china bancassurance in china english dec 2009
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December 2009
Reaching the Next Level
Bancassurance in China
Chris Kaye (BCG), Frankie Leung (BCG), Holger Michaelis (BCG),
Chee Kok Poh (Swiss Re), Eric Schuh (Swiss Re), and Robert Wiest (Swiss Re)
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Contents
Preace 1
ExecutiveSummary 2
ABrieIntroductiontoChinasInsuranceMarket 3
Overview 3
Bancassurance in ChinaA Story o Explosive Growth 4
TheNextWaveoGrowth 5The Many-to-Many Model: An Imbalance o Power 5
The Need or Product and Service Innovation 6
The Way Forward: Integration and Exclusivity 7
Regulatory Reorm: A Transition Already Underway 8
SuccessulPathwaystoaWinningBancassuranceModel 9
The Opportunity 9
A Win-Win Approach 9
Diferent Models Work or Diferent Players 10
The 10 Building Blocks o a Successul Bancassurance Model 12
ACalltoAction 15
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Preface
Chinasbancassurancemarketisgrowingatbreathtakingspeed.Atthesametime,itappearstobelockedin
aparadox.BanksarealreadythedominantsaleschannelorlieinsuranceinChina,andarepropellingthe
countrysrapidgrowthinpremiumvolume.However,thebreadthandsophisticationocurrentlyavailable
productsaswelltheoverallqualityocustomerservicelagarbehindbancassuranceactivitiesinmany
othercountries.Theresultisarapidlydeveloping,yetunusually underdevelopedmarket.
Severalactorshavecontributedtothepresentsituation.First,banksobviouslyhaveconsiderablemarketing
powerintheinancialservicesarena.Theyalsoarepermittedtosellmultiplebrandsoinsurancealthoughtheyarenotyetallowedtoowninsurersoutright.Theresultingmodelisoneinwhichbanksoen
sellrelativelyunsophisticatedsavings-typeproductsoeringsthatcarryavarietyobrandnamesinan
untargetedway.Wecallthisstructuremany-to-many.
Why,then,dontinsurersdevelopbetter-tailoredproductsandserviceorthebankchannel?First,thereis
littleincentiveorinsurerstotrainbankingstasinproductdetailandadvancedsalestechniqueswhen
thisexpertisewillbeused,atleastinpart,toselltheircompetitorsproducts.Inaddition,insurersalready
paygenerouscommissionstobanksorshelspace,hurtingtheirownprotabilityandabilitytoinvestin
innovation.
Thereis,however,agrowingrecognitionthatthepresentmarketstructureisnotsustainable.Indeed,
Chineseregulatorsarealreadyworkingonbancassurancereorminordertopromotebetterintegrationo
banksandinsurers.WebelievethatthisinitiativewillpushChinasmarketinthedirectionomoremature
bancassurancemarkets.Morespeciically,wearelikelytoseea periodoheavyinvestmentin product
development,marketing,customerservice,andplatormsynergy.Theinsurersandbanksthatareleading
thispushwillbeinapositiontobuildsignicantcompetitiveadvantageinthemarket.Theprerequisiteor
success,however,will betheormingoexclusivepartnershipsovariousnaturessothatinvestments
ocapitalandknow-howcanbeprotectedandgeneratepositiveresults.
Banksandinsurersalikewillneedtothinkthroughthedierentoptionsavailabletothemtakingtheir
speciccapitalresourcesanddistributionnetworksintoaccountandadoptastrategythatisalignedwith
theirlong-termaspirations.Bettingontherightstrategicoptionnowandensuringbest-in-classexecution
canresultinextraordinarybenets.
Reaching the Next Level
Bancassurance in China
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Bancassurance in China2
Executive Summary
BancassurancehasalreadyemergedasChinasbiggestplatormorlieinsurancesales,yetitcurrently
operatesonamany-to-manydistributionmodel.Thismodelhasbeenacilitatedbyregulationsthat
allowbankstoselltheproductsomultipleinsurerssidebyside.
Inthelongrun,themany-to-manymodelisnotsustainable.Simpleanalysisooperatingprotssuggests
thatbancassurancedoesnotcreatesignicantvalueorinsurersinChinatoday.Ingivingbanksmore
leverageovertheinsurerswhoseproductstheysell,themany-to-manymodelailstoincentivizeproduct,
marketing,orserviceinnovationamonginsurers.Bankshavelittlemotivationtochangethis system
becauseitprovidesthemwithhandsomecommissions.
Thelackoproductdiversityandsalesknow-howresultingromthecurrentsystemisstartingtoimpact
demandorinsuranceproductssoldthroughbanks.Withoverallpenetrationstilllow,however,bothlie
andnon-lieinsurancepremiumsinChinashouldcontinuetogrowannuallybydoubledigits,supported
bybroadermacrotrends.Still,althoughthesizeandwealthotherelevantbuyergroupwillcontinuetomushroom,thegrowthobancassurerswillbeweakeneditheyareunabletotakealargershareo
walletromincreasinglysophisticatedanddemandingcustomers.Otherinsurancedistributors,suchas
agentsandbrokers,mightwinbackmarketsharesoncelosttobanks.
Inorderto remaincompetitive,bancassurerswillhavetowidenandupgradetheirproductlinesand
improvetheircustomerservicemodelsinessence,givingcustomersmoreandbetterproductsinamore
targeted,service-orientedwayinordertocreatebrandloyalty.Thiswillrequiresubstantialinvestment.
Banksandinsurerswillalsohavetoorgemoreexclusiveandbetterintegratedpartnershipsinorder
tojustiytheseinvestments.Thereareourbancassurancepartnershipmodelsthat,dependingoneach
partysneeds,haveproventobesuccessul:exclusivedistributionpartnership;jointventure;nancialholdingcompany;andintegratedlineobusiness(whichtakesanorganizationalratherthanlegal-entity
pointoview).
Sharpexecutionothesepartnershipswhosescopecanvaryromregionaltonationalandromsingle-
tomulti-productiscritical.Inparticular,partnerswillneedtoocusoninitiativesthatormthe10
buildingblocksoasuccessulbancassurancemodel:developproductsjointly;streamlineproducts;
adoptageneralistsalesmodel;createmeaningulsalestargetsandincentives;bundleproductsorlie
events;trainrigorously;upgradeITsystems;deneorganizationalroles;bolstercustomerserviceand
post-salesupport;andensurecapitalandriskmanagement.
