China Insurance Regulatory Commission

October 11, 2006

Since reform and opening-up, especially the 16th National Congress of the CPC, China's insurance industry has witnessed a rapid growth with more diversified service fields, increasingly optimized market system, gradually improved laws and regulations, and enhanced supervision. As a result, risks in insurance industry have been effectively controlled, and the overall strength of the industry has been enhanced dramatically. Insurance has been playing an active role in promoting reform, safeguarding economic development, stabilizing the society and creating benefits to the Chinese people.

1. Overview of Reform and Development of Insurance Industry since the 16th National Congress of the CPC

(1)Development philosophy has evolved into a new stage.

With increasingly growing consciousness of carrying out the Scientific View of Development, China's insurance industry has gradually discarded the old idea of extensive development. The Scientific View of Development is becoming a powerful spiritual weapon to guide the fast and sound development of insurance industry. First of all, overall development is emphasized. In accordance with the Scientific View of Development, China's insurance industry has taken the initiative to adjust the industrial structure and to improve the quality of growth. As a result, intensive operation is becoming the main way of growth for China's insurance industry. Secondly, balanced development is insisted. To preserve balanced development, the industry has made unified planning with due consideration for all concerned, including the development of insurance markets in urban and rural areas and the development of primary insurance market, re-insurance market and insurance intermediary market, in order to realize harmonious development for the industry while serving the drive to build a harmonious society. Thirdly and lastly, sustainable development is insisted. The relations between rapid growth and risk prevention, between social benefits and economic returns, and between current development and long-term development are well understood and properly handled. As a result, the insurance market is operating more stably and securely.

(2) Overall strength has been enhanced to a new level.

Firstly, insurance business has achieved a rapid growth. Insurance industry has become one of the fastest growing industries in national economy: its annual premium income has been growing by 17.3 percent on average since 2002 and reached as high as RMB 492.7 billion yuan in 2005, 60 percent more than that of 2002. Next, the market system has been gradually perfected. Currently, there are 100 insurance institutions in China, and a market of fair competition and common development has been fostered preliminarily, with the coexistence of diversified forms of organization and varied types of ownership, including state-owned holding companies (groups), joint-stock companies, policy-oriented companies, specialized companies and foreign-invested insurance companies. Thirdly, assets keep growing. Presently, total assets of insurance companies have reached RMB 1.8 trillion yuan, which is 2.8 times that of 2002, and capital of insurance industry have reached RMB 110 billion yuan, seeing a growth of 160 percent over 2002. Lastly, global influence of Chinese insurance industry is gradually expanding. China's average annual growth rate of premium income in the past three years has been 8 percent higher than the world's average. In 2005, China's premium income ranked 11th globally, accounting for 1.8 percent of the world's total premium income, 0.4 percent more than that in 2002.

(3) Reform and innovation of the industry have made new progress.

First of all, a modern insurance enterprise system has been established. After the shareholding restructuring of state-owned insurance companies, all Chinese insurance companies, except export credit insurance company operating policy-oriented businesses, have adopted the organizational structure of joint-stock company. Secondly, the insurance industry has taken the lead in listing on overseas stock markets. The PICC Property and Casualty Company Limited, for example, is the first state-owned financial corporation listed overseas, and China Life Insurance Company Limited is the first financial corporation listed in Hong Kong and New York at the same time, while Ping An Insurance (Group) Company of China, Ltd. is the first financial corporation listed on overseas markets in the form of a group company. All these insurance companies have made meaningful explorations for Chinese financial corporations to restructure and list on overseas markets. Thirdly, operation mechanism of insurance industry has experienced profound changes. According to the requirement of improving corporate governance, state-owned insurance companies have made great efforts to overhaul their personnel system, improve incentive and control mechanism and redesign operation process. As a result, the industry is developing along a sound and healthy way. During the three years since restructuring and IPO, the systems and mechanisms of the insurance companies have experienced positive changes with more scientific management and operation, improved internal control, optimized business structure and obviously enhanced profitability and competitiveness. In a word, the effects of the reform have been more and more obvious. With the largest market value among listed life insurance companies in the world, China Life ranked No. 217 among Fortune 500 and No. 26 among all insurance companies around the world according to the Fortune magazine.

(4) Opening up has entered a new stage.

