Direct Insurers Able to Choose Reinsurance Company

As per the revised Insurance Law of China, direct insurers in China's Mainland can select either the domestic reinsurance company or the foreign reinsurance company when they have such business need.

Currently, such international leading reinsurance companies as Munich Reinsurance Company, Swiss Reinsurance Company and General Re Corp are performing well and taking a large portion in China's reinsurance market. Furthermore, China had made the commitment to the World Trade Organization (WTO) to totally commercialize the reinsurance market as from the end of 2006. Hence, the cancellation of the priority for domestic reinsurance company to get the reinsurance business would protect the interest of those foreign reinsurance companies.

Actually, China only has one reinsurance company, that is, China Reinsurance (Group) Corporation (China Re). The revision of the Insurance Law just indicates that the country's insurance regulatory department wants to introduce the international experience and promote the competition in the reinsurance market.

The more insurance premiums a direct insurer earns, the more preferential commission rate a reinsurance company could have. So Beijing-based China Life Insurance Co. (601628.SH), Shenzhen-based Ping An Insurance (Group) Company of China (601318.SH) and Shanghai-based China Pacific Insurance (Group) (601601.SH) as the top three insurance giants in China's Mainland will benefit from the new rules concerning the selection of a reinsurance company.

Reports earlier said that commercial banks in China's financial hub Shanghai do not accept the lowered bancassurance commission standard of Shanghai Insurance Association. According to the Self-Discipline Commitment of Bancassurance Commission Standard of Shanghai, the bancassurance commissions have been lowered by 50%, which is unacceptable to commercial banks who act as the agent selling insurance products.

According to China Insurance Regulatory Commission, the bancassurance premiums in the country hit CNY 165.4 billion in the first half of this year, down 4.5% year on year. In the first half of this year, life insurers in Shanghai realized premium revenues of CNY 27 billion, an increase of CNY 309 million compared with the same period of the previous year. The bancassurance channel contributed 44.71% to total premium revenues in Shanghai's life insurance market in the first half year.

The Shanghai Bureau of China Insurance Regulatory Commission earlier required adjustment of business structure in local life insurance market. Meantime, Shanghai-based life insurers are expected become customer demand oriented by selecting most suitable products for different groups of customers.