Insum,webelievethatthemarket-sharelandgrabchapteroChinasbancassurancesagaisnearing
anend.Winningintheemergingcompetitivephasewillrequirequantumimprovementsinproduct
innovationandintheintegrationomarketinganddistribution.Allothesegoalscanbeachievedonly
throughtheintroductionomore,deeper,more-exclusive,longer-termpartnershipsbetweenbanksand
insurers.
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Bancassurance in China 3
A Brief Introduction to Chinas Insurance Market
Overview
Chinasinsuranceindustryisstillyounganditisbooming.Thecountrys$108.7billioninli einsurancepremiumsin2008representednearlyatwelve-oldincreaseoverthe1998level. 1In2010,lieinsurance
premiumsinChinacouldwellexceed$150billion,leavingGermany,currentlyrankedi thworldwide
intermsoliepremiums,arbehind.Chinasnon-liesectorisalsopoisedorstronggrowth.Non-lie
premiums,orthersttime,exceeded$30billionin2008.
Inpercentageterms,Chinasinsuranceindustryhasexpandedrapidlyoverthepastdecade,withlie
premiumsgrowingatabout28percentannuallyandnon-liepremiumsincreasingatroughly20percent
annually.Comparedwithotherglobalmarkets,however,penetrationasa percentageoGDPremains
relativelylow.Forinstance,inAsia,theinsurancemarketsinMalaysia,Thailand,HongKongandTaiwan
allhavehigherpenetrationrates.(SeeExhibit1.)Thisunderscoresthegrowthpotentialthatthehighly
populousChinesemarketholds.
Thispotentialissupportedbyextremelyattractiveundamentals.Onthedemandside,overallwealthin
Chinaisincreasing.Household-savingsrates,ataround35percentoincome,areimpressivelyhigh.Retail
deposits,around$3.3trillionattheendo2008,representroughlyseventimesthetotalassetsoChinese
insurersand20timesthoseinsurersbankdeposits.Inaddition,theChinesepopulationisageingand
investmentoptionsinthecountryarestilllimited.
Exhibit 1. Chinas Insurance Market Still Offers Tremendous Growth Potential
Vietnam
PhilippinesIndonesia
Japan
China
Taiwan
S.KoreaHK
Singapore Australia
New ZealandIndiaMalaysia
Thailand
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Totalpenetratio
n(inpercentageofGDP)
Developingmarkets
Markets withrelatively lowpenetration
Mature markets
1,0000 4,000 5,0001,500500 4500
GDP 2008 (in USD billion)
1.AllcurrencyreerenceshavebeenconvertedtoUSData$1=RMB6.85exchangerate.
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Meanwhile,supplyisexpandingast,causingrapidprolierationonewsaleschannelsandaratcheting
upomarketingeorts.Atthesametime,regulatorshavestartedtoconsidernancialintegrationmore
seriously;orexample,bankshaverecentlybeenallowedtobuystakesininsurancecompanies.
Bancassurance in ChinaA Story o Explosive Growth
Thepracticeosellinginsurancethroughbanksknownasbancassurancehasgrownataparticularly
briskpaceinChinainrecentyears.In2002,bancassurancepremiumsamountedtojust$730million.But
atera2003insuranceregulationstipulatedthatbankswerenolongerlimitedtorepresentingjustone
insurancerm,premiumsstartedtoexplode,reaching$11billionin2004.In2008,Chinesebancassurers
sold$52billioninliepremiums,about48percentototalliepremiumsinthecountry.Today,banksand
insurersarestartingtodevelopar-reachingstrategicmovesinthissector.
InacountryasvastanddiverseasChina,itishardlysurprisingthatbancassurancehastakenholdso
quickly.Banks,withtensothousandsobranches,provideconvenientsalesplatormsthatreachintoevery
corneroeveryprovince.Throughthesebranches,insurerscanleveragethebrandreputationsobanksto
gainootholdsinnewmarkets.Also,bycooperatingwithbanks,insurersgainaccesstoavastcustomerbase
withstrongpotentialinterestininsuranceproductsespeciallythosedesignedtoreplacebankdeposits.In
addition,settingupbancassuranceasadistributionchannelisinitiallyrelativelyinexpensiveorinsurers,
especiallywhencomparedtothecostsobuildingupandmaintainingtheirownagencies.
Thecurrentsystemalsoallowsbankstobroadentheiroverallproductoering,strengthencustomer
loyalty,andaddmoreeestotheirotherwiseinterest-rate-dominatedrevenuemix.Indeed,bancassurance
generatedaround$1.5billionincommissionincomeorChinesebanksin2008.
WhenitcomestothecurrentbancassurancelandscapeinChina,theinsurersidehasairlyhighmarket
concentration.ThetoptwolieplayersinthisarenaChinaLieandNewChinaLieheldabout50
percentothemarketin2008.Thesegiants,alongwithiveotherinstitutions,accountedornearly90percentothemarketin2008.(SeeExhibit2.)
Thisisnottoimplythatthebancassurancemodelisnotprevalentamongsmallerindustryplayersaswell.
Inact,mostsmallandmedium-sizedinsurancecompaniesrelyheavilyonbankchannelsandonsavings-
typeproducts.Consequently,in theirsthalo2009,bancassurancesalesstillaccountedornearly40
percentototalpremiumsinChinadespiteageneraltrendtowardewersavings-typeproducts(resulting
romtheglobaldownturnoinvestmentmarkets).
Inact,virtuallyeveryChinesebankhasbeensellinginsuranceproductsoncommissionoratleastseveral
years,somestartingasearlyas2000.Theregulatorychangein2003thatenabledbankstorepresent
multipleinsurersallowedthemany-to-manymodeltoarise,andtheresulthasbeenajumbleoproductsandbrandsbeingoeredinbankoutlets.Forinstance,theproductsothetoptwoinsurersaresoldby
nineothetoptenChinesebanks.Ontheipside,thetwolargestlendersbothselltheproductso12o
thetop15insurersinChina,includingthoseoallothetopsixproviders.
Tourthercomplicatethepicture,themixoinsurancebrandsoeredatanyonebanktendstodierrom
provincetoprovince.Negotiationsoverwhichbrandstocarryoenoccuratthebranchlevel,leadingto
potentiallyinefcientandinsomecasesdiceybusinesspracticeswhensecuringdistributiondeals.
