risk benchmark study: non-life insurance in china and india€¦ · non-life insurance in china and...
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Risk Benchmark Study
Non-life Insurance in China and India Market Dynamics, Exposure and Underwriting Experience
Authors
Yisi Lu, Zhou Terry Fang, Evan Leite
Advisor
Dr. Shaun Wang
November 2013
Insurance Risk and Finance Research Centre (IRFRC)
Nanyang Business School
Nanyang Technological University
Email: [email protected] / Website: www.irfrc.com
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RISK BENCHMARK STUDY NON-LIFE INSURANCE IN CHINA AND INDIA
Market Dynamics, Exposure and Underwriting Experience
Risk Lighthouse LLC
November 2013
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Contents
Overview ........................................................................................................................................................................... 4
Emerging and Growing Non-Life Insurance Markets: China and India ......................................................................... 4
Business mix: Motor Line Dominates Both Markets .................................................................................................... 5
Market Dynamics .............................................................................................................................................................. 6
Market Competition ..................................................................................................................................................... 6
Market Development ................................................................................................................................................... 8
Regulations ................................................................................................................................................................ 10
Underwriting Experience ................................................................................................................................................ 11
Industry Performance ................................................................................................................................................ 11
Segment Level: Peer Group Comparison ................................................................................................................... 16
Reinsurance Analysis-China ....................................................................................................................................... 20
Line of Business Level ................................................................................................................................................. 23
Motor Vehicle Insurance ............................................................................................................................................ 24
Motor Insurance Policy Comparison ..................................................................................................................... 24
Exposure: Number of cars ..................................................................................................................................... 25
Underwriting Performance ................................................................................................................................... 28
Catastrophe Exposure and Underinsurance ................................................................................................................... 30
Appendix 1: Data Sources and Procedures ..................................................................................................................... 32
Appendix 2: References .................................................................................................................................................. 39
Contacts .......................................................................................................................................................................... 41
Table of Figures Figure 1 China Non-Life Business Mix, 2012 Figure 2 India Non-Life Business Mix, 2011-2012 ....................... 5 Figure 3 Herfindahl-Hirschman Index of Non-Life Insurance Market ............................................................................... 7 Figure 4 Market Development Metrics Relative to US 2009-2011 ................................................................................... 9 Figure 5 Loss Ratio Trend, China Figure 6 Expense Ratio Trend, China .......................................................... 11 Figure 7 Combined Ratio Trend, China Figure 8 Operating Ratio Trend, China ............................................. 12 Figure 9 Combined Ratio by Company Segment, China .................................................................................................. 12 Figure 10 Loss Ratio Trend, India Figure 11 Expense Ratio Trend, India ......................................................... 13 Figure 12 Combined Ratio Trend, India Figure 13 Operating Ratio Trend, India .......................................... 14 Figure 14 Combined Ratio by Company Segment, India ................................................................................................. 14 Figure 15 Reinsurance Risk and Return, China ................................................................................................................ 20 Figure 16 Reinsurance Margin vs. GLR Percentile, China ................................................................................................ 21 Figure 17 Motor Vehicle Ownership, China .................................................................................................................... 25 Figure 18 Newly Registered Motor Vehicles, China ........................................................................................................ 26 Figure 19 Motor Vehicle Ownership, India ..................................................................................................................... 27 Figure 20 Newly Registered Motor Vehicles, India ......................................................................................................... 27
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Executive Summary
The Risk Lighthouse team is commissioned by the Insurance Risk and Finance Research Centre (IRFRC) at Nanyang Business School to perform data collection, cleaning and analysis for the non-life insurance markets in China and India. This report presents the main results of our analysis at the current stage of non-life insurance market development in China and India, highlighting market dynamics, exposure growth and underwriting performance, using both quantitative and qualitative inputs. At the foundation of our analysis are the data collection and cleaning efforts as summarized in the appendix.
The research draws attention to the highly potent and yet undeveloped underwriting experience and the evolving regulatory environment of China and India’s non-life insurance markets. Through further segmentation, outperforming companies in premium growth and underwriting profit are identified among their peers. Further investigations into motor vehicle insurance reveal that India’s underwriting performance has slightly improved since enduring a persistent underwriting loss in recent years, while China’s underwriting performance has been favorable but faces the challenge of a decreasing rate level due to the opening up of market competition. In addition, we present an analysis of the reinsurance margin for China´s non-life insurance business. Catastrophe exposure and underinsurance are also discussed in this report.
Our analysis is based on data collected by Risk Lighthouse LLC and a research team from Shanghai University of Finance and Economics. Data of Chinese non-life insurance before 2009 have been adjusted to reflect changes in accounting principles. We recognize that both China and India’s non-life markets are growing fast and changing constantly, so any predictions or extrapolations based on this study should be made carefully.
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Overview
Emerging and Growing Non-Life Insurance Markets: China and India
The primary driver of insurance market development and premium growth is economic growth, which increases business activity and personal wealth. Both China and India, as leading emerging countries and two of the largest economies in the world, have received attention for their potential in non-life insurance market development; rapid economic and insurance premium growth and yet low insurance penetration.
Both countries are enjoying double-digit non-life premium growth rates after inflation adjustments (Table 1), which is quite impressive, compared to other regions in the world. However, as Table 2 shows, the penetration of non-life insurance in China and India was still below the Asia and world average levels as of 2012, even after many years’ development. Considering their robust economic growth, there is a huge opportunity for non-life insurance premium growth and market development as these two emerging countries gradually catch up.
Table 1 Real Non-Life Premium Growth
Inflation Adjusted; Source: Swiss Re Sigma
Country/Region 2010 2011 2012
China 27.5% 10.4% 13.6%
India 7.8% 13.9% 10.2%
Asia 9.0% 8.0% 8.1%
North America -0.2% 0.4% 1.7%
Europe 0.8% 0.1% 0.0%
World 1.8% 1.9% 2.6%
Table 2 Non-Life Insurance Penetration
Source: Swiss Re Sigma, India Insurance Regulatory and Development Authority (IRDA), China Insurance Regulatory Commission (CIRC)
Country/Region 2004 2005 2006 2007 2008 2009 2010 2011 2012
China 0.70% 0.69% 0.73% 0.78% 0.78% 0.88% 1.00% 1.01% 1.06%
India 0.62% 0.63% 0.66% 0.63% 0.59% 0.59% 0.61% 0.65% NA
Asia 1.76% 1.67% 1.60% 1.59% 1.63% 1.57% 1.61% 1.59% 1.64%
World 3.40% 3.15% 3.00% 3.05% 2.95% 2.98% 2.89% 2.83% 2.81%
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Business mix: Motor Line Dominates Both Markets
The majority of written premiums in China and India come from property lines, which have shorter tails than liability lines. Motor lines, namely compulsory motor third party liability (MTPL) and non-compulsory motor insurance in China, MTPL (named TP in India) and Own Damage (OD) in India, have been dominating the market. In 2012, motor lines account for 73% of the total non-life written premium in China (Figure 1), while in India the motor lines contribute 59% of the total non-life written premium (Figure 2, non-life but excluding health). Commercial property1 is the second largest segment in both lines, accounting for 7% in China and 13% in India.
Figure 1 China Non-Life Business Mix, 2012 Figure 2 India Non-Life Business Mix, 2011-2012
1 In India, the definition of fire, marine and other lines is as below:
Explanation for line of business categorization in India
Fire Coverage for properties like buildings, plants, machineries and etc. against loss or damage due to fire, explosion, storm, hurricane and etc.
Marine Coverage for loss or damage to the cargo while in transit by sea/air/rail/road/courier
Others Engineering, aviation, liability, crop insurance and etc.
Motor 59% Fire
13%
Marine 7%
Others 21%
Motor 73%
Commercial Property
7%
Liability 3%
Agriculture 4%
Other 13%
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Market Dynamics
Market Competition
Both non-life insurance markets remain at an undeveloped stage, when compared to Europe or the US. For example, both markets are initiated and led by a few large companies, but many new players have been entering and competing, and both markets observed significant changes during recent years.
The number of non-life companies in China has almost doubled since 2005. The top three companies still write about two thirds of the total premium, varying little since 2006. However, the competition becomes more intense for medium and small-sized companies (Table 3).
In India, the number of companies did not grow as rapidly as it did in China, but the market share of the top four companies (also the four public companies) has decreased significantly over these years (Table 4), indicating that the private companies, though still smaller than the public ones, are growing steadily.
