中國財產保險市場的研究 - 政大學術集成

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(1)國立政治大學亞太研究英語碩士學位學程 International Master's Program in Asia-Pacific Studies College of Social Sciences National Chengchi University. 碩士論文 Master's Thesis 治. 立. 政. 大. ‧ 國. 學 ‧. 中國財產保險市場的研究. n. al. er. io. sit. y. Nat. The Study of Property Insurance in China. Ch. engchi. i n U. v. Student: Ching-Hsiu Hsu 徐菁秀 Advisor: Dr. Jen-Te Hwang 黃仁德博士. 中華民國一百年三月 March 2011. DOI:10.6814/NCCU202001786.

(2) 中國財產保險市場的研究 The Study of Property Insurance in China. 研究生：徐菁秀指導教授：黃仁德博士. 立. Student: Ching-Hsiu Hsu Advisor: Dr. Jen-Te Hwang. 政治大國立政治大學. ‧ 國. 學. 亞太研究英語碩士學位學程. ‧. 碩士論文. er. io. sit. y. Nat. al. n. v C hA Thesis U n i engchi Submitted to International Master’s Program in Asia-Pacific Studies National Chengchi University In partial fulfillment of the Requirement For the degree of Master in China Studies. 中華民國一百年三月 March 2011. DOI:10.6814/NCCU202001786.

(3) ACKNOWLEDGEMENTS Upton the completion of the thesis, I would like to thank my advisor, Dr. Jen-Te Hwang for his invaluable guidance, instructive advice and editing comments. Also, I am grateful to those who have provided me support and encouragement during the course of my study.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. i. DOI:10.6814/NCCU202001786.

(4) 摘要本文從中國現有經濟發展，以及其他國家市場比較下，來分析財產保險商品和市場的發展，解析政府政策和監督管理力道，評估保險參與者之間的競爭，藉此來了解中國目前的財產保險市場。中國加入 WTO 已近十年，經濟的快速發展，使財產保險市場規模不斷擴大。中國財產保險市場仍具有相當發展潛力，因此深入研究這一課題有助於進入市場的評估。本文將分析中國現有財產保險市場及其投資環境的利弊，同時預測未來發展。投資者或參與者可以藉由本文瞭解整個財產保險市場情況。特別是 2010 年. 政治大者可藉此檢視和決定其於中國大陸財產保險市場的經營策略和步驟。立. 兩岸經濟關係透過海峽兩岸經濟合作架構協議有新的突破，臺灣保險公司或投資. ‧ 國. 學. 關鍵詞：財產保險、中國大陸. ‧. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. ii. DOI:10.6814/NCCU202001786.

(5) Abstract This paper seeks to understand the current Chinese property insurance market by surveying the economic development in China, comparing with other countries’ markets, identifying the property insurance development toward the products and markets, clarifying the governmental policy and supervision from the legal requirements, and assessing the competition between insurance participants. It is nearly ten years since China entered WTO, and the rapid economic developments have brought about the correspondent scale of property insurance market. It is believed that there’s still huge potentiality in China’s property insurance market and therefore studying the topic deeply can help have access to the market.. 政治大 property insurance market and investing environment in China and meanwhile predict 立 the future development. It can be a useful reference and able to let the investors or. This thesis would analyze the advantages and disadvantages of the existing. ‧ 國. 學. participants understand the whole circumstances before making any decisions. In particular, a new breakthrough, the Economic Cooperation Framework Agreement. ‧. (ECFA), has been made in economic relations across the Taiwan Strait in 2010, and it. y. Nat. is a good time for Taiwanese insurance companies or investors to overlook the. er. io. sit. Chinese property insurance market and afterward decide the step and strategy.. n. al. i n C Key words：Property Insurance, China hengchi U. v. iii. DOI:10.6814/NCCU202001786.