Ultimately,althoughthemany-to-manyarrangementhaspavedthewayormomentousgrowthinthepast
ewyears,ithasalsobroughttheChinesebancassurancemarkettoitscurrentimpasse.Simplyput,the
Bancassurance in China4
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Exhibit 2. Chinas Life Bancassurance Market Is Highly Concentrated
1415
3334
3839
140
0
50
100
150
Bn RMB
China Life New China
Life
Taikang Life CPIC Life PICC1 Ping An Life Taiping Life
Gross written premiums through banks 2008
Source: China Insurance Yearbook 2009.1PICC Life and PICC Health.
Marketshare(%)
39.5 10.9 10.6 9.6 9.3 4.2 3.8
necessaryinvestmentsbytruebancassurancepartnershipsintobetterproductsandservicethatwilllead
toprotable,sustainablegrowthintheuturearenotyetbeingmade.
The Next Wave of Growth
The Many-to-Many Model: An Imbalance o Power
Simpleanalysisooperatingprotssuggeststhatbancassurancedoesnotcreatesignicantvalueorinsurersin
Chinatoday,largelybecauseothemostlysimple,low-marginproductssoldthroughbanks.Also,insurerslack
bargainingpowervis--visbankswhich,inturn,benetdisproportionatelyromthesystem.
Indeed,withinsurerscompetingagainsteachotherondistributioncommissions,banksareabletoenjoy
arelativelylargesliceothepie.Notsurprisingly,whilebancassurancepremiumsrepresentanever-larger
shareototalpremiums,operating-protmarginsorinsurersmayactuallybealling.Insurershavehad
ewchoices,however,giventhesystem.Moreover,thosethathavenotestablishedawidemarketpresence
throughrelationshipswithdierentbanksmayhavemissedoutonthecurrentland-grabphaseomarket
development,whichisalreadywindingdown.
Theseimbalancedconditionsbetweeninsurersandbanksmayhavespurredtherapidexpansiono
theChinesebancassurancedistributionmodel,buttheyhavealsohinderedthedevelopmentomore
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sophisticatedbancassurancemodels.Ithisinequalityisnotatleastpartlybalanced,insurers,customers,
andnallybanksaswellwillincreasinglysuerromaviciouscycleosluggishproductdevelopmentand
weakinnovation.Otherdistributionchannelsmightridehigheronthenextgrowthwaveibancassurers
continuetomisscrucialopportunitiestomeettheirclientstrue,andevolvinginsuranceneeds.
The Need or Product and Service Innovation
Againstthisbackdrop,majoryetuntappedsourcesogrowthwillbethebroadeningoproductoerings,
theimprovementoinancialadvice,andthedevelopmentomore(andbetter)peripheralservices.
Moreover,thepotentialorgrowthandinnovationisobviouswhenviewingChinanexttomanyother
markets.Forexample,thebreadthobancassuranceproductsavailableinChinaisarnarrowerthanthat
inSpainwhichdespitebeingarlesspopulousisoneotheworldsmostrobustbancassurancemarkets.
(SeeExhibit3.)
MostproductssoldthroughChinasbancassuranceplatormsarebynaturesavingsproducts.Aew
standaloneprotectionproductsaresold,butvirtuallynohealthorpensioninsuranceisavailableviabanks.
Similarly,Chinesebancassurersdistributeveryewtypesonon-lieproducts.Thosethatareavailable
motor,property,andcreditorprotection,orexamplearesoldinminisculevolumes.Whatsmore,the
ocusisentirelyonindividuallines.Truthis,theproductrangeoeredintheChinesebancassurance
marketisstilldwaredbythewhitespace.
Thestoryontheservicessideissimilar.Sincethesamebankstasellmultipleinsurancebrands,insurers
havelittleincentivetotrainthemeitherinsalesmanshiporinpost-salecustomerservice.Bothelements,
Exhibit 3. The Chinese Bancassurance Market Is Far Less Evolved Than the
Spanish Market
Life (savings-oriented)
Agricultural
Loans unemployment
Fleet insurance
Individual pensions
Group life
Disability & long-term care
Critical illness
Mortgages (death & disability)
Credit
protection
insurance (CPI)
Non-Life
Life & Health
Product line
Household
Motor own damageMotor third party liability
Mortgage endowment
Private health
Personal accident
Life (protection-oriented)
Loans death
Simple covers (Term, PD)
ChinaSpainProduct
= Virtually unknown = Pioneer providers = More widely available = Standard oering
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however,areessentialorpromotingmore-sophisticatedproducts.Moreover,orbankstomeaningully
engageinpost-saleservice,theywouldhavetoreducethevarietyandchoiceobrandnamestheyoer,
potentiallyunderminingtheperceivedcompetitivenessotheirproductportolio.
Anecdotally,therateomis-sellingoproductsisairlyhighinChina.Forinstance,lieinsuranceplansare
oensoldasadd-onstolargerwealth-managementproductsthataredesignedbybanks.Customersoen
receiveminimalinstructionontheinsuranceproduct,andinmanycasesdonotevenunderstandwhatit
is.Thistrendhasgivenrisetocomplaintsaboutmis-soldproductsandpoorcustomerservice,leavingsome
customerssuspiciousobothbanksandinsurers.
Fortwoindustriesbasedontrust,thisisworryingto saytheleast.Yetthestatusquothatweseein
Chinasbancassurancemarketis,toalargedegree,sel-perpetuating.Justastheprolierationomore-
complex,targetedproductsisheldbackbybankingstaslackoproductunderstandinganduneven
customerservice,demandiscurbedbylimitedconsumerawarenessandlukewarmcondenceinthe
products.
Yethereliestheopportunity.Bancassurersthatpossessbothtargetedproductoeringsandaclear
wayoexplainingandmarketingthemwillbeable,inessence,toteachcustomerswhattheydonotyet
realizetheyneed.Orinmoreormalterms,rstmoversinproductinnovationandinthedevelopmento
comprehensivecustomer-supportserviceswillhaveanopportunitypossiblyagoldenopportunityto
inuencelong-termpurchasingbehaviorandcatalyzebrandloyaltyinarelativelynascentmarket.
Ultimately,bancassurersandbancassurancepartnershipsthatcanrepositionthemselvesinawaythat
allowsthembothtodierentiateandsignicantlyupgradetheirproductsandserviceswillcapturealarger
shareocustomerwalletandgetaheadstartonestablishingtruecompetitiveadvantageortheuture.