Table 3 Market Statistics, China
Table 4 Market Statistics, India
Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Number of Companies
Private 8 8 8 10 12 13 15 15
Public 4 4 4 4 4 4 4 4
Total 12 12 12 14 16 17 19 19
Market Share
Top 4 81.00% 74.87% 66.65% 61.84% 60.80% 60.98% 60.26% 59.11%
Top 5 85.73% 82.29% 78.18% 73.32% 71.62% 70.18% 69.95% 68.55%
HHI 0.1788 0.1609 0.1392 0.1281 0.1225 0.1166 0.1130 0.1093
The Herfindahl-Hirschman Index (HHI) is a measure of the sizes of firms in relation to the industry and can be used as an indicator of market competition. The HHI is calculated as the sum of squared market share of the top 50 companies in the industry, or all companies if there are less than 50. Usually, an HHI above 0.25 indicates high market concentration, between 0.15 and 0.25 indicates moderate concentration, and below 0.15 indicates a non-concentrated market.
Year 2004 2005 2006 2007 2008 2009 2010 2011 2012
Number of Companies
Domestic 16 23 24 26 31 34 34 38 41
Foreign 9 10 11 14 16 18 19 21 21
Total 25 33 35 40 47 52 53 59 62
Market Share
Top 3 80% 73% 67% 64% 64% 64% 66% 67% 65% Top 5 90% 86% 81% 78% 76% 74% 75% 74% 74%
Top 10 97% 96% 93% 90% 87% 85% 86% 86% 85% HHI 0.3683 0.2991 0.2429 0.2178 0.2090 0.1983 0.1936 0.1856 0.1772
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As Figure 3 shows, China’s insurance market has consistently been more concentrated than India’s in recent years. However, between 2004 and 2007, the HHI of China’s non-life insurance market decreased significantly, indicating that the largest companies lost some of their commanding market shares during this period of elevated competition. This decrease in China’s HHI slowed down after 2008, coupled with a relatively stable level of market share for the top 3 companies, while the competition among medium and small-sized companies became more intense as the number of companies continuously grew. Similar to China, India observed a decrease in top 4 companies’ share in the market, from 81% in 2004 to 59% in 2011. However, fewer new companies entered India’s non-life market during this period. Therefore, the market share distribution in India is less skewed than that distribution in China.
Figure 3 Herfindahl-Hirschman Index of Non-Life Insurance Market
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
2004 2005 2006 2007 2008 2009 2010 2011 2012
China India
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Market Development
Though the development of an insurance market depends on various factors, in this report it is mainly discussed in terms of three aspects that can be quantified, as shown in Table 5:
• Expense ratio, i.e. expense to gross written premium ratio of the entire market2, as a measurement of efficiency of insurance operation
• Insurance penetration, i.e. non-life premium to GDP ratio, as a measurement of development of insurance segments in the economy
• Interquartile range (IQR) of loss ratio, as a measurement of the variation of underwriting performance
Table 5 Market Development Metrics
Year Number of Companies Loss Ratio IQR Expense Ratio Penetration China India China India China India China India
2006 33 12 42.33% 21.82% 29.64% 21.47% 0.73% 0.66%
2007 40 14 39.73% 21.23% 29.19% 23.67% 0.78% 0.63%
2008 41 16 30.70% 16.55% 27.88% 26.90% 0.78% 0.59%
2009 47 17 20.29% 16.28% 29.27% 27.00% 0.88% 0.59%
2010 47 19 14.07% 18.66% 26.43% 27.52% 1.00% 0.61%
2011 50 19 15.63% 13.33% 26.31% 24.20% 1.01% 0.65%
For comparison purposes, the indicators are further standardized by calculating the relativity to the level of the United States’ non-life insurance market between 2009 and 2011. Relativity greater than 1 indicates a more developed market, i.e. lower expense ratio, higher insurance penetration and lower loss ratio IQR.
2 Since the average expense ratio is actually weighted by gross written premium, the results will be driven by the largest companies. India and US data do not show significant differences in expense levels between the largest and the smaller companies, but in China the top three companies have lower expense ratios than other companies (23.9% vs. 34.4% in 2011), which drove the industry average to 26.31%. With this noted and given that fact that the top three companies have two thirds of the market share in China, the industry average is still used here to reflect the overall expense level of a market.
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Figure 4 Market Development Metrics Relative to US 2009-2011
Figure 4 indicates that China and India are very close to the US in terms of expense ratio; both markets fall quite behind in insurance penetration; India has a lower loss ratio IQR than the US, but considering that India has far fewer insurance companies (only 19 as of 2013) than the US does, the lower loss ratio IQR does not indicate a more developed market. China, on the other hand, has greater variation in loss ratio, meaning that the overall market still needs time to reach maturity and develop sophisticated underwriting skills.
To narrow the gaps, China and India need to embrace market competition and further develop non-life penetration. For China, there are new companies joining the competition every year and the market will become quite dynamic before it reaches certain level of development, where underperformers will either exit the market or be acquired and outperformers will solidify their position in the market. In India, many still wait for the opportunity to enter the market, especially foreign companies, which are currently limited by the 26% foreign ownership cap effective since 20003. As for penetration growth, it will be a long and winding process for both, as it would not happen without economic growth and regulatory development, in addition to greater awareness of risk management in the society.
3 The proposal to increase foreign direct investment (FDI) cap in insurance from 26 per cent to 49 percent has been under debate since 2008. http://zeenews.india.com/business/news/economy/india-ready-to-address-us-concerns-over-trade-investment_85468.html
0
0.5
1
1.5
2Loss Ratio IQR
PenetrationExpense Ratio
China IndiaUS 1988-1990(Rate Level High) US 2009-2011 (Rate Level Low)
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Regulations
While the primary driver of insurance market development is economic growth, it is a healthy and developed legal and regulatory environment that helps the market mature. Below is a brief list of the significant changes in regulations that have affected the insurance markets in China and India:
China
-Compulsory MTPL market opened to foreign players on May 1st 2012, indicating that foreign companies can get a bigger market share of the motor vehicle insurance, and hopefully profit from cross-selling non-compulsory policies.
-Eligible companies will be approved to design and price their own products, instead of copying from the manual policy and rates, according to an announcement from the CIRC in September 2011. The CIRC has carefully set strict underwriting and solvency requirements for eligibility; therefore this rate reform is expected to be very different from the unsuccessful one during 2003 to 2006, in which the rate level decreased to an unsustainable level and irrational competition led to a deficit.
- Regulations on investment and financing have been loosening since 2010, including the limit on bonds, equity, real estate investments and issuing subordinated debt.
- A new solvency regime is under construction. The CIRC has engaged various parties in the industry and has begun testing on real data.
From all the above regulatory changes, we can tell that the CIRC would like to introduce a healthy, sustainable competition among companies with focus on profit and solvency, and facilitate the industry to grow with fewer restrictions in investment and financing.
India
-The India Motor Third Party Pool was dismantled on March 31, 2012. A reclined risk pool was introduced for commercial vehicles that find it difficult to get third party coverage.
-To address the deficit of TP policies, the IRDA raised the motor TP tariff rate on March 26, 2013, but lower than the originally proposed rate.
- The cap of foreign ownership of an insurance company remains 26%, but raising it to 49% has been proposed many times.
Overall, India is working on the issue of unprofitable MTPL insurance business and progress is reflected in the recent financial results. However the future is still not clear for foreign companies that would like to enter this market or expand their business in India.
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Underwriting Experience
Industry Performance
Industry performance is measured by the industry’s average performance (median, or the 50th percentile) and deviation (interquartile range, or the range between the 25th percentile and 75th percentile is used to reduce the effect of outliers) of loss ratio, expense ratio, combined ratio and operating ratio.
Overall, the underwriting performance of China’s non-life industry has improved from 2009 to 2011(Figure 7), shown by decreases in both loss ratio and expense ratio (Figure 5), indicating better risk management and more efficient operations. However, the market becomes more challenging for small domestic players, with an average combined ratio of 107.4% and an operating ratio of 101.5% in 2011, as shown in Figure 9. Meanwhile, the variance of the industry average loss ratio, measured by the gap between the 75th percentile and 25th percentile, has significantly decreased (Figure 5 ), and so has the operating ratio (Figure 7).
