings vehicle than an old-age pension vehicle—and in pension policies marketed by life insurance companies. Again, the number of investors in these vehicles is small, covering less than one percent of the working population.

As you can see, most Indians have inadequate provisions for their retirement needs, something the Indian government is determined to remedy. To that end, it convened the so-called Dave Committee in 1999, which produced the Old Age Social and Income Security (OASIS) report. The OASIS report focused primarily on the unorganized work force. In a recent white paper, Sanket Kawatkar, a member of Watson Wyatt Asia Pacific’s India team, sums up the key recommendations, which are to:  

* Establish a new pension system based on the concept of individual retirement accounts (IRAs).  

*Give individuals access to IRAs from points of presence (POPs) scattered across the country. These may include bank branches, post offices, and so on.

*Appoint professional fund managers (PFMs) to manage the funds.  

*Select a limited number of PFMs on the basis of competitive bidding based on overall charges.  

*Offer three types of funds—safe income, balanced income, and growth.  

*Cap administration and fund management costs.

*Require individuals to convert the balance in their IRAs into pension annuities purchased from a life insurance company.

 The OASIS report sparked much debate, which broadened to include the organized work force and a wide variety of long-term savings vehicles. This wider scope is what analysts mean when they talk about pension reform in India .

Since the OASIS report, the government has taken several steps. It has:  

*Replaced the unfunded defined benefit (DB) pension system for government employees with a new, funded, defined contribution (DC) arrangement for new hires. Effective January 1, 2004, the new scheme eventually will become available, on a voluntary basis, to private sector employers and to workers in the unorganized sector. It is mandatory for government employees.  

*Established, on the same date, an interim Pension Fund Regulatory and Development Authority (PFRDA) to oversee the implementation of pension reforms in India . The PFRDA will act as a regulator as well as the developer of the pensions system in India .  

* Signaled a need to rationalize the interest rates declared on the various long-term savings or retirement benefit vehicles to a market-consistent level. Following the recent fall in interest rates, such vehicles have become a burden on the government.  

*Entrusted the Life Insurance Corporation of India (LIC), the state-owned life insurer, to manage an explicitly subsidized immediate annuity pension scheme for senior citizens to mitigate the impact of the lower interest rate environment.  

Local national and foreign financial services companies are closely monitoring events as they unfold. The PFRDA will be appointing pension fund managers (PFMs), who will offer participants in the new pension system a choice of funds in which to invest, much like 401(k) plan purveyors do in the United States . These PFMs also may be allowed to offer fund management services to other pension, provident fund and retirement plans in India .

The new pension system also calls for annuity providers for the mandatory conversion of personal retirement account (PRA) funds into an annuity with survivor benefits when a participant retires.

In addition, authorized retirement advisors ( ARAs ) will market the new system to potential participants. Existing agents and financial intermediaries of mutual funds and insurance firms will be allowed to serve as ARAs after passing an examination prescribed by the PFRDA.

Domestic and foreign insurers, banks, asset management companies and other financial institutions all will be in competition for these opportunities as the nuts-and-bolts are pinned down by the government and the PFRDA. In the past two to three years, foreign insurers such as Standard Life, Prudential, AIG, Allianz and Aviva set up joint ventures with Indian partners in which their participation is limited to 26 percent. During the same timeframe, several foreign banks—among them, Standard Chartered Bank, Deutsche, HSBC, ING and ABN Amro—set up asset management companies. And Principal Financial recently forged strategic alliances with Punjab National Bank, India ’s second-largest commercial bank, and Vijaya Bank that will enable it to build a distribution network to sell pension and mutual funds.

Despite the general consensus that reform will lead to the emergence of an enormous pensions market in India , there are potential stumbling blocks. Progress on reform has been steady, but contentious and prolonged. And many, many decisions have yet to be made. What cap on foreign direct investment in pension fund management will be set? How many PFMs will be permitted and what qualifications must they meet?

Finally, it remains to be seen if pension reform will take a different tack under the United Progressive Alliance (UPA) government, which won the April-May election. Some analysts believe the UPA favors making IRDA the regulator for both the pension and insurance sectors. This would differ from the pension reforms under the National Democratic Alliance (NDA) government, which set up the Pension Fund Regulatory and Development Authority (PFRDA) and had begun to draft a bill to transform the interim body into a statutory one.  During his budget speech in late August, Finance Minister P. Chidambaram said “suitable legislation” will be introduced in parliament. It appears, then, that the issue of creating separate regulators for the insurance and pension sectors, which was hotly debated during the early days of pension reform, is back.  

China Update  

No quest for bright spots in the global insurance sector would be complete without an update on China .

The story of China ’s insurance industry is well known. Since 1949, the market has gone through several stages of development. The first was the birth of the independent insurance market, which occurred between 1949 and 1952. The first nationally-owned insurance company—People’s Insurance Company of China (PICC)—was formed in 1949 and sold a wide range of products and services throughout the country. In the 1950s, the central government ordered PICC to stop operating, because it was unnecessary to have insurance under a planned economy, and foreign insurers left the country. In 1980, China reformed its economic policy and PICC started operating again; as the only insurance company, it enjoyed an absolute monopoly. The creation of Ping An Insurance in 1988 ended PICC’s monopoly and today state-owned, privately-held, joint-venture and foreign insurance companies compete in the market.

