The giants Swiss Re and Munich Re have already been granted licenses, while the China Insurance Regulatory Commission is now considering requests for licenses from other reinsurers in the United States and Europe, such as Employers Reinsurance Company.

Even more significant is the decision of Chinese authorities to push the giant state-owned monopoly, China Reinsurance Corporation, to restructure and prepare itself to face competition in the market.

Indeed, China Re will enjoy much less government protection in the future, and thus improve the conditions in the unequal playing field for foreign reinsurers.

The Chinese authorities have announced that China Re will be split up into four parts: China Property Reinsurance Co., China Life Reinsurance Co. and China Continent Property Insurance Co., with Beijing-based China Re acting as the holding company.

China Property Reinsurance Co. will take care of all non-life reinsurance business while the China Life Reinsurance Co. will focus on life reinsurance. The two reinsurance subsidiaries in life and non-life businesses will each have a registered capital of 800 million Yuan ($96.65 million).

The third company, China Continent Property Insurance Co., will handle the property insurance segment of China Re. It will have a registered capital of 100 million yuan ($12 million).

China Re General Manager Dai Fengju China Re announced in July that the company wants to transform itself into a shareholding group in three years by introducing foreign and domestic investors.

He told a news conference in Beijing that he would welcome any proposal by foreign and domestic private investors in setting up the specialized reinsurance firms provided.

The two reinsurance subsidiaries are each expected to sell up to 25 percent of their holdings to private investors, including foreign companies.

At the same time, China Continent Property Insurance Co. is expected to sell 50 percent of its shares to private companies, leaving just half of the company in the governments control. But China Re has not spelled out any timeframe for achieving its targets because that will depend on the extent of investor interest.

“We have tried to convince the government that it is necessary to ensure that all reinsurance risk is ceded domestically. But we need to restructure and prove our ability to handle the bulk of domestic reinsurance risks, even after foreign reinsurers begin operating in a big way,” a China Re official told National Underwriter.

The decision to split up China Re is the culmination of a process that began in late January when the State Council approved its plans for reforms.

China Re had a premium income of 19.18 billion yuan ($2.31 billion) in 2002. About 94 percent if its revenue comes from obligatory reinsurance business. (All insurers in China are currently expected to cede 20 percent of their reinsured volume to China Re.)

However, China has committed to the World Trade Organization that it will reduce obligatory reinsurance by 5 percent every year starting this year.

China Re has no alternative but to restructure and work hard to get business, because the good old days of getting obligatory business with no marketing effort are on the way out, market sources said.

“As the statutory reinsurance will disappear in five years, domestic insurers may rely on foreign reinsurers initially,” said Yuan Li, deputy director general of the Policy and Legal Department of the China Insurance Regulatory Commission, during a meeting of experts that the CIRC convened in Suzhou city in June 2002.

“However, eventually, reinsurance will be ceded to domestic reinsurance companies as they grow,” said Mr. Li.

“To develop the domestic reinsurance market, the CIRC intends to allow foreign companies to run reinsurance business in China and encourage domestic companies to establish reinsurance companies, while strengthening the supervision of ceding companies,” he said.

Munich Re recently announced it has become the first international reinsurer to receive a nationwide operating license in China. This will pave the way for the company, which has had business connections with China since 1956, to participate in domestic reinsurance business in the local currency, the yuan.

“Munich Re will now be in a perfect position to benefit from its long-standing network of strategic relationships with the Chinese insurance industry by cooperating in all life, health and non-life business lines,” the company said in a statement. It has offices in Beijing, Shanghai and Hong Kong.

Zurich-based Swiss Re has been allowed to open a branch in China, where it has plans to develop both property and casualty and life reinsurance business. The company said it is deciding whether to open an office in Beijing or Shanghai, while trying to persuade the regulator to grant it a license to operate in several cities.

Fiercely competing for a slice of the cake is Lloyds of London. Its application for license got a push during the July visit of British Prime Minister Tony Blair to China.

“We have made a lot of progress in the last couple of days, and Blair's visit certainly helped,” said James Sutherland, head of strategy and development at Lloyds headquarters in London.

One of the problems being faced is a regulatory requirement that expects a foreign player to operate as a single organization, he said. “Lloyds is a marketplace for reinsurance made up of a number of businesses, rather than a single company operating under a common platform. This puts us at a disadvantage in terms of automatic acceptance to the country,” Mr. Sutherland explained.

Also waiting in the wings for a license is the Employers Reinsurance Corporation, which formally applied for a full property and casualty insurance operating license from the regulator last year.

Further, market sources expect Chubb Group to shortly throw its hat into the reinsurance licensing ring.

At present, Chubb has a general insurance license in China, which allows the company to sell property and casualty insurance only to foreign-invested enterprises in the greater Shanghai area. This license also allows it to provide limited amounts of reinsurance, related to the dollar-denominated direct insurance it conducts for foreign companies in China.

Chubb recently partnered with Beijing-based Ping An Insurance Co. to launch the first directors and officers liability product for the China market. In this joint effort, Chubb will also provide PAIC with reinsurance for this line of business.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 1, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.