GUANGZHOU INSURANCE CONFERENCE NOV. 28-29

UNCLAS SECTION 01 OF 03 BEIJING 007535 SIPDIS SENSITIVE SIPDIS STATE FOR EAP/CM SECOR/YAMAMOTO STATE PASS USTR STRATFORD/WINTER/MAIN USDOC FOR ITA/MAS/MARINACCIO E.O. 12958: N/A TAGS: ECON ETRD WTRO EFIN EINV CH SUBJECT: GUANGZHOU INSURANCE CONFERENCE NOV. 28-29 (U) THIS MESSAGE IS SENSITIVE BUT UNCLASSIFIED. PLEASE HANDLE ACCORDINGLY. NOT FOR DISTRIBUTION OUTSIDE USG CHANNELS. ¶1. (SBU) Summary. Participants at the 8th annual China Rendezvous Insurance Conference in Guangzhou November 28-29 discussed insurance challenges in the China market for foreign insurance and reinsurance companies. Industry participants lamented the lack of insurance product awareness among the populace, poor perception of insurance, difficulty in opening branches, inability to make concurrent branch applications, discriminatory reinsurance regulations, and restrictions on foreign firms hoping to enter the auto insurance and political risk insurance markets. End Summary. -------------- 100 Percent Penetration by 2020 -------------- ¶2. (SBU) During the two-day conference, China Insurance Regulatory Commission (CIRC) Commissioner of Guangdong Province Huang Hong said CIRC's objective is to get insurance penetration to all households and individuals in China by 2020. He noted the need to use "Chinese characteristics" to develop the insurance industry, but did not elaborate further as to which specific steps CIRC was planning to take in accomplishing its objectives. Several industry participants emphasized the need to increase insurance product awareness among the populace and called on CIRC to play a lead role. One of the organizers of the conference suggested CIRC adopt an "Indian" model and employ innovative strategies like sponsoring popular sporting events and utilizing radio, audio- visual media, and music concerts to boost awareness. ¶3. (SBU) Chairman of the Guangdong Insurance Association and General Manager of China Life, Zheng Dong, said CIRC and the Ministry of Education had recently published a notice stating that insurance would be taught at the secondary school level. However, participants emphasized that this has not happened yet and doubted when the Ministry of Education and CIRC could make it happen. -------------- Poor Perception of Insurance -------------- ¶4. (SBU) Sino Life Insurance Company Liaoning Branch General Manager Li Qiu discussed the challenge of reducing poor perception of insurance, particularly that of insurance agents, as an important step in increasing insurance product penetration among Chinese households. He emphasized that lack of professional training, lack of transparency, limited product choice, and lack of consumer education all contributed to this negative perception. The average Chinese household continues to view insurance in terms of a "cost" as opposed to a "savings" product, he stressed. ¶5. (SBU) In response to Li's remarks, several foreign insurance and reinsurance firm representatives suggested that tax incentives at both the personal and corporate level would not only reverse this trend, but also encourage the development of private pensions. A favorable tax environment would also benefit the development of the health care insurance market, they argued. -------------- Market Access Concerns - Opening Branches -------------- ¶6. (SBU) Foreign insurance and reinsurance company representatives noted that foreign firms do not have sufficiently established insurance brands in China yet. One of the challenges in establishing a brand is first BEIJING 00007535 002 OF 003 establishing a branch office in China. Vice President and General Manager of the Hong Kong branch of Transatlantic Reinsurance Company, Peter Ho Kin Chung, said their firm had applied to open a branch in Beijing three times, since 2001, but each time had been refused by CIRC without receiving a complete written notice of the reason for refusal. Ho Kin Chung stated Transatlantic submitted an application for branch approval in August, 2007 but given previous refusals, Transatlantic would like United States Government assistance in advocating their case. Without a branch office, United States firms like Transatlantic Reinsurance Company cannot conduct underwriting business services and are effectively shut out from doing reinsurance in Mainland China. The cumbersome process of opening a branch in China, coupled with the inability to concurrently apply to open multiple branches, restricts foreign insurance firms from entering the market, industry participants said. ¶7. (SBU) Singapore Reinsurance Corporation representatives noted the advantages domestic firms have in selling insurance products. Singapore