Figure 5 Loss Ratio Trend, China Figure 6 Expense Ratio Trend, China
25th, 50th and 75th Percentile 25th, 50th and 75th Percentile
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Figure 7 Combined Ratio Trend, China Figure 8 Operating Ratio Trend, China
25th, 50th and 75th Percentile 25th, 50th and 75th Percentile
Figure 9 Combined Ratio by Company Segment, China
80%
85%
90%
95%
100%
105%
110%
2009 2010 2011
Total
Large Domestic
Medium Domestic
Small Domestic
Foreign
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Table 6 Performance by Company Segment, China
Year Segmentation Loss Ratio Expense Ratio Combined Ratio Operating Ratio
2009 Total 65.6% 29.9% 95.5% 90.1%
2009 Large Domestic 65.4% 26.6% 92.0% 87.6%
2009 Medium Domestic 64.4% 36.3% 100.7% 95.3%
2009 Small Domestic 64.8% 37.8% 102.6% 87.2%
2009 Foreign 80.6% 33.1% 113.7% 102.4%
2010 Total 63.0% 27.0% 90.1% 85.6%
2010 Large Domestic 63.0% 24.9% 87.9% 84.1%
2010 Medium Domestic 60.3% 32.6% 92.8% 87.1%
2010 Small Domestic 65.4% 33.2% 98.6% 93.5%
2010 Foreign 79.9% 28.8% 108.6% 100.4%
2011 Total 61.4% 26.9% 88.2% 85.2%
2011 Large Domestic 62.3% 23.9% 86.3% 83.4%
2011 Medium Domestic 57.5% 34.2% 91.7% 88.8%
2011 Small Domestic 67.1% 40.3% 107.4% 101.5%
2011 Foreign 64.8% 30.6% 95.3% 90.8%
Underwriting costs in the India non-life industry have increased in the long term but the expense ratio decreased significantly in the year of 2011, leaving the combined ratio stay the same level as of year 2009 (Figure 12 on the following page). The variation in loss ratio and expense ratio both decreased in year 2011, however the spread of operating ratio is still huge, indicating an overall better underwriting result, but the return from investment varies among companies. Compared to other countries, combined ratio in India is very high, and its 25th percentile has been increasing since 2006 (Figure 12 on the following page), indicating that there is very little room for underwriting profit even for outperforming companies.
Figure 10 Loss Ratio Trend, India Figure 11 Expense Ratio Trend, India
25th, 50th and 75th Percentile 25th, 50th and 75th Percentile
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Figure 12 Combined Ratio Trend, India Figure 13 Operating Ratio Trend, India
25th, 50th and 75th Percentile 25th, 50th and 75th Percentile
Figure 14 Combined Ratio by Company Segment, India
60%
70%
80%
90%
100%
110%
120%
130%
140%
2006 2007 2008 2009 2010 2011
Total
Public
Private
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Table 7 Performance by Company Segment, India
Year Segmentation Loss Ratio Expense Ratio Combined Ratio Operating Ratio
2009 Total 85.5% 27.3% 112.8% 98.2%
2009 Public 88.3% 30.4% 118.7% 99.1%
2009 Private 80.3% 22.5% 102.8% 96.0%
2010 Total 93.4% 27.9% 121.3% 106.6%
2010 Public 97.0% 31.5% 128.6% 108.4%
2010 Private 86.9% 22.5% 109.4% 102.9%
2011 Total 88.9% 24.6% 113.5% 101.0%
2011 Public 89.2% 27.1% 116.3% 100.1%
2011 Private 88.2% 21.1% 109.3% 102.2%
A significant difference between China and India’s insurance operating performances is that China enjoys a reasonable profit margin from underwriting business and the investment income slightly increases the profit (Figure 7), while India’s non-life industry largely relies on investment returns to offset the underwriting loss (Figure 12). The trend in India hasn’t changed for many years, and during the years that the loss ratio turns out to be high, for example the year of 2010, the industry is very likely to suffer a deficit.
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Segment Level: Peer Group Comparison
Insurance markets in China and India have characteristics that are quite different from mature markets:
• Fierce competition for market share; • Market share is skewed; • Property lines, other than liability lines, are the major business; • Lack of underwriting experience.
A comparison would not be fair unless the above factors are taken into account. With further segmentation by company size and/or ownership, two aspects of performance, growth and underwriting, are reviewed and compared within each peer group. Growth is measured by the two-year compound annual growth rate (CAGR) in gross written premium, and underwriting is quantified by the two-year average combined ratio. Companies are identifies as outperformer, underperformer or average, benchmarked to the median within each segment.
Table 8 Median Performance Metrics by Company Segment, China
In China, large domestic companies are still leading the market with stable premium growth and strong underwriting results, both related to scale of economy-existing business, extensive product lines, rich experience, strong network and good reputation. Ping An grows the fastest of the three, thanks to its strong distribution channels and innovations in product design. PICC appears to fall behind the other two, but it is making progress compared to previous years’ performance (combined ratio: 94.4% in 2009, 91.6% in 2010, 87.5% in 2011), and its market share is unbeatable in the short run (more than double the size of the second place Ping An).
Outperforming medium-sized companies are growing even faster than the big three, with a slightly higher combined ratio. For small domestic companies, most of which just entered the market not long ago, the competition for market share is fierce; there is little room for profit and premium growth varies largely.
Foreign companies, while they only account for 1% of the market share, are growing fast and making an underwriting profit on average. However, the top three foreign companies with the largest market shares are not growing at a desirable rate compared to their peers.
Segmentation Number of Companies Market Share 2-y CAGR: GWP 2-y Average Combined Ratio
Large Domestic 3 65.35% 34.10% 84.00%
Medium Domestic 17 27.74% 26.70% 93.40%
Small Domestic 18 5.70% 24.10% 102.20%
Foreign 21 1.21% 33.00% 93.50%
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Table 9 Peer Group Comparison, China
Outperforming Average Underperforming
Benchmark is the median of the segment
Segmentation Company 2011 GWP in Million
CNY
Growth: 2-y GWP CAGR
Underwriting: 2-y Average Combined
Ratio
Large Domestic
PICC Property & Casualty Co. Ltd. 173962 20.50% 89.40%
Ping An Property & Casualty Insurance Co. Ltd. 83435 47.00% 84.00%
China Pacific Property Insurance Co. Ltd. 61687 34.10% 83.30%
Medium Domestic
China Life Property & Casualty Insurance Co. Ltd. 16405 43.90% 88.70%
China Continent Property & Casualty Insurance Co. Ltd. 16285 25.90% 89.40%
Sunshine Property & Casualty Insurance Co. Ltd. 13322 42.10% 92.10%
Huatai Property Insurance Co. Ltd. 7914 62.90% 91.90%
Tianan Insurance Co. Ltd. 7820 5.70% 97.70%
Yong An Insurance Co. Ltd. 6545 10.70% 94.90%
Taiping General Insurance Co. Ltd. 5807 13.60% 93.10%
Alltrust Insurance Co. Ltd. 5286 13.20% 90.50%
Sinosafe General Insurance Co. Ltd. 4938 32.50% 93.70%
Tianping Auto Insurance Co. Ltd. 4023 45.30% 86.50%
Dubon Property & Casualty Insurance Co. Ltd. 3356 -8.10% 99.00%
Bank of China Insurance Co. Ltd. 2928 20.30% 96.40%
Zheshang Property & Casualty Insurance Co. Ltd. 2552 347.60% 98.30%
Minan Property & Casualty Insurance Co. Ltd. 2081 27.50% 95.70%
Small Domestic
Chang An Property & Casualty Insurance Co. Ltd. 1822 27.40% 101.00%
Dazhong Insurance Co. Ltd. 1723 9.20% 91.00%
Ancheng Property & Casualty Insurance Co. Ltd. 1711 11.70% 102.60%
Zking Property & Casualty Insurance Co. Ltd. 1552 613.10% 101.80%
Bohai Property Insurance Co. Ltd. 1500 20.20% 112.50%
Dinghe Property Insurance Co. Ltd. 1226 83.70% 90.70%
Cinda Property & Casualty Insurance Co. Ltd. 1216 875.80% 111.20%
Yingda Taihe Property Insurance Co. Ltd. 659 -8.10% 152.90%
China Huanong Property & Casualty Insurance Co. Ltd. 244 28.80% 124.80%
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Table 10 Peer Group Comparison, China (continue)
Outperforming Average Underperforming
Benchmark is the median of the segment
Segmentation Company
2011 GWP in Million
CNY
Growth: 2-y GWP CAGR
Underwriting: 2-y Average Combined
Ratio
Foreign
Generali China Insurance Co. Ltd. 3584 -10.80% 107.00%
AIG Insurance Co. Ltd. China 1173 14.80% 81.70%
Allianz China General Insurance Co. Ltd. 1005 -6.60% 98.30%
Mitsui Sumitomo Insurance (China) Co. Ltd. 896 33.00% 81.30%
Tokio Marine & Nichido Fire Insurance Co. (China) Ltd. 588 22.30% 66.70%
Sompo Japan Insurance (China) Co. Ltd. 523 38.80% 80.50%
Liberty Insurance Co. Ltd. 517 52.60% 113.80%
Cathay Insurance Co. Ltd. 497 44.10% 143.60%
Lloyd's Insurance Co. (China) Ltd. 409 222.30% 14.20%
Samsung Property & Casualty Insurance Co. (China) Ltd. 324 19.20% 134.40%
Zurich Insurance Co. (Beijing Branch) 312 56.60% 73.20%
Winterthur Insurance (Asia) Ltd. (Shanghai Branch) 297 28.20% 76.00%
Chubb Insurance (China) Co. Ltd. 206 26.20% 130.30%
Hyundai Insurance (China) Co. Ltd. 195 34.70% 78.40%
Sun Alliance Insurance (China) Ltd. 179 4.20% 93.50%
Groupama Insurance (China) Co. Ltd. 134 76.10% 123.80%
LIG Insurance (China) Co. Ltd. 80 105.80% 93.90%
Aioi Nissay Dowa Insurance (China) Co. Ltd. 66 23.10% 88.70%
NIPPONKOA Insurance Co. (China) Ltd. 40 142.70% 117.40%
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In India, private companies are growing faster and have better underwriting results than public companies on average, as Table 12 shows. United and National outperform in both aspects as public companies. The private companies, HDFC Ergo, Cholamandalam and Shriram enjoy an underwriting profit and also grow at a decent rate, which is very impressive considering the overall performance of the industry.
