Market developments, M&A activity, technological innovation and regulatory change are all factors in China’s market acceleration, according to reinsurance broker JLT Re

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The emergence of the China Banking and Insurance Regulatory Commission (CBIRC) as a new “super regulator” in China will be a driving force for the country’s accelerating re/insurance market, a report from JLT Re has said.

 The CBIRC was established on 8 April 2018, bringing Chinese banking and insurance supervisors under a single regulatory authority.

For the country’s insurance market, the second phase of the China Risk-Oriented Solvency System (C-ROSS) will be implemented under this new CBIRC authority.

“The Commission is specifically focused on limiting contagion, enhancing transparency, promoting long-term stability and curtailing unacceptable risk-taking across financial sectors,” said reinsurance broker JLT Re’s China Market Insight Report.

The broker’s report said this focus was “on display” when the CBIRC took over distressed insurer Anbang in February 2018.

“More recently, the Commission has stepped in to reduce financial leverage and impose tougher credit conditions across several sectors, particularly those most affected by rapidly rising debt levels,” the study continued.

JLT Re said it thought the CBIRC’s founding was a positive factor for China’s developing re/insurance market.

“This act of institutional reform is a clear sign of China’s intention to align fragmented regulations spanning an increasingly large and complex financial sector,” JLT Re said.

Jeremy Fox, JLT Re’s Asia Pacific regional CEO, said: “This report examines some of the more impactful regulatory changes in China, such as new asset-liability regulations and motor insurance pricing reform, alongside market developments, mergers and acquisitions (M&A) activity and technological innovation.

“All these point to a highly dynamic environment not only in China but also in Asia-Pacific and globally,” Fox added.

China’s new super regulator has already implemented some important changes for the country’s insurance sector, noted Ernest Eng, JLT Re’s head of analytics & strategic advisory for Asia.

“A drive for risk management, transparency, market discipline and overseas investments whilst simultaneously encouraging greater foreign direct investment (FDI) into China’s financial sector are all positives for the re/insurance industry,” said Eng.

China’s re/insurance market faces some challenges familiar globally, as well as others particular to itself, according to the reinsurance broker’s report.

The pace and magnitude of change in China is perhaps unlike anywhere else in the world, JLT Re noted, despite a slowing economy, debt deleveraging at state-owned firms, and an escalating trade war with the US.

The country’s insurance industry not only faces regulatory change but also greater demand for product digitalisation and an increasingly influential technology sector that is emerging as a crucial supplier of capital and innovation, JLT Re observed.

“While the Chinese insurance industry is currently on course to meet the government’s target of 5% of GDP by 2020 profitable growth will not be shared evenly across the market,” said Eng.

“Gaps in performance and access to capital between large and small insurers is expected to widen between the top tier of insurers and the rest of the market. In short, the industry can expect to operate in an increasingly complex and highly dynamic environment in the near to medium term,” he added.

Fox noted that the foundations for “a more mature and profitable market” in China could be coming to fruition, after years of continued uncertainty amid the growth opportunities.

Fox concluded: “The industry should stabilise and benefit as the CBIRC adopts an increasingly transparent and more prescriptive approach to rule-making whilst, at the same time, fostering greater access to overseas capital and expertise.”