The Way Forward: Integration and ExclusivityImore-complex,sophisticatedproductsaretobesuccessul,theymustbereliabledeliveringto
customersexactlywhatispromised.Makingthemthiswaywillrequiremorerigorousproduct-development
processesaswellas higherdegreesointegrationandexclusivityinrelationshipsbetweeninsurersand
banks.Indeed,thecurrentlackoexclusivitygoesalongwaytowardexplainingtodaysstatusquo.
JustlookatEuropeanbancassurancemarketscomparedtotheChinesemarket.Europeishometoa
diversecastocooperativemodels,noneowhichresembleChinasmany-to-manymodel.Inact,many
Europeanmarketssawtheirpenetrationpeakaround2000,atwhichpointtheengineourthergrowth
hadtobecomemoretailored.Productoeringswerewidened,andexclusivepartnershipsbetweenbanks
andinsurerswereorged.Obviously,thishasnotyetbeenthecaseinChina.
Ocourse,exclusivepartnershipsaresustainableonlyitheybenetbothsides.Whilemanyinsurersin
Chinahavelearnedthatthebankplatormoersthemquickaccesstoalargecustomerbaseatreasonable
initialcost,Chinesebanksmustrealizearmorethantheyalreadyhavethatincreasingtheirshareo
walletandbuildingcustomerloyaltyalsodependsonthegrowthotheirtotalnancial-servicesoering.
Insurancewillremainaast-growingsectorinChinaseconomyoryearstocome.Butbancassurance
premiumswillgrowatacorrespondingpaceonlyipenetrationisnotheldbackbyaee-driven,sub-
parproductandserviceoering.IbancassuranceistothriveandreachitspromiseinChina,banksand
insurerswillhavetoachieveurtherintegration,orgingexclusivepartnershipsthataremutuallybenecial
andthatsteertheindustryawayromthecurrentmany-to-manymodel.
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Regulatory Reorm: A Transition Already Underway
AlthoughwhollyexclusivebancassurancepartnershipshavenotyetappearedinChina,theemergenceo
someintegratednancialgroupsrepresentsastepintherightdirection.Mostothisincipientcooperation
hascomeaboutthroughregulatoryreormcreatedbythetworelevantgovernmentbodiestheChinaInsuranceRegulatoryCommission(CIRC)andChinaBankingRegulatoryCommission(CBRC).
Ingeneral,bothagenciesa imtoosterhealthy,stablegrowthotheinsuranceandbanking sectors,as
wellasprotectconsumersromunairandunsavorybusinesspractices.Bydevelopingaregulatoryregime
thatpromotesgreaterintegrationandexclusivitybetweenbanks andinsurers,CIRCandCBRCwill
enablegreaterinvestmentinproductdevelopmentandservicequalitywhilesimultaneouslyallowingor
reasonableprotmargins.BancassuranceisalreadythebiggestchannelorinsurancesalesinChina,and
muchisridingonitsuturesuccessbothorindustryparticipantsandorconsumers.
Thusar,thepaceoreormhasbeengradual.SincetheChinesegovernmentrstofciallypermittedbanks
tooperateasmultipleinsuranceagentsin2003galvanizingthemany-to-manydistributionmodelithas
quicklyyetcautiouslyintroducednewpoliciesthatenabledeeperintegrationbetweenbanksandinsurers.
Oneothestandardapproachestointegrationis cross-shareholdings.In September2006,CIRCirst
permittedinsurancecompaniestoinvestinlocalcommercialbanks,settinginmotionawaveoactivity.
Then,inJanuary2008,adraregulationwascirculatedbyCBRCthatwouldgrantbankspermissionto
startinsurancebusinessesbyacquiringstakesininsurancecompanies.Thepracticaldetailsoexactly
howthiswouldworkremainedunclearatirst,butlaterinormationprovideddetailsaboutapilot
programinwhichourChinesebankswouldacquirestakesinexistinginsurancecompanies.Thepress
subsequentlyreportedonurtherdecisionsinvolvingCIRC,CBRC,andtheStateCouncil,aswellas
onseveralanticipateddealsinvolvingtheaorementionedpilotbanksaswellasotherplayers.Inlate
November2009,CBRCnallyissuedthelong-awaitedrulesgoverningcommercialbanksinvestmentsinto
insurers.Nonetheless,bankshavenotyetbeenallowedtoopentheirowninsurancebusinesses,althoughgovernmentsourcessaythatrelevantpoliciesareintheworks.
Incrementalregulatoryreormodistributionchannelsandproducttypesisunderwayaswellin2009.For
example,CIRChasaskedinsurerstocontrolvolumesandadjustthetypesoproductsoldthroughbanks.
Thisstipulationispartlytheresultosomeinstancesomisrepresentationounit-linkedproductsas
wellasothecomparativelylowembeddedvalueoproductscurrentlysoldthroughthebancassurance
channel.Inaddition,CIRCnowrequiresbankstosetupanaptnessassessmentsystemorcustomers
buyingunit-linkedinsuranceproducts.Suchproductsmustbesoldindesignatedareasinsideabanking
outlet,andhandledonlybyspecializedsalespeople.In aneorttoavoidmisinormationinproduct
promotions,anycross-sellingounit-linkedinsuranceproductsinbankswealthmanagementdivisionsis
nolongerallowed.
CIRCandindustrybodiessuchastheChinaInsuranceIndustryAssociationhavealsoputmoreemphasis
onriskmanagementrecently,andseemtobecommittedtoosteringhealthierbancassuranceeconomics
overall,partlyas areactionto iercepricecompetition.Backin 2006,theChinaInsuranceIndustry
Associationrstpioneeredthedevelopmentoasel-disciplineagreementorbancassurance,whichset
ceilingsoncommissionratespaidbyinsurerstobanks,bytypeoproduct.
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Successful Pathways to a Winning Bancassurance Model
The Opportunity
Amovetowardgreaterintegrationandexclusivityamongbanksandinsurersisinlinewithgoodbusinesspracticeaswellaswithregulatoryagendas.WebelievethatChinawillsoonundergoatransitionperiodin
whichmajorplayersmovestronglyinthisdirection,leavingbehindthecurrentlydominantmany-to-many
model.