Table 11 Median Performance Metrics by Company Segment, India
Segmentation Number of Companies Market Share 2-y CAGR:
GWP 2-y Average Combined
Ratio Public 4 59.11% 22.00% 121.40%
Private 15 40.89% 38.70% 108.10%
Table 12 Peer Group Comparison, India
Outperforming Average Underperforming
Benchmark is the median of the segment
Sector Company 2011 GWP in Million INR
Growth: 2-y GWP CAGR
Underwriting: 2-y Average Combined
Ratio
Public
New India 100738.8 19.10% 125.30% United 81792.9 24.90% 118.30%
National 78156.9 29.70% 120.20% Oriental 61946 13.00% 122.60%
Private
ICICI Lombard 51501.4 25.00% 114.10% Bajaj Allianz 32866.2 15.10% 101.30% IFFCO Tokio 19752.4 16.40% 108.10% HDFC Ergo 18394.6 41.80% 99.40% Reliance 17125.5 -7.00% 130.90% Tata AIG 16415.7 38.70% 103.20%
Royal Sundaram 14797.9 27.30% 103.70% Cholamandalam 13465.4 31.00% 99.10%
Shriram 12664.4 74.30% 84.10% Future Generali 9197.6 56.30% 108.20%
Bharti AXA 8840 68.60% 122.50% Universal Sompo 4045.8 46.20% 120.00%
Raheja QBE 147.9 234.70% 241.50%
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Reinsurance Analysis-China
In 2011, 16.8% of the gross written premium in China, or CNY 77.1 Billion, was ceded to reinsurers. Reinsurance margin is estimated by
𝑅𝑒𝑖𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒 𝑀𝑎𝑟𝑔𝑖𝑛 = 1 − 𝐶𝑒𝑑𝑒𝑑 𝐿𝑜𝑠𝑠 𝑅𝑎𝑡𝑖𝑜 − 𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡
Using the following assumptions:
Assumption 1 The acquisition cost for reinsurance is estimated to be 30% of the ceded premium, which is the average expense level of assuming businesses in China.
Assumption 2 Earned Premium Direct and Assumed is estimated by
𝐺𝑟𝑜𝑠𝑠 𝐸𝑎𝑟𝑛𝑒𝑑 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 (𝐷𝑖𝑟𝑒𝑐𝑡 𝑎𝑛𝑑 𝐴𝑠𝑠𝑢𝑚𝑒𝑑)
=𝑁𝑒𝑡 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 𝐸𝑎𝑟𝑛𝑒𝑑𝑁𝑒𝑡 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 𝑊𝑟𝑖𝑡𝑡𝑒𝑛
× 𝐺𝑟𝑜𝑠𝑠 𝑊𝑟𝑖𝑡𝑡𝑒𝑛 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 (𝐷𝑖𝑟𝑒𝑐𝑡 𝑎𝑛𝑑 𝐴𝑠𝑠𝑢𝑚𝑒𝑑)
Figure 15 shows the relationship between reinsurance risk and margin from 2009 to 2011, where the risk is measured by the three-year standard deviation of ceded loss ratio. Not all points fall on the efficient frontier; for companies with the same level of risk, the returns spread out and vice versa. This indicates that reinsurers will benefit from analyzing reinsurance loss dates and sophisticated business selection.
Figure 15 Reinsurance Risk and Return, China
-20%
0%
20%
40%
60%
80%
-20% 0% 20% 40% 60%
Retu
rn: R
eins
uran
ce M
argi
n
Risk: Ceded Loss Ratio St. Dev
Page 21 of 41
Figure 16 shows that, on average, there was plenty room for profit in writing reinsurance in China, at least according to the financial data from 2009 to 2011.
Figure 16 Reinsurance Margin vs. GLR Percentile, China
Table 13 on the following page shows a detailed reinsurance analysis for each company.
-40%
-20%
0%
20%
40%
60%
80%
0% 50% 100%Rein
sura
nce
Mar
gin
GLR Percentile
Page 22 of 41
Table 13 Reinsurance Analysis, China
Segment Company
3-y Total Gross
Premiums Written
3-y Mean Gross Loss
Ratio
3-y Mean Net Loss
Ratio
3-y Mean Ceded Loss
Ratio
Std.Dev of Ceded Loss
Ratio
Large China Pacific Property Insurance Co. Ltd. 147598 58.28% 58.78% 50.26% 10.97% PICC Property & Casualty Co. Ltd. 448041 65.58% 67.25% 52.70% 36.29% Ping An Property & Casualty Insurance Co. Ltd. 184367 56.11% 56.88% 42.57% 20.27%
Medium
Alltrust Insurance Co. Ltd. 14825 59.33% 62.17% 47.21% 9.46% Bank of China Insurance Co. Ltd. 7515 61.44% 62.30% 49.32% 13.32% China Continent Property & Casualty Insurance Co. Ltd. 40412 57.84% 58.22% 50.24% 4.16% China Life Property & Casualty Insurance Co. Ltd. 35603 58.76% 60.47% 39.88% 11.06% China United Property Insurance Co. Ltd. 19447 73.36% 71.41% 234.02% NA Dubon Property & Casualty Insurance Co. Ltd. 10910 58.11% 58.31% 53.50% 10.69% Huatai Property Insurance Co. Ltd. 14832 52.85% 56.00% 34.51% 17.25% Minan Property & Casualty Insurance Co. Ltd. 5039 50.62% 54.75% 30.29% 25.62% Sinosafe General Insurance Co. Ltd. 11743 50.66% 50.43% 56.64% 24.97% Sunshine Property & Casualty Insurance Co. Ltd. 30562 58.94% 59.41% 44.62% 10.07% Taiping General Insurance Co. Ltd. 15661 55.38% 56.93% 43.50% 11.33% Tianan Insurance Co. Ltd. 22851 61.91% 66.77% 38.24% 10.32% Tianping Auto Insurance Co. Ltd. 9076 57.23% 57.61% 46.61% 11.63% Yong An Insurance Co. Ltd. 17680 60.65% 62.22% 42.59% 10.06% Zheshang Property & Casualty Insurance Co. Ltd. 4860 58.55% 59.01% 20.04% 29.69%
Small
Anbang Property & Casualty Insurance Co. Ltd. 12343 64.41% 64.59% 17.43% NA Ancheng Property & Casualty Insurance Co. Ltd. 4639 65.26% 65.99% 38.32% 15.71% Bohai Property Insurance Co. Ltd. 3727 68.21% 69.50% 56.25% 7.57% Chang An Property & Casualty Insurance Co. Ltd. 4562 66.45% 72.45% 44.78% 11.93% China Coal Insurance Co. Ltd. 650 38.92% 39.08% 17.94% NA China Huanong Property & Casualty Insurance Co. Ltd. 541 69.98% 70.45% 57.53% 11.51% Cinda Property & Casualty Insurance Co. Ltd. 1579 55.54% 57.47% 22.40% 211.66% Dazhong Insurance Co. Ltd. 4895 56.33% 59.72% 39.57% 194.53% Dinghe Property Insurance Co. Ltd. 2291 63.41% 62.61% 60.97% 173.20% Taishan Property & Casualty Insurance Co. Ltd. 46 63.98% 62.85% 19.01% NA Urtrust Insurance Co. Ltd. 24 75.57% 80.23% 10.00% NA Yingda Taihe Property Insurance Co. Ltd. 2206 81.75% 82.22% 47.99% 5.99% Zking Property & Casualty Insurance Co. Ltd. 2193 59.02% 57.57% 51.92% 22.62%
Foreign