(6) CONTENTS Chapter 1 Introduction ............................................................................................1 1.1 Motivation ........................................................................................................... 1 1.2 Purpose ................................................................................................................ 2 1.3 Research Framework .......................................................................................... 3 1.4 Research Method ................................................................................................ 4 Chapter 2 The Overview of China’s Insurance Market..........................................5 2.1 Historical Background ........................................................................................ 5 2.2 China’s entry into the WTO ............................................................................... 7 2.3 The Comparison between Life and Property Insurance Market ...................... 9. 政治大 2.3.2 The Insurance Participants ............................................................................ 11 立 2.3.3 The Unbalanced Development ....................................................................... 14 2.3.1 The Insurance Market Scale ............................................................................ 9. ‧ 國. 學. 2.4 The Legal Framework ...................................................................................... 15 2.5 Summary ........................................................................................................... 17. ‧. Chapter 3 International Property Insurance Market ........................................... 19. y. Nat. 3.1 The World Property Insurance Market ........................................................... 19. sit. 3.1.1 The Overview of the World Property Insurance Market ............................. 20. er. io. 3.1.2 The Market Scales in the USA, UK, Japan and Taiwan ............................... 23. al. iv n C 3.1.4 The Outlook of the World Insurance Market................................ 26 h eProperty ngchi U 3.2 The Property Insurance Market in Taiwan ..................................................... 27 n. 3.1.3 The Losses and Profitability of the World Property Insurance Market ...... 25. 3.2.1 The Current Situation in Taiwan’s Property Insurance Market .................. 28 3.2.2 The Development after ECFA........................................................................ 29 3.3 Summary ........................................................................................................... 31 Chapter 4 The Development of Property Insurance Market in China ................. 33 4.1 China’s Property Insurance Market ................................................................ 33 4.2 China’s Property Insurance Products .............................................................. 36 4.2.1 Motor Insurance Products ............................................................................. 37 4.2.2 Property Insurance Products ......................................................................... 39 4.2.3 Liability Insurance Products ......................................................................... 40 4.2.4 Microinsurance Products ............................................................................... 43 iv. DOI:10.6814/NCCU202001786.

(7) 4.3 Property Insurance Marketing Channels ........................................................ 44 4.4 Reinsurance Market ......................................................................................... 46 4.5 Foreign Insurance Companies in China ........................................................... 48 4.6 The Competitiveness and Potentiality in China’s Property Insurance Market ................................................................................................................................. 51 4.6.1 The Arguments about Property Insurance Market ...................................... 51 4.6.2 The Assessment of Competitiveness and Potentiality in Property Insurance Business ................................................................................................................... 53 4.6.3 The Prospect of China’s Property Insurance Market ................................... 58 4.7 Summary ........................................................................................................... 60 Chapter 5 Insurance Regulations in China ........................................................... 62 5.1 The Regulation of Insurance Investment in China .......................................... 62. 政治大. 5.2 The Regulatory Development Specific to China .............................................. 64. 立. 5.3 Summary ........................................................................................................... 65. ‧ 國. 學. Chapter 6 Conclusions ........................................................................................... 66 6.1 Research Conclusions ....................................................................................... 66. ‧. 6.2 Recommendations ............................................................................................. 67 Reference ................................................................................................................ 70. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. v. DOI:10.6814/NCCU202001786.

(8) LIST OF TABLES Table 2-1: The Insurance Premium, Density and Penetration of China─2009 ... 10 Table 2-2: The Volume of Insurance Firms in China─2010................................. 11 Table 2-3: The Market Share of Life Insurance Companies in China─2010 ...... 12 Table 2-4: The Market Share of Property Insurance Companies in China─ June 2010 ......................................................................................................................... 12 Table 2-5: The Comparison regarding the Insurance Market Share between Chinese Companies and Foreign Companies─2004-2010.................................... 13 Table 2-6: The Top Ten Areas of Insurance Premium Income in China─2009 ... 14. 治政大 in Non-life Business─ Table 3-2: Premium Volume by Region and Organization 立 2009 ......................................................................................................................... 22 Table 3-1: Premium Volume by Region and Organization─2009 ........................ 21. ‧ 國. 學. Table 3-3: Macroeconomic Indicators and Non-life Premium Volume by Region ─2009 ..................................................................................................................... 24. ‧. Table 3-4: Insurance Penetration and Insurance Density by Region─2009 ........ 24. sit. y. Nat. Table 3-5: Insurance Penetration and Insurance Density in Taiwan and China─ 2009 ......................................................................................................................... 27. io. n. al. er. Table 3-6: The Volume of Insurance Firms in Taiwan─2010............................... 28. i n U. v. Table 4-1: Market Shares of All Property Insurance Companies in China.......... 35. Ch. engchi. Table 4-2: The Premium Income and Market Share of China’s Main Property Insurance Products─2004 -2006 ........................................................................... 37. vi. DOI:10.6814/NCCU202001786.