Theexactshapethatpartnershipstakewilldependlargelyonthespecicplayersinvolved.Eachcompanys
expansionstrategy,organizationalstructure,riskappetite,andcapitalrequirementswilldeterminewhich
typeoarrangementisbest.TaketwoestablishedexamplesinHongKong.StandardCharteredhaselected
nottoownaninsurancecompanyoutright,insteadorgingastrategicpartnershipwithPrudential,theU.K.
insurer.TheaccordallowsStandardCharteredtoreceivepureeeandcommissionincomewithminimal
capitalinvestment.HSBC,ontheotherhand,createditsowninsuranceentityanda totallyintegrated
lineoinsuranceproducts,whichareexclusivetoHSBC.WhilethismodelprovidesHSBCwithadditional
revenuestreams,thebankhasalsohadtomakeasignicantlyhighercapitalcommitment.
Suchstructurescanalsoworkonaregionalscale,orocusonasingleproductorproductsubgroup.For
instance,anexclusivedistributionpartnershipcouldbeorgedsolelyorseveralbranchesorregionswithin
amuchlargernetworkororaspecicproducttypeonacountry-widebasis.Abankcouldalsointegrate
acustom-designedinsurancejointventureintoitssystems.Inessence,theintegrationoinsurance
businessesintoabankingsaleschanneloersupmyriadopportunitiesorpartnershipsthat canbe
tailoredtoeachplayersparticularstrategy.
A Win-Win Approach
Banks: What they stand to gainWhyshouldbanksalterasystemthatpaysthemsohandsomelyincommissions?Aswehavealluded
to,banksthatestablishexclusivepartnershipswithinsurerswillbebetterpositionedtokeepalarger
shareotheircustomerswalletsintheuture.Furthermore,webelievethatuturegrowthinChinas
bancassurancesectorwillnotcomeaseasilyasithasinthepast,andthatcontinuedsuccesswillrequire
moreinnovation.Banks,byprovidingbetterservicetotheircustomersandoeringmoretargeted
insuranceproducts,candramaticallyincreasecross-sellingpotentialandeerevenues,earningattractive
marginsromawholenewrangeoproducts.Inaddition,withoverallpenetrationoinsuranceproductsin
Chinastillatarelativelylowlevel,thereissignicantroomorbankstoparticipateinhighervalue-added
partsotheinsurancevaluechainwithoutdirectlycompetingwithincumbents.
Someinternationalinsurershavetheexperienceandcapabilitiesromseveralmarketstomakeanintegrated,exclusivebancassurancemodelwork,particularlywithrespecttosetup,productdesign,go-to-
marketapproach,operations,backofceandPOSsystems,and,ocourse,capitalandriskmanagement.
Thisisaso-arwidelyuntappedsourceovalueorChinasbanks.
Insurers: What they stand to gain
Forinsurers,buildingmore-exclusive,better-integratedrelationshipswithbanksrepresentsarmore
thanjustachancetocapitalizeurtheronChinasstronggrowthinbancassurancepremiums.Thereal
opportunityistosolidiybrandreputationandcustomerloyaltyatatimewhenmostconsumersarestill
uncommitted,overallinsurancepenetrationisstillshallow,andcompetitoroeringsarestill limited.But
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successwillrequiresubstantialinvestmentbothincapitalandhumanresources.Insurersmustthereore
gainalargersliceothepiethanthecurrentsystemaordsthem.
Aswehavementioned,bankbranchnetworkscanprovideveryattractivemarketaccesstoinsurers.This
isespeciallytrueinprovinceswhereinsurancepenetrationislowrelativetothebankinginrastructure.
Foreignplayers,especially,tendtolagbehindlocalplayersbothintermsosalesnetworksandlicense
coverage.Someoreignplayershavesueredmarketsharelossesduringtherecentrapidexpansionin
banassurancechannelsgrowththathasdisproportionatelybeneitedlocalplayersgiventheirlarger
geographiccoverage.Joiningorceswithalocalbankmayalsohelpinsurersspeedupthelicensingprocess
innewareas.
Diferent Models Work or Diferent Players
Ocourse,banksandinsurersmustchoosethemodelsthatmakethemostsensegiventheirspeciic
resourcesandstrategicobjectives.Wehaveobservedourdierentmodelswhich,dependingontheexact
context,haveproventobesuccessulacrossmarkets:
exclusivedistributionpartnership
jointventure
nancialholdingcompany
integratedlineobusiness
Exclusive distribution partnership. Inthismodel,thebankandinsurancecompanyagreetototal
exclusivity,eitherinonedirectionorboth.Thistypeoagreementallowsbothcompaniestobroadenthespectrumotheiroeringsandleverageeachothersbrandreputationsandexpertiseinproduct
developmentandsales.Itrequiresonlyasmuchinitialinvestmentinsetupcostsorsalesoutlets,IT,
training,etc.asthepartnersneedinordertolaunchtheireortsatthesametime.
Thistypeopartnershipcanbereinorcedbyacross-shareholdingstructure.However,sincethe
bankearnsonlyadistributionmargin,insurersmustoerbanksincentivesto sellaproductthat
willcomplementorpotentiallyevencompetewithotherbankingproducts.Thismodelisideal
orbanksthatoptoralowcapitalcommitmentintheirinsuranceoering,sincerelativelysmall
initialinvestmentsarerequired.Awidevarietyopilotprogramsarepossibleunderthistypeo
arrangement.
Ultimately,anexclusivedistributionpartnershipostersgreaterocusandcooperationbetweenthebank
andtheinsurer,andenablesamoreproessionalizedandeectivesalesorce.Theaccordallowsinsurers
toreachbanksexistingcustomerbasesaswellas ullyleveragebankingsaleschannelsgoingorward.
Inturn,thebankcanutilizetheinsurersexpertiseinproductdevelopmentandsalesstrategy.Also,the
arrangementcanbelaunchedwitharelativelyshortramp-upperiodsincelimitedoperationalintegration
isnecessary.Whatsmore,thepartnershipcanbeusedasaviablelong-termstrategyithecontractlength
issufcientandithemutualcommitmentdeepens.
Inpractice,exclusivedistributionpartnershipsworkbestwhenbanksandinsurerscoordinatetheirsales
approach.Thereerralprocesscanbetailoredtosuitcapacityandneeds,andcanincludesolutionssuchas
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specializedcallcenters.Ingeneral,nancial-servicesmanagersromtheinsurancesidecollaboratewith
bankbranchagentstoexplaininsuranceproductstocustomersalongsidebankproducts.