The 1990s brought lots more change: China Pacific was founded (1991); AIA was licensed (1992); PICC split up into China Re, PICC P/C, PICC Life (China Life), and China Insurance HK (1995); and foreign companies established representative offices by the dozens and negotiated for operating licenses (1997).

In 1999, the China Insurance Regulatory Commission (CIRC) began to oversee the fledgling insurance sector. In 2001, China , after a years-long campaign, was invited to join the WTO. And in 2003, PICC and China Life launched IPOs and began trading on the Hong Kong and New York exchanges.

Interest in China continues unabated, especially since its entry into the World Trade Organization in December 2001. Under the terms of the WTO agreement and various timetables, China will allow effective management control in life insurance joint ventures; phase out geographical restrictions; allow foreign insurers into group, health and pensions; and permit wholly-owned non-life subsidiaries.

China immediately gave AIG permission to open four new wholly-owned operations in Beijing , Suzhou , Dongguan and Jiangmen. AIG must operate any future businesses as 50-50 joint ventures with Chinese partners.

Since then, a bevy of foreign firms have announced new licenses and expansions—among them, AEGON, Cigna, ING, John Hancock, Manulife, MetLife, Mitsui Sumitomo, New York Life, Nippon Life, Sun Life, and Tokio Marine & Fire, all of which must follow the joint venture rule.

Several factors are driving foreign interest in China . These include the country’s rapid economic growth, imminent industrialization, strong demographics, over-taxed social security system, ongoing insurance reforms, and low insurance penetration rate. Also driving interest is 1.2 billion prospective customers.

According to Swiss Re, China ’s total premium volume in 2003 was US$ 46.9 billion, a 25.5 percent increase over 2002, adjusted for inflation. Of that total, life premiums were US$ 32.4 billion and non-life premiums were US$ 14.5 billion. Insurance density—that is, premiums per capita—was US$ 25.10 for life insurance and US$ 11.20 for non-life insurance. Finally, insurance penetration—or premiums expressed as a percentage of GDP—was 2.3 percent for life insurance and 1.03 percent for non-life.

By other economic measures, such as GNP, China normally ranks sixth, according to Charles E. Boyle, an analyst with the Insurance Journal. As its economic growth continues, writes Boyle, an estimated 9.7 percent in the first quarter of 2004, it can only get larger.

“The insurance sector has grown steadily along with the economy,” writes Boyle. “Gross assets reached a record high of 1.0359 trillion yuan (US$ 126.3 billion) at the end of May 2004. Premiums totaled 338.04 billion yuan (US$ 40.87 billion) in 2003, a 27.1 percent increase over 2002. Reports quoted the CIRC as indicating that the amount of disposable capital of the country’s fledgling insurance sector stood at 952.4 billion yuan (US$ 116.1 billion).”

As they rush to capitalize on China ’s nascent insurance markets, insurers continue to monitor the country’s progress toward meeting its WTO commitments. According to Boyle, who cites China’s WTO Implementation: A Mid-Year Assessment, a report published by the U.S. China Business Council (USCBC) in June 2003, they include:  

* Permitting wholly foreign-owned subsidiaries of foreign nonlife insurers.  

*Reducing to ten percent the mandatory cession to China Reinsurance Co. of all lines of primary risk for non-life personal accident and health insurance business.  

*Allowing foreign life and non-life insurers and insurance brokers to provide services in Beijing, Chengdu, Chongqing, Ningbo, Shenyang, Suzhou, Tianjin, Wuhan, and Xiamen.  

*Permitting foreign non-life insurers to provide the full range of non-life insurance services to both foreign and domestic clients.  

*Reducing insurance brokers’ asset requirements to $300 million.

  China is making steady, if slow, progress on these goals. By the end of 2004, for example, analysts expect geographic restrictions on foreign insurers to be  eliminated. And Boyle notes that serious disagreements remain about the Chinese regulations that govern corporate structures for branching: “The CIRC applies the 1995 basic insurance law, which requires each branch to be independently capitalized with a minimum of yuan 200 million, around US$ 25 million.”

Despite these and other challenges, domestic and foreign insurers are vying for a piece of the action. The number of insurance companies continues to grow. By mid-2004, there were 29 life insurers in China and at least two more insurers are expected to begin operations before the close of 2004, according to Tillinghast Towers Perrin.

A new initiative seems to come every day. Major announcements this year include:  

*A joint venture between MetLife and Capital Airports Holding Company (Sino-US Metlife).  

*The new license issued to JV partners Generali and China National Petroleum Corporation (Generali China Life) for a life company in Beijing (the JV has been licensed since 2002 in the Canton region).  

*Approval for partners AVIVA and China National Cereals, Oils & Foodstuffs Import & Export Corp. (COFCO) to open branches of Guangzhou-based AVIVA-COFCO in Beijing and Chengdu.  

Insurers offer a good mix of products to consumers, although low interest rates haven’t been good for traditional fixed-rate products. As a result, participating policies—that is, those that pay out dividends—are increasingly popular. As new reforms are implemented, analysts expect pensions and group products to take off.

China ’s primary product distribution channel continues to be tied agents, but bancassurance is growing by leaps and bounds. Worksite marketing will emerge as a channel when the group market takes off.

What’s in store for global markets? Most analysts expect life insurance premium income in most markets to benefit from economic growth, rising interest rates, and securities markets gains. Unless claims rise dramatically, the non-life sector should enjoy improved profitability; regardless, prospects for non-life products remain solid in the emerging markets. Resource will keep you posted as events unfold.

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