(9) Chapter 1 Introduction Before the Chinese government began its reform and open policy; it was not necessary to operate the Chinese insurance market just because almost everything was under the coverage of the Chinese government at that time. However, in 1980, the People’s Insurance Company of China (PICC) resumed business in the domestic market and the property insurance was the major business. In 1995, the Insurance of Law took effect on October 1st and it was also the first specialized law for insurance. In 2001, China officially joined the WTO. Based on the Chinese government’s promises, China would open the market for life insurance, property insurance, reinsurance, and insurance brokerage progressively and would withdraw almost all restrictions on the permission and business range in the subsequent three to five years.. 政治大. Moreover, in 2003, PICC Property & Casualty became the first Mainland Chinese. 立. Insurance Company to be listed on the Hong Kong Stock Exchange Market and in the. ‧ 國. 學. same year China Life Insurance Co., Ltd. got its stocks listed on the New York Stock Exchange Market. After that, Chinese insurance kept developing in high speed and in. ‧. 2009 the premium income in Chinese insurance market was over 1113 billion RMB. The insurance market can be divided into life insurance and non-life insurance;. sit. y. Nat. this paper will only focus on non-life insurance, especially the insurance products. io. er. related to property. In Chapter 2 of this paper, the overview of China’s insurance market will be provided. Chapter 3 looks into the international property insurance. n. al. i n U. v. market and also the market in Taiwan will be analyzed. Chapter 4 describes and. Ch. engchi. analyzes the current property insurance market in China. Next, Chapter 5 examines the property insurance policy, official supervision and legal requirements in China. Moreover, the competitiveness and potentiality in China’s property insurance market will be assessed in Chapter 6. Finally, Chapter 7 will make the conclusions and suggestions.. 1.1 Motivation It is nearly ten years since China entered WTO, and the rapid economic developments have brought about the correspondent scale of property insurance market. It is believed that there’s still huge potentiality in China’s property insurance market and therefore studying the topic deeply can help have access to the market. 1. DOI:10.6814/NCCU202001786.

(10) There are some reasons why this paper only talks mainly about the property insurance market instead of life insurance market. First of all, in China, life insurance companies provide life, accident, healthy and annuity insurance. On the contrary, property insurance companies can provide auto, cargo, marine, aviation, property, liability, trade credit, satellite, energy, agriculture insurance and so on. In particular, after the modification of Insurance Law in 2003, property insurance companies could provide short-term health insurance and accident insurance. In other words, many kinds of property insurance products can be chosen and the market is changeful and with diversity. Next, the property insurance property is usually related with the development of national infrastructure and types and characteristics of industries. The insurers have to put more attention on underwriting, claims and risk management. It can be more. 政治大. consistent with the insurance purpose of protecting the financial well-being of an. 立. individual, company or other entity in the case of unexpected loss and compensation. ‧ 國. 學. for the practical insurant with losses.. Moreover, compared with the requirements of joint ventures for life insurance. ‧. companies, foreign property insurance companies could set up branches directly and operate without limit to area and scope. Foreign investors can control the whole. sit. y. Nat. company and run the business on their own way without the intervention of the other. io. er. joint-venture partners. Under consideration of business management, the property insurance market can draw more attention from foreign investors.. n. al. Ch. i n U. v. Finally, the insurers can focus on the internal professional management, enhance. engchi. the insurance knowledge of the sales persons and improve the service. This is because the insured or insurant can be the enterprises, which may need more professional service and risk managing recommendations from the insurers. It is more likely for the property insurance companies to avoid the credit issues of the individual agents and the low-price or cutthroat competition.. 1.2 Purpose This paper seeks to understand the current Chinese property insurance market by surveying the economic development in China, comparing with other countries’ markets, identifying the property insurance companies’ managing strategies toward the products and markets, clarifying the governmental policy and supervision from the 2. DOI:10.6814/NCCU202001786.

