China to Pilot Variable Annuity Insurance

Variable annuity insurance is more and more popular among consumers, especially those middle-aged white-collar workers, in the Chinese market nowadays.

As one of the three pillar insurances of China's social endowment security system, corporate annuity insurance enjoys an average annual growth of over 30 percent in recent years. The China Insurance Regulatory Commission (CIRC), the top Chinese insurance regulator, released a notice on pilot over variable annuity insurance on May 10. In addition, it unveiled temporary rules on the management of such insurance. "It is the timing for insurers nationwide to launch such insurance," Luo Yi, an analyst with China Merchants Securities Co., Ltd., said in an interview recently.

The CIRC had weighing a plan to conduct the pilot for over one year and in order to reduce risk, it will launch the pilot in five cities, including Beijing, Shanghai, Guangzhou, Shenzhen and Xiamen, only. In addition, the threshold for insurers to take part in the pilot is not high, which is to say medium-sized insurers as well as Sino-foreign insurers will also have chances to participate in. According to the watchdog, they should have launched investment-linked insurance for more than three years. Besides, their solvency as at the end of each of the past two quarters before submitting the application as well as the end of last year should exceed 150 percent. They should have established a special information system for the management of variable annuity insurance. And the capital they plan to use for the pilot should not exceed the smaller between four times the actual capital under solvency as at the end of the past quarter and CNY 8 billion.

"Variable annuity insurance will be luring as based on features including cost-retaining and variable return on investment, it will well satisfy the demand of consumers," said Zhao Huiying, an analyst with Beijing Gao Hua Securities Co., Ltd. However, previous sources said that as for the pilot, foreign-funded insurers, including Sino-US United MetLife Insurance Co., Ltd., CITIC-Prudential Life Insurance Co., Ltd., and AXA-Minmetals Assurance Co., Ltd., showed rising enthusiasm while Chinese ones such as China Life Insurance Co., Ltd. (SEHK: 2628 and SHSE: 601628), Ping An Insurance (Group) Company of China, Ltd. (SHSE: 601318 and SEHK: 2318), and Taikang Life Insurance Co., Ltd., still held a wait-and-see attitude.

"It is a challenge for Chinese insurers to launch such insurance," reiterated Zhao. "In addition to experience shortage, the products are always complicated. Misleading sales risk takes place if the salespersons are not qualified or improper consumers are selected."