PrudentialsexclusivepartnershipwithStandardCharteredinHongKongisagoodexample.Underthe
arrangement,whichhasbeeninplaceormorethanadecade,PrudentialassignsmanagerstoStandard
Charteredsbranches.Thesemanagersoerinsuranceandinancial-planningadvicetocustomers,as
wellasprovidetrainingto thebanksstaonhowtosellPrudentialsproducts.Themodelhasbeenso
successulthatthepartnershiphasbeenexpandedtomanyotherAsianmarkets.
Joint venture.Toormajointventure,abankandaninsurersetupaseparatelegalentitytoleverage
themanuacturingcapabilitiesotheinsurerandthedistributioncapabilitiesothebank.This typeo
accordtypicallyrequiresalongerinvestmenthorizonthanexclusivepartnerships,andallowsthetwo
partiestosharecapitalcommitmentsometimesallowingonepartytotakeullcontrolintheuture.The
establishmentoarevenuedistributionmechanismthroughsharepercentagecangivebanksadegreeo
exibilityinadjustingcommissionees.
Onesuccessulexampleothejoint-venturemodelinAsiaisCIMBAviva,orgedbyAvivaandCIMBBank,
thesecond-largestnancialservicesproviderinMalaysia.Akeyelementosuccessorthisventureisthat
Avivasharesitsinsuranceexpertisebytranserringhighly-experiencedseniorexecutivestothenewentity,
whileCIMBoersitslargebranchnetworkorexclusivebancassurancedistribution.
Financial holding company.Thenancialholdingcompany(FHC)modelinvolvesasinglelegalentity
withseparateinsuranceandbankingsubsidiaries,whichmayormaynotbewhollyowned.Thisstructure
allowsthebalancingodierentinancial-servicesbusinesslines,withsynergies,risksharing,and
capitalmanagementattheholdingcompanylevel.Themodeloersapowerulresponsetoheightened
marketcompetition,allowingrapidexpansionthroughaggressiveM&Aandtheexibilitytoinvestinor
divestbusinesses.Exclusiveandintegratedpartnershipsbetweengroupcompaniesarerelativelyeasytoestablishandcustomize.Whenexecutedwell,thenancialholdingcompanymodelcankeepproductivity
particularlyhigh.
InTaiwan,mostmajornancialinstitutionsareorganizedassubsidiariesunderanFHC.Aprimeexample
isFubonFHC,whichholdsTaipeiFubonBank,FubonInsurance,andFubonLie.Byseparatingits
companies,FubonFHCisabletoleveragesynergiesviathebancassurancemodelwhilestillmaintaining
independentoperationoeachunit.Thisisanorganizationaleaturethat,inChinascurrentregulatory
environment,wouldrepresentasignicantadvantage.
Integrated line o business. Inthismodelbasedoninternalorganizationratherthanlegalintegration
thebanksetsupanewlineobusinessorinsurance.Thiscanbedoneorganicallyorbyacquisition,much
inthesamewayabankmightsetupanynewlineobusiness.Thismodelprovidesmaximumstrategic
andoperationalcontroltothebank,allowingittolookatinsuranceromtheperspectiveotheullvalue
chainincludingbothproductionmarginanddistributionmargin.Internalcompetitionisminimizedand
eachbusinesslineocusesonitscorecompetenceinawaythatisdifculttoachievethroughanyother
model.Also,aligningdierentbusinessunitsunderthesamecorporatebusinessstrategy,governance
ramework,andmanagementsystemcanenhancesynergiesbothonthecostandrevenuesides.
Whatismore,thismodelmaximizescorporatebrandingopportunities.Theincentivestosellinsuranceare
greaterthaninadistributionagreement,andthebankcanbenetromtakingacomprehensivelietime
valueviewoitscustomers.
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OneothebestexamplesisHSBCssuccessin HongKong,whereithas developedan in-house
bancassurancebusinessandsetupHSBCLieandHSBCInsurance.HSBChasalmostullypenetrated
itsdepositbaseinsellinginsurance,allowingittogainmarketsharerapidly.Itisnowtheleadinginsurer
inHongKongintermsonewbusinessgenerated.TheintegratedlineobusinessmodelallowsHSBCto
maximizeitsshareothecustomerwalletthroughatargeted,highly-dierentiatedproductline.Onthe
operationsside,HSBCinHongKongdoesnothingbutbancassuranceandhasnosaleschannelswithtied
agentseliminatinganyconictsointerest.
Finally,itisworthnotingthatocoursenotallplayersaresuitedortheintegratedlineobusinessmodel,or
eventhenancialholdingcompanymodel.Whiletheaboveexamplesarewidelyrecognizedassuccessul,
manyotherattemptshavebeenlessso.Someotheseinitiativeshavealreadyledtodivestitures,andothers
arestillintheprocessosplittingup,mostnotablyinEurope.Whiletherootcausesoeachcasemaybe
dierent,thereisawideconsensusthatmanagementcapabilitiesorbanksandinsurancecompaniesdier
markedly,andthatcombiningbothinonecorporationcanleadtoconsiderablechallengesandcomplexities.
The 10 Building Blocks o a Successul Bancassurance Model
SucceedingatbancassuranceinChinainvolvesmorethanjustchoosingtheoptimalmodel.Italsoinvolves
excellingattheeverydaynutsandboltsothebusiness.Inourview,therearetencriticalbuildingblocksto
successthatrequireawlessexecution.Letsexplorethem.(SeeExhibit4.)
Develop products jointly. Ocourse,therearemanywaystocombineexpertiseandtalentrombothsideso
thepartnershiptocreatecompellingbancassuranceproducts.Inourexperience,agenuinelyjointeortbetween
thebankandtheinsurerworksbest.
Forexample,asoundjointeortmightstartwithmonthlymeetingsinwhichmarketingmanagersromthe
bankskeyproductlinestransactionbanking,credit,savingsandinvestment,andinsurance,orexample
gatherwithrepresentativesotheinsurancecompanytodiscussnewproductideas.Then,inquarterlystrategycommittees,insuranceproduct-linemanagerscouldpresenttheirideastobankmanagers,whocouldthendecide
whichideastodevelopurther.Fromthatpointon,jointproductdevelopmentteamscouldworkontheselected
ideas.Meetingstructuresandormatscanvary,ocourse.Butthegoalistosetuplastingorumsthatosterthe
cross-pollinationoideasamongrepresentativesobothsidesothepartnership.
