Regulators seek to curb insurance industry risk

The China Insurance Regulatory Commission will work to prevent systemic industry problems this year, as 2013 may be the most difficult year for the country's insurance sector, the commission's chairman said on Thursday.

"We see many more difficulties in ensuring steady growth of the insurance industry this year due to a comparatively lower investment return rate and the imminent peak of due payments on policies," Xiang Junbo told the annual insurance conference in Beijing.

Because the existing average investment return of insurance capital is lower than the interest rate of five-year deposits, more policyholders are expected to surrender their policies.

Meanwhile, a number of insurers will face a cash crunch because many policies will become due this year.

After enjoying an average growth of more than 20 percent in the past two decades, China's insurance premium income slowed to single-digit growth in 2012.

The premium income increased 8 percent to 1.55 trillion yuan ($249 billion) last year, with health insurance premiums leading the growth, the commission said.

Premiums in the life insurance sector hit 1.016 trillion yuan in 2012, up 4.5 percent year-on-year. And premiums in the non-life insurance sector rose 15.4 percent to 533 billion yuan.

Among life insurance premiums, those for health insurance premiums climbed 24.7 percent to 86.28 billion yuan, leading the growth among all sectors.

Total assets of the country's insurance industry jumped 22.29 percent year-on-year to 7.35 trillion yuan last year. "Meanwhile, due to a sliding investment return and rising operational cost, insurers find it more difficult to improve profitability," Xiang said.

As a result of last year's sluggish capital market, most life insurers saw a decline in their investment returns.

To improve their returns, the CIRC has taken a number of measures to further broaden investment channels. It also will further promote market-based reform of the launch of infrastructure and real estate debt projects; introduce new types of investors; and work on relevant management rules, Xiang said.

Despite the regulator's concern over the insurance industry's growth this year, foreign insurers are more optimistic about the market's potential.

The world's leading reinsurer, Swiss Reinsurance Co Ltd, said in a recent report that China's life insurance premium is expected to grow 12 percent in 2013, fueled by the improvement in the nation's economy.

"Last year's growth decline was partly driven by regulatory changes in 2011 that constrained bankassurance sales," Swiss Reinsurance senior economist Xing Li said.

Health insurance products will be the biggest growth driver for the life insurance sector this year. Swiss Re's statistics show that there are huge health protection gaps that exist in China, with a potential shortfall of $73 billion in 2020. And such gaps will drive consumers toward risk-protection products.

China's non-life insurance premium, according to the Swiss report, will grow 13 percent this year, from last year's 10.2 percent based on its calculations.

Foreign life insurers in China expect to increase their premium income by up to 30 percent over the next three years, international accounting firm PricewaterhouseCoopers said in a recent report. The optimistic prediction is based on a current market penetration of just 2 percent, a strong rise in premiums, and the relative strength of China's economy, according to its recent Foreign Insurance Companies in China report.