(11) legal requirements, and assessing the competition between insurance participants. In other words, this thesis would analyze the advantages and disadvantages of the existing property insurance market and investing environment in China and meanwhile predict the future development. It can be a useful reference and able to let the investors or participants understand the whole circumstances before making any decisions. In particular, a new breakthrough, the Economic Cooperation Framework Agreement (ECFA), has been made in economic relations across the Taiwan Strait in 2010, and it is a good time for Taiwanese insurance companies or investors to overlook the Chinese property insurance market and afterward decide the step and strategy.. 政治大 This study’s objective is to examine China’s current property insurance market 立 and the potentiality for the coming investors. Therefore the related data should be 1.3 Research Framework. ‧ 國. 學. offered, compared and assessed in different aspects, such as the existing insurance participants, the kinds of insurance products, the capital management, the policy,. ‧. regulations and requirements of the government, and meanwhile it is important to see. y. Nat. or learn some experience from the international property insurance market. Moreover,. al. er. io. participants or investors to know more about the market.. sit. the evaluation of the competitiveness and the potentiality can help the coming. n. iv n C these following points to evaluate the h current e n g situation c h i Uand provide suggestions. First,. The aim of this thesis is to consider several research questions and will follow. is it unavoidably for investors, especially foreign investors, to take part in the Chinese insurance market continuously? For this part, we need to know what happens in the. existing insurance market, especially the property insurance market. However, it is necessary to have a first look at the current international property insurance market; this paper will take some examples from the USA, UK, Japan and Taiwan to see the relations between economic development and property insurance market. It can help us to predict the market potentiality in China. After the understanding of Chinese and international property insurance market, we need to know what the policy and strategies of Chinese government to manage the property insurance market are. Furthermore, this paper will assess the competitiveness between insurance participants to see if it is a niche market for investors. Meanwhile, 3. DOI:10.6814/NCCU202001786.

(12) the insurance products, the management of investing capital, income and benefit will be discussed as well. Also, it is very important for investors to know the exercise of insurance law and consider the intervention from Chinese government while entering the market. At last, some recommendations will be presented. This paper targets to prove that after China entered the WTO, even there have been already many property insurance participants joining the market, for investors, it is believed Chinese market can still be operated and with good performance in the future.. 1.4 Research Method The research for this paper will rely on the collection of second-hand sources and. 治政大 from public information newspapers and official statistics, which primarily come 立 conducted by China Insurance Regulatory Commission. The different official or will be conducted through the review of second-hand academic journals, books,. ‧ 國. 學. research data will be compared to the information from the international insurance market and reinsurance companies with the purpose of checking the reliability and. ‧. validity.. Besides, this paper gives an overview of China’s property insurance market. y. Nat. sit. along with the analysis of China’s economic growth. It will provide an insight into the. er. io. market size and growth in insurance premiums. Insurance premiums are discussed in. al. iv n C premium income, gross domestic hen gchi U. n. terms of non-life segments and the density and penetration levels. Therefore, the information regarding the. product (GDP),. population and other data related with insurance density and penetration in different areas will be compared and used to understand the potentiality of the property insurance in China. Moreover, the aforementioned information will be compared to the similar scaled countries so that we can predict if China’s property insurance market will follow the similar model or route. Some countries’ property insurance markets will be assessed in order to understand the international insurance environment. The paper also draws attention to the regulatory environment in which insurance companies operate and highlights the key characteristics of sound risk management. By combing official data integration and analysis capabilities with the relevant findings, the future growth of the Chinese property insurance industry can be predicted. 4. DOI:10.6814/NCCU202001786.

(13) Chapter 2 The Overview of China’s Insurance Market China, with a population of more than 1.3 billion is potentially going to be the largest insurance market in the world. The Chinese insurance has been underdeveloped throughout recent history. Since its economic reform, China has begun to increasingly reduce direct social security protection and insurance has become essential to numerous citizens who find themselves without the government’s social security coverage. Over the past decade, the Chinese insurance industry has undergone an evolution as it opened up in stages to foreign competition and develops. 治政 In the end of 2010, China has endorsed the 12 大 five-year economic and social 立 development plan that covers the years 2011 to 2015. China has made strong inroads a diversified financial segment.. th. ‧ 國. 學. in terms of industrialization, and additionally the increase in GDP per capita has given China’s internal demand market much more potential and fourth. With Chinese. ‧. improved income, they can increase their consumption without having to worry about the consequences, such as property insurance, health insurance, retirement, and other. sit. y. Nat. such topics.. er. io. In the chapter, we will briefly state the historical background and describe the. al. development and impact after China’s entry into the WTO. In addition, in order to. n. iv n C understand the difference betweenhlife insurance market e n g c h i U and property insurance market, there will be comparisons from different aspects, such as insurance market scale, insurance participants, and unbalanced development. Finally, the legal framework will be discussed with the purpose of understanding the policy, official supervision.. 2.1 Historical Background The opening of China to the West in the early years of the 20th century provided a variety of new business opportunities and in 1919, the young C.V. Starr, an American, who founded an insurance agent's office in Shanghai. In the beginning, Starr's company, American Asiatic Underwriters (AAU), served as a local representative for foreign insurers and AAU initially dealt in fire and marine 5. DOI:10.6814/NCCU202001786.

