Reinsurance competition to intensify

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Last updated at: (Beijing Time) Thursday, January 08, 2004

Reinsurance competition to intensify

The recent arrival of global reinsurance giants is expected to beef up competition in China, one of the world's fastest-growing insurance markets.

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The recent arrival of global reinsurance giants is expected to beef up competition in China, one of the world's fastest-growing insurance markets.

Their local presence will also presumably give a strong impetus to China Re, their sole Chinese competitor, while benefiting local market with their expertise and resources, Thursday's China Daily reported.

Gao Cong, general manager of the Swiss Re Beijing Branch that opened last month, said his company targeted at achieving the maximum market share possible in China.

But China Re, the sole local reinsurer, is not as confident. General Manager Dai Fengju has admitted that his firm lags far behind its foreign counterparts in such key areas as capital strength, services and repayment capacity.

China Re is already losing its privileged dominance in the market. With its lifeline protective policy "which requires local insurers to cede 20 percent of their non-life business to the State-owned firm" being dismantled gradually under China's World Trade Organization commitments, China Re's mandatory premium income is expected to dive at an estimated average of 40 to 50 percent annually until 2006.

"That will have a significant impact on China Re's payment capacity," Dai said.

Dai's situation can be more clearly seen in commercial or non-mandatory lines.

In 2002, Chinese primary insurers gave 90 percent of their commercial business, or 6.7 billion US dollars, to foreign reinsurance companies, statistics indicate.

With their local branches up and running, foreign competitors are now in an even stronger position. For Swiss Re, Gao said the Beijing branch is "an essential step to do profitable business in China, because Swiss Re personnel will be on the ground, and will learn more from the market and understand how best to adapt its expertise and resources to China's specific needs."

But China Re has its own competitive advantage in such areas aslow operating expenses and strong ties with local insurers, analysts say.

Late last year, China Re restructured itself into a group company and set up two reinsurance subsidiaries, for life and non-life respectively, and a direct insurance arm in property and casualty.

It also ushered in a group of domestic and foreign investors, bringing a total of nearly 2 billion yuan (240 million US dollars)in additional capital.

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