Firstly, opening up is more profound and comprehensive than ever. Insurance industry opened up to the outside world in an all-round way since December 11, 2004, the day when WTO transitional period of insurance industry ended. Currently, there are no restrictions for foreign-invested insurance companies, except that operation of statutory insurance businesses is prohibited and that foreign-invested life insurance companies must established in the form of joint venture. Secondly, the insurance industry has kept a good balance between opening up and risk control. Adhering to the principles of "unified consideration and good balance, complementation of advantages, cooperation, common prosperity and harmonious development", the industry has set a proper rhythm for the market access of foreign-invested insurance companies to safeguard the security of financial business. In 2005, the 40 foreign-invested insurance companies had a market share of 6.7 percent. Thirdly, cooperation of international insurance supervision has made positive progress. Approved by the State Council, CIRC has joined the International Association of Insurance Supervisors and International Organization of Pension Supervisors. In October this year, the 13th IAIS Annual Conference will be held in Beijing. It's expected that insurance regulatory authorities from over 150 countries and regions around the world will participate in this event, making it the largest annual conference of IAIS in terms of scale and number of participating countries and regions.

(5) Risk control has developed into a new stage.

While maintaining rapid growth, insurance industry has successfully prevented the emergence of large risks. Firstly, based on the realities of domestic insurance industry and with references of the newest regulatory principles of IAIS, a three-pillar regulatory system centered upon market conduct, solvency and corporate governance has been established. Secondly, the basic regimes for insurance regulation have been gradually improved. With greater attention to the formulation of insurance laws, regulations and rules, progress has been made in the improvement of market access regime, business supervision regime, fund management supervision regime, information and statistic system and administrative regime for senior management personnel. Thirdly, a long-term risk prevention and mitigation mechanism has been created. Five defense lines against insurance risks have been formed, including corporate internal control as the foundation, solvency supervision as the core, on-site inspection as an important method, fund management supervision as the key, and insurance security fund as the cushion. Especially by improving the insurance security fund system, insurance industry became the first in the financial sector to have a market-based and self-reliant risk mitigation system. Currently, the insurance security fund has accumulated RMB 6.3 billion yuan, with an expected growth of RMB 2 billion yuan every year.

(6) The ability of serving society and economy has been enhanced to a new level

Centered closely on the key tasks of the Party and the State, while playing its traditional function of economic compensation, the insurance industry has been continuously enhancing its abilities of financing and social management. Insurance industry is playing an increasingly important role in economic growth and social progress.

In terms of safeguarding the smooth operation of the economy and promoting economic growth, the insurance industry has played an important role. Insurance companies have paid claims of nearly RMB 300 billion yuan in the past 3 years. Especially after some major disasters, insurance companies' timely claim settlement has played a positive role in the reconstruction and recovery of normal production. To give a few examples, insurance companies paid RMB 710 million yuan in total for the water inrush accident of the fourth line of Shanghai subway in 2003 and ensured the progress of this construction project. In 2005, insurance companies paid RMB1.33 billion yuan in total for seven strong typhoons and tropical storms that attacked the costal areas of China. The claims paid by insurance industry for typhoons in the three provinces of Guangdong, Zhejiang and Hunan this year, according to early statistics, has amounted to more than RMB 1 billion yuan. At the same time, insurance industry is providing a significant amount of long-term and steady funds for economic construction, supporting investment and promoting economic growth. By now, insurance funds under management have reached RMB 1.6 trillion yuan.

From the perspective of the drive to build socialist new countryside, great efforts have been made in 4 areas. Firstly, agricultural insurance has been actively promoted. Agricultural insurance business used to be mainly operated by People's Insurance Company of China and China United Property Insurance Company. Three specialized agriculture insurance companies have been established with approval from CIRC in recent years, and pilot projects of various forms based on the actual conditions of different areas have been pushed forward. Agricultural insurance business has stopped shrinking and stars to grow. Compared with 2004, premium income of agricultural insurance nationwide in 2005 achieved a growth of 84.3 percent, and claim settlement for agricultural insurance increased by 94.8 percent. Secondly, the industry involved itself in the pilot program of new cooperative medical care system in rural areas. 19.78 million farmers from 68 counties (cities) of 8 provinces such as Henan and Jiangsu participated in the cooperative medical care program. The participation of insurance has greatly improved the efficiency of this program. Thirdly, the industry engages itself in pension business for farmers who have lost their land. Such pension business conducted in 53 prefecture-level cities (cities and districts) in 18 provinces (cities) such as ChongqingCity has provided farmers who have lost their land with stable old-age protection. Lastly, insurance industry provides insurance services for migrant workers. In Shanghai, the insurance industry is actively promoting comprehensive insurance for migrant workers, covering occupational injury and accident, hospitalization and providing old-age benefits. Up to now, more than 2.6 million migrant workers in Shanghai have applied for this type of insurance, accounting for 65 percent of all the migrant workers there. In addition, China Life also has made great achievements in providing insurance for migrant workers by selling insurance policies in the form of cards or folded cards including "No Worry Card of China Life" and "Rural Labor Accident Card" to migrant workers and group insurance to construction companies and mines where a lot of migrant workers gather. These products meet the needs of migrant worker for accident and injury insurance and health insurance. Insurance companies are also working closely with labor export institutions in provinces such as Jilin to provide comprehensive insurance for migrant workers.