AIG Insurance Co. Ltd. China 3184 64.79% 41.01% 178.78% NA Aioi Nissay Dowa Insurance (China) Co. Ltd. 169 32.46% 36.13% 12.22% 2.05% Allianz China General Insurance Co. Ltd. 3104 57.18% 62.96% 45.51% 25.37% Cathay Insurance Co. Ltd. 1137 66.69% 67.05% 24.38% 24.98% Chubb Insurance (China) Co. Ltd. 498 65.59% 65.31% 61.86% 174.74% Fubon Insurance Co. Ltd. 57 64.24% 68.33% 23.52% NA Generali China Insurance Co. Ltd. 13796 92.67% 94.00% 71.17% 19.81% Groupama Insurance (China) Co. Ltd. 246 57.96% 60.24% 17.00% 37.63% Hyundai Insurance (China) Co. Ltd. 471 76.75% 74.28% 59.12% 88.41% Liberty Insurance Co. Ltd. 1121 60.00% 61.08% 40.61% 13.52% LIG Insurance (China) Co. Ltd. 147 58.35% 78.53% 37.50% 12.82% Lloyd's Insurance Co. (China) Ltd. 711 54.14% 0.00% 55.88% 0.36% Mitsui Sumitomo Insurance (China) Co. Ltd. 2077 50.49% 52.49% 41.67% 13.10% NIPPONKOA Insurance Co. (China) Ltd. 75 47.95% 58.13% 23.02% 24.50% Samsung Property & Casualty Insurance Co. (China) Ltd. 658 75.63% 76.62% 46.50% 12.92% Sompo Japan Insurance (China) Co. Ltd. 1177 40.17% 42.54% 30.01% 11.10% Sun Alliance Insurance (China) Ltd. 547 38.51% 42.54% 36.77% 2.60% Tokio Marine & Nichido Fire Insurance Co. (China) Ltd. 1476 32.78% 37.58% 12.68% 7.51% Winterthur Insurance (Asia) Ltd. (Shanghai Branch) 692 47.38% 58.90% 37.17% 11.73% XL Insurance (China) Co. Ltd. 17 308.44% 390.00% 0.56% NA Zurich Insurance Co. (Beijing Branch) 643 20.53% 48.92% 9.37% 41.03%
Specialty
Anhua Agricultural Insurance Co. Ltd. 7450 63.34% 64.80% 51.99% 6.12% Anxin Agricultural Insurance Co. Ltd. 1991 56.01% 59.35% 11.83% 7.35% China Export & Credit Insurance Corp. 25983 100.11% 94.93% 53.51% 4.74% Guoyuan Agricultural Insurance Co. Ltd. 3697 77.51% 80.83% 31.45% 32.89% Sunlight Agricultural Mutual Insurance Co. Ltd. 4750 64.95% 66.13% 53.37% 33.24%
Page 23 of 41
Line of Business Level
Table 14 is based on the financial reports of 17 large and medium-sized non-life companies, so it might not accurately depict the industry performance, but still helps show the overall trend in the most recent three years. Overall the rate level of motor lines is decreased over the recent three years. MTPL is operating at deficit while the profit from non-compulsory helps turn the entire motor line slightly profitable from underwriting. However, as the rate level decreases, it is challenging to remaining profitable in the largest line of business. The rate level of commercial property also has decreased and the profit margin from underwriting is quite insignificant.
Table 14 Insurance Operation Metrics by Line of Business, China
Line of Business Year Combined Ratio
C.o.V Combined Ratio
Rate Level per 1000 Face Value
C.o.V Rate Level
Motor Vehicle
2010 97.25% 2.5% 13.72 45.0%
2011 96.25% 2.1% 13.12 41.8%
2012 97.69% 1.7% 11.80 40.5%
Non-compulsory 2010 90.06% 9.5% NA NA
2011 88.51% 7.4% NA NA
MTPL 2010 116.30% 15.7% NA NA
2011 116.49% 15.8% NA NA
Commercial Property
2010 103.73% 8.7% 1.22 45.4%
2011 98.67% 4.5% 1.20 44.8%
2012 99.54% 5.2% 1.08 43.5%
Accident & Health
2010 98.99% 7.3% 0.09 115.8%
2011 95.35% 6.8% 0.07 161.7%
2012 91.95% 11.5% 0.07 136.5%
Guaranty
2010 104.02% 7.9% 0.62 308.1%
2011 99.76% 5.5% 0.36 771.5%
2012 98.80% 10.9% 0.75 646.0%
Liability
2010 97.40% 2.7% NA NA
2011 94.25% 1.5% NA NA
2012 95.46% 2.4% NA NA
Cargo
2010 87.65% 8.7% NA NA
2011 86.20% 7.7% NA NA
2012 84.35% 4.3% NA NA
Credit
2010 104.45% NA NA NA
2011 119.57% NA NA NA
2012 86.84% NA NA NA
Short-Term Health
2010 111.76% NA NA NA
2011 104.17% NA NA NA
2012 100.19% NA NA NA
Page 24 of 41
Motor Vehicle Insurance
Motor Insurance Policy Comparison
Motor Vehicle Insurance is the largest line of business by premium in both China and India. The mandatory part of motor vehicle insurance usually covers the third party liability of the driver, called Mandatory Third Party Liability (MTPL). The coverage varies by jurisdiction. Table 15 and Table 16 show the comparison of motor insurance coverage between China and India.
Table 15 Motor Insurance in China and India: A Glance
Country Mandatory Coverage: MTPL MTPL Pricing Factor Voluntary Coverage
China Third party liability for bodily injury/death and property damage, with limited coverage listed in Table 16
Class of Vehicle, Driving History
Non-compulsory: third party liability, loss to the vehicle, personal accident
coverage for the driver and passengers
India Third party liability for bodily injury/death and property damage; personal accident cover for owner-driver
Geographic Zones, Class of Vehicle, Driving History Own Damage (OD): loss to the vehicle
Table 16 Limit of MTPL Coverage
Country Bodily Injury/Death Property Loss
China CNY 110,000 (USD 17,969) for death/disability; CNY 10,000 (USD 1634) for medical expenses CNY 2000 (USD 327)
India Unlimited INR 750,000 (USD 12,148) for motor vehicles; INR 100,000 (USD 1620) for
two wheelers
The unlimited coverage for bodily injury or death of India MTPL might be one of the reasons of its unprofitable operations.
For China, the coverage limit of MTPL is too low and drivers have to get additional coverage from non-compulsory policies. Based on the data of 17 large and medium-sized domestic companies in 2010 and 2011, more than 72% of the motor premium comes from non-compulsory policies (72.3% in 2010, 72.6% in 2011) and we expect the percentage to continuously grow unless the regulator raises the limit of mandatory third party liability coverage. On March 30th 2012, the State Council passed amendments to the Measures on the Compulsory Traffic Accident Liability Insurance for Motor Vehicles. These amendments, which took effect on May 1st 2012, allow China-based foreign invested non-life insurance companies to provide MTPL insurance. Nine foreign insurers had obtained approval from the CIRC to
Page 25 of 41
write MTPL as of June 2013. Seven of them have started operations,4 and more are expected to enter this market in the future.