(14) insurance policies. In the early 1920s, Starr established a new company, Asia Life Insurance Company, which became the first to market life insurance products to the Chinese.1 After that, China boasted more than hundred insurance companies until 1949 and following the revolution, the Mao government set up the People's Insurance Company of China (PICC), which took over all insurance interests on the mainland. 2 However, the Chinese government, in its effort to build up its regime, decided that insurance was unnecessary in a state where the government was intended to provide for all social welfare for its citizens. In 1959, as a result, all domestic insurance business was ended. Following the reform, PICC was converted into a department of the government's central bank. In the 1980s, economic reforms launched under Deng Xiaoping paved the way to. 政治大. a rebuild the China's insurance market. In 1979, the People's Insurance Company of. 立. China was separated from the central bank and reestablished as an independently but. ‧ 國. 學. state-controlled company. In that year, PICC started to provide general insurance policies, such as property insurance products. In 1982, PICC began offering life. ‧. insurance policies, and at that time the targeting insurants were the small but increasing numbers of middle-class and government officials. PICC with. y. sit. io. er. 1980s.. Nat. authorization maintained its monopoly on the Chinese insurance market into the late In 1984, the State Council formally separated the state-run People’s Insurance. n. al. Ch. i n U. v. Company of China Group (PICC) from the People's Bank of China (PBOC) and. engchi. offered standard insurance products such as life, property and reinsurance services. In 1988, however, the company’s monopoly was abolished. Licenses were granted to the company’s competitors, including Ping An and China Pacific. American Insurance Group, which, in 1992, became the first foreign company to be granted a license to operate a self-standing business in China; the arrival of AIG introduced a new tied-agency system into the market, encouraging the development of branch networks. Nevertheless, PICC continued the apparent insurance champion on the mainland, with 1. The company was built quickly into a leading insurance provider not only across the Chinese mainland, but also throughout the Asian region. Starr's company eventually evolved into American Insurance Group. 2 At first the PICC monopoly continued to run its different insurance services and by 1952, PICC represented a national network of 1,300 branches and 3,000 agency outlets. However, since the reform of socialism started in 1953, the China’s insurance business decreased gradually. 6. DOI:10.6814/NCCU202001786.

(15) a strong national support. The Chinese government began a wider opening of the country's insurance market in the early 1990s. By the end of the decade, the government had granted licenses to a total of 16 companies. In 1998, the Chinese government shifted supervision of the country's rising insurance market to a new body, the China Insurance Regulatory Commission (CIRC). Under new rules, insurance companies were forbidden from operating in both the non-life and life insurance markets. As a result, PICC Group was broken up into its four primary components: PICC, China Re, China Insurance, and China Life. All four companies remained controlled by the Chinese state.. 2.2 China’s entry into the WTO. 治政 In 2001, China officially joined the World Trade大 Organization (WTO). Based 立 on the Chinese government’s promises, China would open the insurance market step 3. ‧ 國. 學. by step and would withdraw almost all limitations on the access and business scope in the subsequent three to five years. The Chinese insurance market gradually became. ‧. one part of the world insurance and its influence was growing progressively. Conversely, before entering WTO, China's insurance market is characterized by. y. Nat. sit. its small size, a restricted range of insurance products, fairly high costs, short of. er. io. Chinese consumer education about the function of insurance, and a lack of a sound. al. iv n C development of the insurance industry h e nis gthatc hChina's i U immature financial markets hamper investment instruments for insurance premiums. A second element is China's n. legal environment, especially in the region of enforcement. Another constraint to the. memories of its pre-1949 experience of foreign control and command of China's insurance industry (Allison, 2001). After China achieved an agreement with the WTO in 2001, the commitments in the part of market access are significant. The most influential change, nevertheless, is expected to take place in the service segment, which has fundamentally been closed to foreign competition. China has promised to release essential service markets to 3. For China, WTO membership will mark the end of the selective “open door” policy it has pursued for 20 years. The liberalizations will lead to an important reallocation of resources across sectors, which will entail high economic and social costs, but which China expects will benefit growth in the medium term. Indeed, WTO membership appears as a means of re-launching reforms that are necessary for the modernization of the Chinese economy. See http://www.cepii.fr/anglaisgraph/publications/lettre/summary/2000/let189ang.htm 7. DOI:10.6814/NCCU202001786.