Streamline products.GiventhelimitedoeringsavailableinChinatoday,bancassurerswillhavemultiarious
waystodierentiatethemselves.Forthemassmarket,however,strategiesthatconcentrateondevelopingaline
osimple,highly-targetedproductswithinseveralproductsegmentswilllikelybemetwiththemostsuccess.
RoyalBankoScotlandsstrategyintheUnitedKingdomisagoodexample.RBSoersonly10productsviaits
bancassuranceplatormthreein lieinsurance,andseveninnon-lie(propertyandmotorinsurance).Thisocused,streamlinedapproachallowsRBStooptimizeproductdesignandenhanceservicequality.
Aluentcustomersegmentshavemorediverseandsophisticatedneedsthatrequiremore-complexproducts
andhencecallorsalesstawithhigherqualicationsandamoreindividualizedsalesprocess.Largercontract
valuescanjustiytheresultinghighercostbaseandgeneratesomeveryattractivereturns.
Adopt a generalist sales model. Besidesoeringtherightproducts,establishingtherightsalesapproachcan
makeatremendousdierence.Therearetypicallythreebasicsalesmodels,denedbyhowtheyallocatethe
threestepsoasalestransaction:needrecognition,clientadvice,andcontractclosure.
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Exhibit 4. There Are 10 Building Blocks to a Successful Bancassurance Model
What Who How
Bancassurancesuccess
Bancassurance foundation
Products Sales management Sales processes
Develop productsjointly
Streamlineproducts
1
2
Adopt a generalistsales model
Create meaningfulsales targets
and incentives
3
4
Bundle productsfor life events
Train rigorously
5
6
Upgrade ITsystems
7Define
organizationalroles
8Bolster customerservice and post-
sale support
9
Bancassurance success
Source: BCG experience.
Ensure capital andrisk management
10
Inthegeneralistmodel,allthreestepsareinthehandsobankstapeopleinthebranch.Inthereerral
model,bankstadirectscustomerstoin-branchinsuranceagentsaeridentiyingacustomerneed.Thethird,
specialistmodelrequiresjointneed-recognitionbybankstaandbyanin-branchinsurancespecialist,who
thenoverseescompletionothesale.
Allthreemodelsareworkable.Yetourresearchindicatesthatthegeneralistapproach,inwhichbankstais
trainedtosellavarietyoinsuranceproductsinadditiontobankproducts,tendstobethemosteective.
Create meaningul sales targets and incentives. Meaningultargetsandincentivesarecriticaltobuilding
aneectivesalesorce.Althoughvariousstrategiescanbeviable,ourexperienceworkingwithindustry
participantsdemonstratesthatthebestwaytoboostproductivityusuallyinvolvessomecombinationovariable
compensationoragentsandspecialrewardsorteamsuccess.Variablecompensationstructurescanbeusedto
createadditionalsalesincentives,buildingromabasecommission.Specialrewards,ontheotherhand,mightocusongroupeort,thusencouragingcooperation.Thecombinationotheseelementsiscrucialorcreating
incentivesthatwillmotivateeverybankstaerandinsuranceagenttoattainaggressivesalesgoals.
Bundle products or lie events. Oeringproductcombinationslinkedtospeciiclieeventscanlit
bancassurancesalessignicantly.ProjectworkcarriedoutbyTheBostonConsultingGroupinEuropehas
shownthatconversionratesorevent-drivenproductcombinationswhichcanrelatetothecustomersrst
job,marriage,relocation,andretirement,orexamplecanreachbetween15and25percent,compared
with2to3percentordirectmarketingand3to10percentorgeneralproductoeringswithollow-up
calls.
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Train rigorously. Regular,comprehensivetrainingis,naturally,av italpartobuildinga successul
bancassurancebusiness.Trainingisparticularlyimportantwhenthe integrationobanksandinsurers
beginstodeepen.Thelevelocoachingbothonthedetailsoinsuranceproductsandonsalesprocesses
shouldbetailoredtothedegreeoexperienceoeachtrainee.
Upgrade IT systems. Theintegrationoront-andback-ofceITsystemsisanotherimportantelement
oaneectivebancassurancestrategy.Theront-oicesystemshouldeatureguidelinesordialogue
withcustomersandorefcientdataentry.Theback-ofcesystemmusthavehighprocessingefciency
eaturingullyautomaticandpaperlessdataexchange,onlineunderwriting,andcommondatabase
managementbetweenthebankandtheinsurer.
Deine organizational roles. Theorganizationoanybancassurancepartnershipwilldependinpart
onexistingmanagerialstructures.Withinthisramework,ahierarchyorolesshouldbeclearlydened
oragendasetting,coordination,andexecution.Evenmoreimportant,thebankandinsurershouldeach
haveparallelhierarchiesinordertobalanceprioritiesandensurethebestpossibleintegrationateach
operationallevel.
Bolster customer service and post-sale support. Top-ightcustomerservicemustbedrivenjointlybythe
bankandtheinsurer.Thisrequiresthecoordinatedassignmentospecicdutiestobanksta,in-branch
insurancesta,out-o-branchinsuranceagentsassignedtoagivenbranch,andcallcentersdedicatedtopost-
salesupport.Selectiveuseothird-partyadministratorscanbeconsidered,particularlywhenitcomesto
linesobusinessthatgeneratecomparativelycomplexclaims.Obviously,claimsprocessesmustbecareully
managed,asailuretodosohasledtosomestrategicreadjustmentsorbancassurersinthepast.
Ensure capital and risk management. Abancassurancebusinesscanneversimplybeasel-inancing
add-onorthebank.Underwritingandassuminginsurancerisk,especiallyoverthelongterm,requires
additionalcapitaluprontandongoingriskmanagement.Thelatteroenincludesthetranserocertainriskstoareinsurer.
Regardingcapitalmanagement,whenbancassurancepartnershipsareexclusiveandstable,thebusiness
cangrowrapidly.In suchcases,insurance-drivensolvencycapitalrequirementswillincreasejust
asrapidlyorthebancassurer,andmaystrainaccountingproitabilityaswell.Breakingevenonan
insuranceinvestmentcanthereoreappeartotakelongerorabankthanoriginallyanticipatedbysenior
managementandinvestors.Also,insurancecapitalrequirementsprescribedbyregulatoryauthoritiescan
behigheroratleastdierentromthosecalculatedbythebanksin-housemodels,requiringthebankto
makenecessaryadjustments.