Exposure: Number of cars
Car ownership is a significant factor in non-life premium growth, especially in China. According to a report by Deloitte China5, premiums from new car sales account for about 30% of the total motor premium. In the first eight months of 2013, car sales growth has remained steady; the need for cars is strong, but the sales are also influenced by policies on car pricing (including taxing on imported cars), car registration, etc. For example, Beijing, Shanghai and Guangzhou have adopted a quota policy for car registration to address issues like traffic congestion and air pollution.
Figure 17 Motor Vehicle Ownership, China
4 http://www.scmp.com/business/china-business/article/1299907/foreign-insurers-eye-chinese-market-mull-acquisitions-expand 5 Deloitte (China) Center for Financial Services: 2013 China Insurance Industry Outlook (in Chinese)
0
50
100
150
200
250
300
2005 2006 2007 2008 2009 2010 2011 2012
Mill
ions
Total Motor Vehicles Cars Motorcycles
Page 26 of 41
Figure 18 Newly Registered Motor Vehicles, China
The India motor market has been experiencing weak sales for more than a year as rising fuel prices, higher interest rates and a slowing economy have discouraged people from buying, as shown in Figure 19 and Figure 20. Two-wheeler, other than car, is still the largest category of motor vehicles.
Another issue in the India motor insurance market is uninsured motorists. Towers Watson India estimated that less than 40 million vehicles, out of the total 120 million automobiles and two-wheelers on Indian roads, had insurance coverage in 2009 and 2010 (data source: Insurance Information Bureau). According to estimation by the Times of India, by January 2013, 20%-35% of cars and 50%-70% two-wheelers were uninsured6. Many policies lapse during renewal periods, and insurers lack the motivation to enforce the follow-up process because the low premiums, especially from two-wheeler policies, would not cover the expenses of this process.
6 http://articles.timesofindia.indiatimes.com/2013-01-02/india-business/36110574_1_motor-insurance-mandatory-third-party-liability-insurance-uninsured-vehicles
0
2
4
6
8
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Mill
ions
Total Motor Vehicles Private Owned Commercial
Page 27 of 41
Figure 19 Motor Vehicle Ownership, India
Figure 20 Newly Registered Motor Vehicles, India
0
20
40
60
80
100
120
140
160
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Mill
ions
Total Motor Vehicles Two-wheelers Cars
0
2
4
6
8
10
12
14
16
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Mill
ions
Total Motor Vehicles Two-wheelers-India Cars
Page 28 of 41
Underwriting Performance
The underwriting performance of China motor insurance has been discussed in the previous chapter. Based on the data of 17 large and medium sized companies (Table 17), the rate level of motor lines has been decreasing over the recent three years. MTPL is operating at deficit while the profit from non-compulsory helps turn the entire motor line slightly profitable from underwriting. However, as the rate level decreases, it is a challenge to remain profitable from the largest line of business.
Table 17 Underwriting Summary of Motor Insurance, China
In India, underwriting performance has improved in 2012 for both TP and OD coverage compared to 2011 (assuming similar loss development trend), especially for TP coverage. The discontinuation of the MTPL pool for commercial vehicles and the rise in the MTPL rate level has helped improve the underwriting result.
Table 18 Underwriting Summary of Motor Insurance by Type of Motor Vehicle, India
Motor Vehicle Category
Number of Policies
Total Premium
OD Premium
TP Premium
Total Loss Ratio
Excluding IBNR
OD Loss Ratio Excluding IBNR
TP Loss Ratio Excluding IBNR
2012 2011 2012 2011
Private Car 16,123,558 122,776 99,862 22,914 61% 56% 59% 81% 87%
Two-wheelers 36,109,120 28,117 13,931 14,186 49% 34% 36% 63% 60% Goods Carrying
Vehicle 6,123,377 89,845 31,971 57,874 63% 47% 54% 71% 95%
Passengers Carrying Vehicle 3,138,284 31,274 10,378 20,896 64% 41% 47% 75% 91%
Special Type of Vehicle 2,044,554 11,795 7,514 4,281 72% 37% 27% 134% 143%
Others 140,432 797 376 420 298% 224% 82% 364% 128%
Total 63,679,325 284,603 164,031 120,572 62% 51% 53% 76% 90%
Line of Business Year Combined Ratio
C.o.V Combined Ratio
Rate Level per 1000 Face Value
C.o.V Rate Level
Motor Vehicle
2010 97.25% 2.5% 13.72 45.0%
2011 96.25% 2.1% 13.12 41.8%
2012 97.69% 1.7% 11.80 40.5%
Non-compulsory 2010 90.06% 9.5% NA NA
2011 88.51% 7.4% NA NA
MTPL 2010 116.30% 15.7% NA NA
2011 116.49% 15.8% NA NA
Page 29 of 41
Table 19 Underwriting Summary of Motor Insurance by Company Segment, India
Year Sector Line of Business Net Loss Ratio Company Expense Ratio Estimated Combined Ratio
2009
Public
Motor Total 87.84% 28.76% 116.60%
Motor OD 61.33% 33.98% 95.31%
Motor TP-non pool 126.68% 21.78% 148.45%
Motor TP-pool 137.84% NA NA
Private
Motor Total 80.41% 23.24% 103.64%
Motor OD 69.74% 25.28% 95.02%
Motor TP-non pool 100.44% 16.21% 116.66%
Motor TP-pool 130.13% NA NA
2010
Public
Motor Total 111.10% 29.77% 140.88%
Motor OD 63.83% 34.06% 97.89%
Motor TP-non pool 127.17% 26.64% 153.81%
Motor TP-pool 210.84% NA NA
Private
Motor Total 94.47% 23.17% 117.64%
Motor OD 66.23% 24.47% 90.70%
Motor TP-non pool 102.55% 20.02% 122.57%
Motor TP-pool 205.47% NA NA
2011
Public
Motor Total 113.95% 25.03% 138.99%
Motor OD 61.82% 29.10% 90.92%
Motor TP-non pool 127.12% 20.78% 147.91%
Motor TP-pool 251.44% NA NA
Private
Motor Total 113.79% 20.89% 134.68%
Motor OD 69.78% 22.48% 92.26%
Motor TP-non pool 132.60% 20.45% 153.04%
Motor TP-pool 178.63% NA NA
Page 30 of 41
Catastrophe Exposure and Underinsurance
The expected loss caused by natural disasters per year is 0.7% of the GDP for China and 0.3% of the GDP for India, according to Lloyd’s Global Underinsurance Report7. However, for both countries, the financing of post-disaster relief mostly comes from government and donations.
China is having a public policy debate on how to cover the catastrophe exposure of commercial and residential properties. Currently there are very few requirements for acquiring insurance in China. According to Catlin8, historically, no more than 5% of the economic losses could be recovered from insurance in China; the sum insured against insurable property value in Beijing is estimated at less than 10%.
Residential Properties
The housing market is hot in China, but not for the related insurance products. Homeowner’s only counts for a tiny portion of the premium. Mortgage insurance on purchase of private residential property was no longer mandatory as of 2007, as most customers don’t realize the important role of this coverage.
By February 2013, metro Beijing had a population of 20.693 Million, with a per capita housing area of 29 square meters. Using CNY 19,500 per square meter (average transaction price of new and second hand housing in 2012) as an approximation, an average resident in Beijing has a total of CNY 565,500 equity and/or debt in housing as a homeowner, more than 15 times of the average annual income (CNY 36,469 in 2012). If a major earthquake or other catastrophic event occurs, it will create huge financial shock to individuals as well as solvency problems for banks which issue the mortgages.
Commercial Properties
In an interview,9 Dr. Guozhu Tuo, a professor at Capital University of Economics and Business in China, estimated that less than 10% of companies have bought commercial property insurance, even in developed regions like Guangdong and Zhejiang; on average about 6-7% of fixed assets are covered under insurance protection for large companies and an even lower percentage for small and medium-sized companies.
Another issue for commercial property insurance is that the contracts are written using book value by the prevailing underwriting basis instead of replacement value, which actually leads to underinsuring.
For insurance companies, the potential market size for commercial property is huge, but the competition is fierce and the premium rate has been decreasing over years, according to survey of market participants. Therefore sophisticated risk management practices including seeking proper reinsurance are essential for the insurers; otherwise a single catastrophic event in a metropolitan and/or industrial region would devastate the financial stability of the insurance industry.