(16) foreign service-providers. From nearly no access in the 1990s, foreign interests will be able to launch wholly owned subsidiaries and drive without important limitations. For the establishment of models following China's entry to the WTO, foreign non-life insurers may set up their branches or joint ventures in China, and a joint venture with foreign equity could be 51 per cent. Within two years of China's accession, wholly foreign-owned subsidiaries of life insurers will be permitted with no limitation on business models. Foreign life insurers can set up joint ventures in China but foreign equity should be no more than 50 per cent. Within five years of accession, wholly foreign-owned subsidiaries for life insurers could be set up.4 However, according to the article of PRC Administration of Foreign-invested Insurance Companies Regulations Implementing Rules, “Where a foreign insurance company and a Chinese company or enterprise establish a joint venture insurance. 政治大. company within the territory of China to engage in personal insurance business (Joint. 立. Venture Life Insurance Company), the proportion of foreign investment shall not. ‧ 國. 學. exceed 50% of the total share capital of the company.5 Consequently, until 2010, there is no wholly foreign-owned life insurance company set up.. ‧. The geographic constraint for these foreign companies will be eliminated within three years of China becoming a member of WTO. Business limitation will be. sit. y. Nat. abolished and business licenses will be issued to foreign insurers with no quantitative. io. er. restrictions upon China's entry to the WTO. Besides, qualifications for setting up a foreign insurance company are as follows: the investor shall be a foreign insurance. n. al. Ch. i n U. v. company whose nation has more than 30 years' experience as a WTO member. It shall. engchi. have a representative office for two consecutive years in China. And it shall have total assets of more than US$5 billion at the end of the year prior to application. WTO accession offers lots of business opportunities for domestic and foreign counterparts, and the critical task for competitors is exploring and expanding the market with huge potentiality. Experts believe that China, with a giant population and the projected reform of its social welfare system, will develop into the largest potential insurance market in the world. As of October 2009, the CIRC said there were 52 foreign insurers coming from 15 countries, with 277 operational institutions in China. Compared to other developed countries, the quantities of insurance 4. The news was published from Chinese official website. See http://www.china.org.cn/english/2001/Nov/22559.htm 5 The rules were promulgated by the China Insurance Regulatory Commission on May 13 2004 and effective as of June 15 2004. 8. DOI:10.6814/NCCU202001786.

(17) companies, the Chinese insurance industry is only in its infancy, but there are tremendous growth opportunities, the likes of which simply do not exist in more mature economies (Benzinga, 2010). After joining WTO, the need for insurance in China is expanding not owing to the increasing competition but also owing to the rapid economic growth and increased income. Reform systems have presented a large foundation for the development of commercial insurance. For foreign investors, it is important to understand what the advantages and disadvantages of foreign insurance companies’ participation are and how to cope with deregulation and liberalization. However, until now the Chinese insurance environment and playing field have changed a lot, but for some existing or future foreign insurers and foreign strategic partners with capital concerns, this change still may not be understandable enough for them to be familiar with the market wholly.. 立. 政治大. ‧. ‧ 國. Market. 學. 2.3 The Comparison between Life and Property Insurance In response to quick developments in the insurance market, the National People’s. y. Nat. Congress (NPC) proclaimed the PRC Insurance Law in 1995, which set forth the. sit. framework for reorganizing and rationalizing the PRC insurance industry. One of the. er. io. most significant clauses of the 1995 PRC Insurance Law was to categorize insurance. al. n. iv n C U health insurance). h elife, insurance) and life insurance (including n gaccident c h i and. into property and casualty insurance (including property, casualty, liability and credit For the reason that many firms were making up losses in their life insurance. business by borrowing from their property insurance business, the CIRC announced that insurance companies could no longer manage both (Allison, 2001). A single entity was only permitted to provide one of the two services but the 2002 amendment of Insurance Law accepted one group to have both life insurance and property and casualty insurance subsidiaries.6. 2.3.1 The Insurance Market Scale At first, life insurance did not grow as quickly as property insurance. However, 6. See the survey from China Knowledge for China Insurance Industry, available at http://www.chinaknowledge.com/ 9. DOI:10.6814/NCCU202001786.

