25 February 2020
Pension insurance is expected to become a major growth engine for the industry. Photo: Bloomberg
Pension insurance is expected to become a major growth engine for the industry. Photo: Bloomberg

Insurance boom seen as Beijing backs industry upgrade

China’s insurance industry is expected to see a boom in the next few years after the central government gave its full blessing for the modernization of the sector, analysts said.

With Beijing’s support, insurance firms will develop new businesses, including pension, accident and disaster insurance as well as reinsurance, while setting up funds and asset management firms to diversify its investment channels, the analysts said.

The industry should speed up its development into a modern insurance service by 2020, become an important vehicle to raise the protection standards for individuals and businesses, and boost the quality of risk and wealth management in the nation, the State Council said in a statement on Wednesday.

Insurance companies are encouraged to set up real estate, infrastructure and pension asset management firms and will be allowed to set up private equity funds including mezzanine funds, buyout funds and real estate funds. The country will also push forward a pilot program for insurance companies to set up fund management companies, the cabinet said.

“It is an important document for the industry as it has upgraded the commercial insurance industry to ‘an important pillar of social mechanism’ from ‘an important part of social mechanism’ back in 2006,” BNP Paribas analyst Dominic Chan told EJ Insight.

“The whole concept of modern insurance service means a well-rounded one,” said Erin Lee, an insurance analyst at Yuanta Securities Investment Trust Co. Ltd. “The government wants insurance companies to diversify their business so that they will not rely on a single income source, and so they will be able to spread out risks.” 

In particular, pension insurance is expected to become a major growth engine for the industry, Lee said. The deferred tax policy, which is expected to be introduced by 2015, will also be a major boost for the sector.

Lee expects big companies like Ping An Insurance (Group) Company of China Ltd. (02318.HK), China Pacific Insurance (Group) Co. Ltd. (02601.HK, 601601.CN), and China Life Insurance Co. Ltd. (02628.HK, 601628.CN) to see more significant gains.

“We can also expect new moves from New China Life Insurance Co. Ltd. (01336.HK, 601336.CN) as the company is relying heavily on life insurance, and pension insurance, which is also part of life insurance, will benefit from the new boom,” she said.

“It is obvious that the government would like to see more types of insurance operating in a company as [the cabinet statement] covers quite a few types such as accident, reinsurance and agriculture, all of which are expected to boost property insurance.”

Because of the uneven development of the industry, property insurance is not yet as mature as life insurance, Lee said.

The industry should enlarge the coverage of agriculture to improve the level of protection of firms in the sector. It should also proactively develop small and micro loans for the agriculture industry, while providing forest insurance and pension insurance for farmers, the cabinet said.

The State Council has set specific targets for the industry. By 2020, premium income must account for 5 percent of the country’s gross domestic product, and reach 3,5000 yuan per capita.

“As the current levels of depth and density are still low, it is estimated that the industry have to achieve 30 percent premium income growth each year in the coming years to achieve those targets,” Lee said, adding that it will also depend on the GDP growth in the coming years.

Premium income has grown 26 percent in the first half, surging from a 8 percent growth last year and 4 percent in 2012, according to Yuanta’s data.

Insurance stocks surged on Wednesday after the document was published. New China Life increased 1.76 percent to close at HK$28.85 (US$3.7) while China Life Insurance climbed 1.74 percent to HK$23.35. China Pacific Insurance jumped 2.02 percent to HK$30.25 and Ping An Insurance was up 1.45 percent to close at HK$66.30.

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Ayishah Ma is a financial reporter on Greater China issues.