7http://www.lloyds.com/~/media/Files/News%20and%20Insight/360%20Risk%20Insight/Global_Underinsurance_Report_311012.pdf 8 http://www.catlin.com/en/asiapacific/newsandviews/asia-pacific-newsletter/september-2013-asia-newsletter/natural-catastrophe-insurance-in-china 9 http://insurance.cnfol.com/130121/135,1517,14228006,00.shtml
Page 31 of 41
Data of personal or commercial property insurance in India cannot currently be obtained, but the policies are mostly written in metropolitan areas. In addition, most government properties operate without being insured.10
In 2013 non-life insurers in India presented a concept paper on catastrophe insurance to the National Disaster Management Authority (NDMA), highlighting the need for a pooling mechanism to deal with losses from catastrophic events. Though this paper is just an initial attempt, it is without a doubt that reinsurance will play an important role once the pool is built, as at least 60% to 65% of the risk would have to be reinsured according to an estimation of an insider11.
10 http://articles.economictimes.indiatimes.com/2012-06-23/news/32382206_1_third-party-motor-insurance-marsh-india-sanjay-kedia 11 http://www.business-standard.com/article/finance/no-catastrophe-insurance-cover-yet-113062500013_1.html
Page 32 of 41
Appendix 1: Data Sources and Procedures
Data Collection
Data quality is fundamental to the success of this project, as scarcity of data is always a concern in underdeveloped insurance markets like China and India. For example, the regulatory agency in India didn’t publish LOB level income statements until 2005, while data segmentation by LOB is essential to obtaining insights through analysis. A great amount of effort has been spent on data collection and cleaning to ensure the accuracy and consistency of the data and to supply more relevant details than global data providers. In addition, qualitative data has been collected to reflect dynamics and the most current trends in the market.
Quantitative Data Collection
Table 20 shows the sources of the quantitative data collected. As noted in Table 20, LOB level underwriting results are only reported by a few companies, limited to only the largest LOBs. More details are reported in Table 21 and Table 22 on the following page. Companies with incomplete underwriting details are excluded from industry and segment aggregated ratio calculations.
Table 20 Quantitative Data Sources
Country Data Category Data Content Details Available Sources
China
General Statistics Non-life Premium Company, all LOBs combined CIRC
GDP Country National Bureau of Statistics of China
Exposure Car Registration Province National Bureau of Statistics of China
Car Ownership Country Ministry of Public Security of China
Financials
Balance Sheet, Income Statement Company China Insurance Year Book
LOB Underwriting Results Company (some), LOB (some) Company
MTPL Underwriting Results Company (some) Insurance Association of China
India
General Statistics Non-life Premium Company, all LOBs combined IRDA
GDP Country IRDA
Exposure Car Registration Country Statistical Year Book of India
Car Ownership Country Statistical Year Book of India
Financials
Balance Sheet Company IRDA
Income Statement Company, LOB (some) IRDA Motor Insurance Underwriting Results Company (some), TP and OD Company
Motor Insurance Underwriting Results Industry, TP and OD Insurance Information Bureau, India
Page 33 of 41
Table 21 is a list of Chinese companies that currently report LOB exposure and underwriting results.
Table 21 Companies Reporting LOB Results: China
Segment Company
Large Domestic
PICC Property & Casualty Co. Ltd.
Ping An Property & Casualty Insurance Co. Ltd.
China Pacific Property Insurance Co. Ltd.
Medium Domestic
Alltrust Insurance Co. Ltd.
Bank of China Insurance Co. Ltd.
China Continent Property & Casualty Insurance Co. Ltd.
China Life Property & Casualty Insurance Co. Ltd.
Dubon Property & Casualty Insurance Co. Ltd.
Huatai Property Insurance Co. Ltd.
Minan Property & Casualty Insurance Co. Ltd.
Sinosafe General Insurance Co. Ltd.
Sunshine Property & Casualty Insurance Co. Ltd.
Taiping General Insurance Co. Ltd.
Tianping Auto Insurance Co. Ltd.
Yong An Insurance Co. Ltd.
Zheshang Property & Casualty Insurance Co. Ltd.
Specialty Anhua Agricultural Insurance Co. Ltd.
For India, motor vehicle insurance data is usually reported without distinguishing between TP and OD coverage. A few companies report them separately in their annual reports, as shown in Table 22.
Table 22 Companies Reporting TP and OD Results: India
Segment Company
Public
United India Insurance Co. Ltd
Oriental Insurance Co. Ltd.
New India Assurance Co. Ltd.
National Insurance Co. Ltd.
Private
Bajaj Allianz General Insurance Co. Ltd.
ICICI Lombard General Insurance Co. Ltd.
Reliance General Insurance Co. Ltd.
Royal Sundaram General Insurance Co. Ltd.
HDFC ERGO General Insurance Co. Ltd.
Cholamandalam MS General Insurance Co. Ltd.
Universal Sompo General Insurance Co. Ltd.
Page 34 of 41
Qualitative Data Collection
Qualitative data is collected by interviewing market practitioners and from industry report and news media. Risk Lighthouse had several conference calls with SCOR experts in underwriting, pricing and catastrophe modeling functions in the Asia-Pacific region. Industry reports and news media are noted in Appendix 2-Refences and footnotes.
Data Cleaning and Adjustments
1. Restated items of the prior year have been used in the database and analysis, except for the
most recent year’s data.
2. For China, the following adjustments have been made to data between 2002 and 2008 to ensure consistency:
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐿𝑜𝑠𝑠 𝑎𝑛𝑑 𝐿𝐴𝐸 𝑅𝑒𝑠𝑒𝑟𝑣𝑒 (𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑) = 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐿𝑜𝑠𝑠 𝑎𝑛𝑑 𝐿𝐴𝐸 𝑅𝑒𝑠𝑒𝑟𝑣𝑒 (𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙) × (1 + 2.5%)
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑈𝑛𝑒𝑎𝑟𝑛𝑒𝑑 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 𝑅𝑒𝑠𝑒𝑟𝑣𝑒 (𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑)
= 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑈𝑛𝑒𝑎𝑟𝑛𝑒𝑑 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 𝑅𝑒𝑠𝑒𝑟𝑣𝑒 (𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙) × (1 −𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝐶𝑜𝑠𝑡
𝑁𝑒𝑡 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 𝐸𝑎𝑟𝑛𝑒𝑑) × (1 + 3%)
𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝐶𝑜𝑠𝑡 = 𝐶𝑜𝑚𝑚𝑖𝑠𝑠𝑖𝑜𝑛 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 + 𝐵𝑢𝑠𝑖𝑛𝑒𝑠𝑠 𝑇𝑎𝑥 𝑎𝑛𝑑 𝑆𝑢𝑟𝑐ℎ𝑎𝑟𝑔𝑒𝑠+ 𝐼𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒 𝑃𝑟𝑜𝑡𝑒𝑐𝑡𝑖𝑜𝑛 𝐹𝑢𝑛𝑑 (0.8% 𝑜𝑓 𝑁𝑒𝑡 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 𝐸𝑎𝑟𝑛𝑒𝑑)+ 𝑅𝑒𝑔𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝐹𝑒𝑒 (0.15% 𝑜𝑓 𝑁𝑒𝑡 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 𝐸𝑎𝑟𝑛𝑒𝑑)+ 𝑃𝑜𝑙𝑖𝑐𝑦 𝐼𝑠𝑠𝑢𝑒 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 (1% 𝑜𝑓 𝑁𝑒𝑡 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 𝐸𝑎𝑟𝑛𝑒𝑑)+ 𝐶𝑜𝑚𝑚𝑖𝑠𝑠𝑖𝑜𝑛 𝑃𝑎𝑖𝑑 𝑡𝑜 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 (2% 𝑜𝑓 𝑁𝑒𝑡 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 𝐸𝑎𝑟𝑛𝑒𝑑)
3. Investment (and non-operating) net income is not directly reported; it is estimated by
𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑎𝑛𝑑 𝑁𝑜𝑛 − 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 = 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 − 𝑈𝑛𝑑𝑒𝑟𝑤𝑟𝑖𝑡𝑖𝑛𝑔 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
4. Underwriting results of motor vehicle non-compulsory coverage in China is calculated from total motor vehicle insurance and MTPL data. Therefore non-compulsory data is available only when both motor vehicle and MTPL data are reported.
5. For India, errors including unbalanced table and incorrect labeling in the original data sources have been identified and corrected during the database construction process. A few burry annual reports (only scanned copy is available) have been examined and double checked for accuracy.