Reinsurance Corporation Shanghai Representative Office Chief Representative Wilson Wu, for example, noted the extensive network of China Life, China's largest domestic insurance company, with a vast distribution network to sell insurance products through more than 10 commercial banks at over 90,000 branches, as well as through postal savings institutions. Foreign firms have limited distribution channels as CIRC continues to implement regulations that benefit state-owned or state-controlled reinsurance companies, Wu said. -------------- Discriminatory Reinsurance Regulations -------------- ¶8. (SBU) Marsh Insurance Company representatives also noted that CIRC's October 28, 2005, "Regulations on Administration of Reinsurance Business" continues to favor state-owned or state-controlled insurance companies with respect to reinsurance cessions. CIRC's November 28 "Notice Concerning Issues Relating to the Security of the Reinsurance Business," effective January 1, 2008 does not eliminate the requirement that foreign insurance companies must first offer reinsurance to at least two local Chinese reinsurance companies. ¶9. (U) Industry analysts point to Articles 11 and 22 in the 2005 "Regulations on Administration of Reinsurance Business" that discriminate against foreign reinsurance companies. Article 11 states that, when arranging treaty and facultative reinsurance, primary insurers should send out reinsurance invitations to at least two professional licensed insurance companies located in China prior to offering the business to foreign firms located outside the People's Republic of China. Article 22 states that, unless otherwise approved by CIRC, foreign insurers shall not have reinsurance business with its affiliated overseas companies. According to foreign reinsurance company representatives, both articles are meant to protect China Reinsurance Company's monopoly over the reinsurance business. -------------- -------------- Restricted Markets - Auto and Political Risk Insurance -------------- -------------- ¶10. (SBU) While auto insurance premiums account for 70 percent of China's general insurance market, foreign firms are restricted from underwriting mandatory third party liability (MTPL) auto insurance in China, effectively shutting them out from the auto insurance market. In addition to MTPL, no foreign insurance company has received approval from CIRC to provide political risk insurance (PRI) coverage for Chinese BEIJING 00007535 003 OF 003 companies. According to industry analysts, China Export and Credit Insurance Corporation (Sinosure), jointly administered by CIRC and MOF, and wholly owned by the Chinese government, is currently the only insurer allowed to sell political risk insurance in China for non-domestic exposures. Foreign insurance company representatives told Econoff that these restrictions are in place to ensure People's Insurance Company of China (PICC),China Pacific Insurance Corporation (CPIC),and Ping An's dominant position in the MTPL auto insurance market, while protecting Sinosure's monopoly in the PRI market. -------------- -- Tianjin as National Insurance Experimental Zone -------------- -- ¶11. (SBU) CIRC and the Tianjin government jointly issued an "Opinion on Accelerating the Innovation Development of Insurance Reform Experimental Zone in Tianjin Binhai New Area" on November 21. One of the promoters of the ntional experimental zone in Tianjin, Bohai Insurance Vice General Manager Qi Zhi Qiang, stated that all major national insurance reform measures would be tried out first in Binhai. He said Tianjin Binhai was chosen because of its specific geographic location. The Binhai New Area consists of a 2,270 square kilometer of land along the coast, complete with a free trade zone, a financial street and one of China's largest bonded port areas. Other industry analysts, however, believe Tianjin was chosen because the Mayor of Tianjin, former central bank governor Dai Xianglong, is one of President Hu Jintao's friends. As for insurance reform measures that Binhai will implement, Qi did not offer any specific examples. Most conference participants confided that it is too early to determine whether the new experimental zone would be a success or failure. -------------- Conference Participants -------------- ¶12. (U) Conference Participants included: Secretary General of the People's Government of Guangdong Province Li Han Dong, CIRC Commissioner of Guangdong Province Huang Hong, and 330 delegates from various domestic and international insurance and reinsurance companies and related firms. The November 28-29 two- day conference was organized by China Reinsurance Company and Singapore Reinsurance Company. Randt