In order to improve social security system, the insurance industry has made great efforts to develop commercial pension and health insurance. Commercial insurance has become an important part of social security system and the system as a whole has been enhanced. By the end of 2005, insurance industry had accumulated reserves of RMB 1.2 trillion yuan for pension and health insurance business, which is 6 times of the State Social Security Fund and 2 times of all social security funds at different levels nationwide. The insurance industry is also an active player in enterprise annuity business, with 8 insurance institutions winning 10 qualifications to participate in enterprise annuity business.

As far as social management is concerned, the insurance industry has done three things.First, the insurance industry has actively promoted liability insurance to enhance safe production and the ability to deal with emergencies. More than 210 liability insurance products have been developed by different insurance companies, including public liability insurance for fire accident, employer liability insurance for industries with high risks, medical treatment liability insurance, quality liability insurance for construction projects, carrier liability insurance for long-distance passenger transportation service, carrier insurance for road transportation of dangerous goods and school liability insurance. Take fire accident for example, the insurance industry has worked with the Ministry of Public Security to promote liability insurance in public places such as stores, hotels and restaurants, as well as sites with inflammable, explosive or dangerous chemical goods. In six places including Shanghai and Shenzhen, pilot projects are being conducted to change the situation in which the government pays all the assistance and compensation to the injured of fire accidents. The insurance industry also established a tourism insurance system together with China National Tourism Administration, helping people to get a safe and pleasant tour. This system not only helps to boost tourism but also can diminish the unfavorable influences tourism risks may impose upon the society. Second, the industry gives play to the disaster-prevention and loss-prevention functions of insurance and takes part in social emergency management actively. For example, PICC has established long-term cooperation mechanisms with disaster prevention and disaster mitigation institutions at home and abroad. Depending on over 4,300 branches to collect and analyze meteorological, hydrological and fire fighting information, a comprehensive inquiry system of disaster indicators has been established, ensuring the successful work of emergency reaction, disaster relief and property transfer. In a series of typhoons including "Haitang," which attacked the southeastern costal areas of China in 2005, Zhejiang Branch Company of PICC organized more than 7,000 people to help over 10,000 enterprises. Over 300,000 warning text messages were sent and several millions of yuan were spent in disaster control and relief work. Various properties of nearly RMB 3 billion yuan were rescued. Lastly, the insurance industry has taken part in safety construction actively. In Shandong province, the practice of joint defense by contractual insurance has realized an effective combination of insurance and public security institutions, and achieved ideal results in the maintenance of social order.

2. Overview of the Insurance Market from January to August 2006

(1) Business development. From January to August this year, with a year-on-year growth rate of 13.98 percent, total insurance premium income of China in this period reached RMB 382.095 billion yuan, seeing an increase of RMB 46.86 billion yuan, and the growth was 1.47 percent higher than the growth of the same period last year. With an increase of RMB 13.67 billion yuan, premium income of property insurance in this period reached RMB 99.89 billion yuan, 15.85 percent more than the same period last year. Premium income of life insurance increased by RMB 28.391 billion yuan to RMB 248.029 billion yuan with a growth rate of 12.93 percent over the same period last year. Premium income of health insurance increased by RMB 3.353 billion yuan to RMB 23.99 billion yuan, achieving a growth rate of 16.25 percent over the corresponding period last year. Premium income of personal injury and accident insurance witnessed a growth of RMB 1.446 billion yuan, totaling RMB 10.187 billion yuan with a growth rate of 16.55 percent over the corresponding period last year.

(2) Claim settlement. From January to August this year, claim settlement had a year-on-year increase of 19.86 percent and the growth was 0.07 percent higher than the corresponding period last year. Claim settlement for property insurance had a year-on-year increase of 22.16 percent. Claim settlement for life insurance was 18.01 percent higher than the same period of last year. Claim settlement for health insurance had an increase of 12.97 percent over the same period last year. Claim settlement for accident insurance increased by 18.57 percent over the same period of last year.

(3) Insurance assets. Total assets of insurance companies in China have increased by RMB 228.652 billion yuan from the beginning of 2006 to RMB 1,757.746 billion yuan at the end of August 2006, witnessing a growth rate of 14.95 percent. Insurance assets under management reached RMB 1,591.257 billion yuan, 12.91 percent higher than the beginning of this year.

(China Development Gateway October 11, 2006)