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Segmentation
Companies are categorized according to their volume of gross written premium and their ownership structure (domestic or foreign, public or private). For details, please see Table 23, Table 24 and Table 25.
Table 23 Company Segmentation: China
Segment Company Long Name Gross Premium Written in Million CNY
Large Domestic
PICC Property & Casualty Co. Ltd. 173962
Ping An Property & Casualty Insurance Co. Ltd. 83435
China Pacific Property Insurance Co. Ltd. 61687
Medium Domestic
China United Property Insurance Co. Ltd. 20955
China Life Property & Casualty Insurance Co. Ltd. 16405
China Continent Property & Casualty Insurance Co. Ltd. 16285
Sunshine Property & Casualty Insurance Co. Ltd. 13322
Huatai Property Insurance Co. Ltd. 7914
Tianan Insurance Co. Ltd. 7820
Yong An Insurance Co. Ltd. 6545
Taiping General Insurance Co. Ltd. 5807
Alltrust Insurance Co. Ltd. 5286
Sinosafe General Insurance Co. Ltd. 4938
Tianping Auto Insurance Co. Ltd. 4023
Dubon Property & Casualty Insurance Co. Ltd. 3356
Bank of China Insurance Co. Ltd. 2928
Zheshang Property & Casualty Insurance Co. Ltd. 2552
Minan Property & Casualty Insurance Co. Ltd. 2081
Small Domestic
Chang An Property & Casualty Insurance Co. Ltd. 1822
Dazhong Insurance Co. Ltd. 1723
Ancheng Property & Casualty Insurance Co. Ltd. 1711
Zking Property & Casualty Insurance Co. Ltd. 1552
Bohai Property Insurance Co. Ltd. 1500
Dinghe Property Insurance Co. Ltd. 1226
Cinda Property & Casualty Insurance Co. Ltd. 1216
Yingda Taihe Property Insurance Co. Ltd. 659
China Coal Insurance Co. Ltd. 650
China Huanong Property & Casualty Insurance Co. Ltd. 244
Jintai Insurance Co. Ltd. 154
Taishan Property & Casualty Insurance Co. Ltd. 46
Urtrust Insurance Co. Ltd. 24
Anbang Property & Casualty Insurance Co. Ltd. 0
Changjiang Property & Casualty Insurance Co. Ltd. 0
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Table 24 Company Segmentation: China (continued)
Segment Company Long Name Gross Premium Written in Million CNY
Foreign
Generali China Insurance Co. Ltd. 3584
AIG Insurance Co. Ltd. China 1173
Allianz China General Insurance Co. Ltd. 1005
Mitsui Sumitomo Insurance (China) Co. Ltd. 896
Tokio Marine & Nichido Fire Insurance Co. (China) Ltd. 588
Sompo Japan Insurance (China) Co. Ltd. 523
Liberty Insurance Co. Ltd. 517
Cathay Insurance Co. Ltd. 497
Lloyd's Insurance Co. (China) Ltd. 409
Samsung Property & Casualty Insurance Co. (China) Ltd. 324
Zurich Insurance Co. (Beijing Branch) 312
Winterthur Insurance (Asia) Ltd. (Shanghai Branch) 297
Chubb Insurance (China) Co. Ltd. 206
Hyundai Insurance (China) Co. Ltd. 195
Sun Alliance Insurance (China) Ltd. 179
Groupama Insurance (China) Co. Ltd. 134
LIG Insurance (China) Co. Ltd. 80
Aioi Nissay Dowa Insurance (China) Co. Ltd. 66
Fubon Insurance Co. Ltd. 55
NIPPONKOA Insurance Co. (China) Ltd. 40
XL Insurance (China) Co. Ltd. 17
Specialty
China Export & Credit Insurance Corp. 10233
Anhua Agricultural Insurance Co. Ltd. 2635
Sunlight Agricultural Mutual Insurance Co. Ltd. 1692
Guoyuan Agricultural Insurance Co. Ltd. 1514
Anxin Agricultural Insurance Co. Ltd. 714
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Table 25 Company Segmentation: India
Segment Company
Public
National Insurance Co. Ltd.
New India Assurance Co. Ltd.
Oriental Insurance Co. Ltd.
United India Insurance Co. Ltd
Private
Bajaj Allianz General Insurance Co. Ltd.
Bharti AXA General Insurance Co. Ltd.
Cholamandalam MS General Insurance Co. Ltd.
Future Generali India Insurance Co. Ltd.
HDFC ERGO General Insurance Co. Ltd.
ICICI Lombard General Insurance Co. Ltd.
IFFCO Tokio General Insurance Co. Ltd.
L&T General Insurance Co. Ltd.
Raheja QBE General Insurance Co. Ltd.
Reliance General Insurance Co. Ltd.
Royal Sundaram General Insurance Co. Ltd.
SBI General Insurance Co. Ltd.
Shriram General Insurance Co. Ltd.
Tata AIG General Insurance Co. Ltd.
Universal Sompo General Insurance Co. Ltd.
Terminology and metric calculations
The following ratios are used in the report. Other metrics used in the analysis such as median and interquartile-range are self-explanatory.
𝐿𝑜𝑠𝑠 𝑅𝑎𝑡𝑖𝑜 =𝑁𝑒𝑡 𝐿𝑜𝑠𝑠 𝐼𝑛𝑐𝑢𝑟𝑟𝑒𝑑
𝑁𝑒𝑡 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 𝐸𝑎𝑟𝑛𝑒𝑑
𝐸𝑥𝑝𝑒𝑛𝑠𝑒 𝑅𝑎𝑡𝑖𝑜 =𝐸𝑥𝑝𝑒𝑛𝑠𝑒
𝐺𝑟𝑜𝑠𝑠 𝑊𝑟𝑖𝑡𝑡𝑒𝑛 𝑃𝑟𝑒𝑚𝑖𝑢𝑚
𝐶𝑜𝑚𝑏𝑖𝑛𝑒𝑑 𝑅𝑎𝑡𝑖𝑜 = 𝐿𝑜𝑠𝑠 𝑅𝑎𝑡𝑖𝑜 + 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 𝑅𝑎𝑡𝑖𝑜
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑜𝑚𝑏𝑖𝑛𝑒𝑑 𝑅𝑎𝑡𝑖𝑜 −𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 (𝑎𝑛𝑑 𝑁𝑜𝑛 − 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔)𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑁𝑒𝑡 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 𝐸𝑎𝑟𝑛𝑒𝑑
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Procedures Needed for Future Update
1. Collect data from the sources noted in Table 20. Usually the lag between end of calendar year
and publishing date is around a year.
2. Itemize the data according to the existing data format. Calculate or estimate items that cannot be directly obtained from financial statement, for example investment and non-operating net income, non-compulsory underwriting results etc. Double check when necessary.
3. Calculate basic metrics and risk indices at individual company, segment and industry level.
4. Prepare exhibits.
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Appendix 2: References AXCO: Insurance Market Report, China and India, Non-Life (P&C), 2013 CEBR and The Society of Lloyd’s: Lloyd’s Global Underinsurance Report, October 2012, http://www.lloyds.com/~/media/Files/News%20and%20Insight/360%20Risk%20Insight/Global_Underinsurance_Report_311012.pdf Deloitte Center for Financial Services: 2013 Property and Casualty Insurance Industry Outlook-Poised for sustained growth, but challenges remain, http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/FSI/US_FSI_P&C2013Outlook_010913.pdf Deloitte (China) Center for Financial Services: 2013 China Insurance Industry Outlook (in Chinese) http://www.deloitte.com/assets/Dcom-China/Local%20Assets/Documents/Industries/Financial%20services/cn(zh-cn)_fs_2013chinainsurancetrend_260313.pdf Munich Re Economic Research: Insurance Market Outlook Summary, May 2013, http://www.munichre.com/app_pages/www/@res/pdf/media_relations/press_releases/2013/2013-05-16-insurance-market-outlook_en.pdf
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Acknowledgements
This project is funded by the Insurance Risk and Finance Research Centre (IRFRC) at Nanyang Business School, Nanyang Technology University. The Risk Lighthouse team thanks the IRFRC for financial support and the following SCOR staff for their precious comments and suggestions (in alphabetic order by last name): Janice Cowley, Dr. Michel Dacorogna, Mayank Dubey, Santhana Gopalan, Rajive Kumaraswami, Sie Liang Lau, George Leung, Charles Ng and Wei Dong Yu.
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