Theobvioussolutionstocapitalduressinvolveissuingdebtorequityorusingreinsurancesincethe
transeropremiumsandrisktoareinsurertypicallyresultsinloweredsolvencycapitalrequirementsor
thebancassurer.Allotheseoptionssecureorreeupundsthatcanbereinvestedelsewhereinbanking
orusedtogrowthebancassurancebusinessevenaster.
Asideromitsusesinstandardriskandcapitalmanagement,reinsurancecanalsohelpbyoeringtailored
coreandauxiliaryserviceacrossthebancassurancevaluechainincluding,inmanycases,cooperationon
productdesign,underwritingmanuals,standardprotocols,training,provisionoITsystems,andthelike.
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A Call to Action
IthecurrentstatusquoinChinasbancassuranceindustryremainsunchangedormuchlonger,sales
willhitawallosorts.Theprevalentmany-to-manymodelwillhamperuturedevelopment.Already,the
demandorsophisticatedinsuranceproductsstokedbytheorceandspeedoChinasmacroeconomic
evolutionisbeingcloggedbytheimpassebetweenbanksandinsurers.Cutthroatandmono-directional
pricecompetitionwillnotosterinnovationorraisecustomerawareness.Partnersthatintegrate,become
moreexclusive,andinvestinthequalityotheirproductsandservices nowwillhaveagoldenopportunity
toestablishcompetitiveadvantage.
Indeed,banksthatdevelopexclusivepartnershipswithinsurerswillbeabletobettermeettheircustomers
currentandutureneeds,increasecross-sellingandeerevenues,andperhapsaddapotentiallyattractive
marginromthelieinsurancebusinessitsel.Forinsurers,buildingsuchrelationshipswillallowthemnot
onlytomaintainthepremiumgrowthwehaveseensoar,butalsotoshowcaseandsolidiytheirbrands
whilecustomerconsciousnessandloyaltyisstillunderdeveloped,whilethegeographicreachomost
bancassurersisstilllimited,andwhilemostcompetitorproductoeringsarestillrudimentary.
Playersmustchooseamongtheourbasicmodelsomore-exclusiveandintegratedcollaborationbetween
insurersandbanks.Thesizeandcapitalbaseotheplayers,thedegreeocontrolthateachcomesaway
with,andtheoveralleconomicsoeachdealwillstronglyinuencetheirchoiceopartners.Tobesure,
therewilllikelybemanyregionalandproduct-speciccustomizationsothesebasicmodels.Thedevil,as
always,willbeinthedetailsoexecution.Companiesthatbothmaketherightstrategicchoicesandthat
excelinswit implementationoamoreadvancedandcustomercentricbancassurancemodelwill ind
themselveswieldingconsiderablepowerinChinasopportunity-richnancialservicesmarket.
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About the Authors
TheBostonConsultingGroups(BCG)ofcesinChinaandSwissResofcesinChinahaveworkedtogether
overthelastewmonthstoproducethisWhitePaper.Iyouareinterestedinobtainingadditional
inormation,pleasecontactBCGsorSwissResBeijingofce.
BCG
15/F.,EastTower,TwinTowers,B-12
JianGuoMenWaiAvenue,ChaoyangDistrict
Beijing100022,China
+861085279000
www.bcg.com
www.bcg.com.cn
ChrisKaye isapartnerandmanagingdirectorintheHongKongofce.
Frankie LeungisapartnerandmanagingdirectorintheHongKongofce.
Dr. HolgerMichaelis isapartnerandmanagingdirectorintheBeijingofce.
SwissRe
23/F.,EastTower,TwinTowers,B-12
JianGuoMenWaiAvenue,ChaoyangDistrict
Beijing100022,China
+861065638888
[email protected]://www.swissre.com
Chee Kok PohisaDirectorandheadoLie&HealthChina.
Eric SchuhisaDirectorandheadoBusinessDevelopmentChina.
Robert WiestisaMemberoExecutiveTeamandManagingDirectororChina.
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TheBostonConsultingGroup(BCG)isaglobalmanagementconsultingirmandtheworldsleading
advisoronbusinessstrategy.Wepartnerwithclientsinallsectorsandregionsto identiytheirhighest
valueopportunities,addresstheirmostcriticalchallenges,andtransormtheirbusinesses.Ourcustomized
approachcombinesdeepinsightintothedynamicsocompaniesandmarketswithclosecollaboration
atall levelsotheclientorganization.Thisensuresthatour clientsachievesustainablecompetitive
advantage,buildmorecapableorganizations,andsecurelastingresults.Foundedin1963,BCGisaprivate
companywith66ofcesin38countries.Formoreinormation,pleasevisitwww.bcg.com.
Foundedin1863inZurich,Switzerland,SwissReisrenownedoritscommitmenttoexcellencein
security,solutionsandserviceandhasaproud146-yearhistoryodeliveringorcustomers.SwissRe
oerstraditionalreinsuranceproductsand relatedservicesorpropertyandcasualty,aswellas the
lieandhealthbusiness.Thesearecomplementedbyinsurance-basedcorporateinancesolutionsand
supplementaryservicesorcomprehensiveriskmanagement.
Apubliccompany,SwissResharesarelistedonthemainboardotheSWXSwissExchangeandtradedon
virt-xunderthesymbolRUKN.SwissReisratedA+byStandard&Poors,A1byMoodysandAby
A.M.Best.
Havingestablisheditsrstphysicaloperationsintheregionin1956,thecompanyhasofcesinanumber
oAsiancountries,includingJapan,Korea,Singapore,China,IndiaandAustralia.ThecompanysAsia
DivisionheadquartersisinHongKong.
SwissRewasamongtheirstoreignreinsurerstoenterChinaaterthecountrygraduallyopenedits
insurancemarket.SwissResetuprepresentativeoicesinBeijingandShanghaiin1996and1997
respectively,andopeneditsBeijingbranchonDecember19,2003toconductlieandnon-liebusinessthroughoutthecountry.
TheBostonConsultingGroup,Inc./SwissReinsuranceCompanyLtd.2009.Allrightsreserved.
12/09
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