Regulatory review to propel reinsurance growth in China: GlobalData

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Data and analytics firm GlobalData predicts the Chinese reinsurance market to grow at a compound annual growth rate (CAGR) of 6.8% from 2019 to 2024, based on proposed revisions to its reinsurance regulatory regime .

The China Banking and Insurance Regulatory Commission (CBIRC) has proposed new rules aimed at strengthening the risk management framework of the reinsurance business and contributing to the development of the industry.

GlobalData analysts believe the changes will drive growth in the local reinsurance market and contribute to the performance of the P&C insurance industry.

“China offers a lucrative reinsurance market for local and foreign reinsurers. The proposed regulations aim to control loopholes that can lead to tax evasion, profit shifting and high exposure to foreign reinsurance, ”Ashish Raj, Insurance Analyst at GlobalData.

The CBIRC also encourages foreign reinsurers to establish offices in China. Currently, 13 reinsurers operate in the country, including seven foreign reinsurers.

Of these, Korea Re and XL Insurance (China) Company Ltd, a subsidiary of AXA, were granted operating licenses in 2019 and 2020 respectively, while few others are pending approval.

The proposed regulations would allow an eligible insurer to establish an independent reinsurance service. In addition, the CBIRC has allowed onshore reinsurers to increase their capital limits, which should increase their reinsurance capacity.

To control and monitor overseas cessions, CRIBC is considering arrangements to regulate the concentration of reinsurance activities, exposure to reinsurance overseas risks and liquidity management.

The regulation requires insurers to report details on the objective of the reinsurance placement, retention and reinsurance policy, risk management and control mechanisms to ensure that the placement complies with regulatory requirements.

Raj concluded, “The local reinsurance market in China is expected to grow due to a favorable regulatory environment as the new revisions aim to increase local reinsurance capacity. “

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