(18) in 1997, this was the first time since life insurance total premium went over property insurance premiums. The total premium income reached to RMB60 billion and the number of individual agents is 2.5 billion. The reason for the rapid development was that companies adjusted the life insurance business structure. Sales of products with a short-term, a single premium, and a large savings portion shrank, while long-term products with annualized premiums were promoted. This affected the earned premium but increased future revenues. Until now, life insurance still accounted for around two-thirds of the total market. In 2009, all the insurance companies produced around USD163 billion premiums totally and met the number that the 11th five-year national development planned for. The premium volume of life insurance is USD109 billion and the non-life premium volume is nearly USD54billion, which is quite lower than the life insurance. In. 政治大. general, the non-life insurance premium is less than life insurance premium due to life. 立. insurance with saving and investing functions. With insurance density, the premium’s. ‧ 國. 學. per capita is USD121 in total insurance business. The insurance density of life insurance is USD81 and USD40 in non-life insurance business. The penetration (in. ‧. terms of GDP) is at mere 3.4% in total insurance business; 2.3% in life insurance and 1.1% in non-life insurance business.7 China stands far behind than the global average. er. io. sit. y. Nat. of insurance density over USD595 and industry penetration over 7%. Table 2-1: The Insurance Premium, Density and Penetration of China─2009. n. al. Life Insurance Non-life Insurance Total Business. iv n Premium Insurance C hen hi U Volume g c Density. Insurance Penetration. (USD billion). (USD). (%). 109.175. 81.1. 2.3. 53.872. 40.0. 1.1. 163.047. 121.2. 3.4. Source: Swiss Re, World Insurance in 2009, Sigma No 2/2010, http://www.swissre.com/sigma/. 7. In the existing literatures on the international insurance comparison, commonly used methods are premium income method, insurance density method and insurance penetration method. “The premium income method” measures the overall scale of insurance market in each country. “The insurance density method” (premium/population) measures the per capita premium by taking population into consideration. “The insurance penetration method” (premium/GDP, or insurance density/GDP per capita) could be considered to an adjustment with economic factors added to the insurance density method. (Zheng, Liu, and Deng, 2008) 10. DOI:10.6814/NCCU202001786.

(19) 2.3.2 The Insurance Participants In 2010, the total asset of insurance business in China is up to RMB 4,523 billion and increasing 22% compared to the same period in 2009. The total asset of foreign companies reaches RMB221.9 billion. As for the volumes of insurance companies, there are113 insurance companies, including 52 property insurance companies and 69 life insurance companies. Also, there are 9 reinsurance companies and 8 insurance group or holding companies. All of the insurance group or holding companies are China Enterprises. Table 2-2: The Volume of Insurance Firms in China─2010 Property. Life. Reinsurance. 治 Firms 政 Insurance 33 大. Total. Insurance Firms. Firms. 34. 3. 70. 6. 52. 9. 122. Chinese Companies. 立18. 28. 52. 學. ‧ 國. Foreign Companies Total. Unit: Firm. 61. Note: The volume is counted until June 2010.. ‧. Source: Taiwan Insurance Institute, China’s Insurance Market Research, https://fsr.tii.org.tw/iiroc/fcontent/research/research02.asp. sit. y. Nat. Next, concentration within China's insurance market is high. In life insurance. io. n. al. er. market, the China Life Insurance Company has around 32.65% of the market, and the. i n U. v. top three life insurance companies occupy more than 57.2% of the market. Life. Ch. engchi. insurance companies have begun to increasingly adjust their business structures to progress the proportion of limited-payment premiums available.8 China’s property insurance market concentration is very high as well, with PICC occupying 39% of the market. The top three insurance companies take up over 66% of the entire property market. Foreign joint-venture life insurance companies have a smaller share, accounting for 5.15% of the life insurance market, and the top three foreign life insurance companies are Generali China Life Insurance Company Limited, American International Group, Inc. (AIG) and Huatai Life Insurance Company Ltd. The property insurance market share of foreign property insurance companies is only 1.02%; the top three foreign property insurance companies are Chartis Insurance 8. See “China Insurance Market and Technology Overview 2008,” Celent Report, May 28, 2008, available at http://reports.celent.com/ 11. DOI:10.6814/NCCU202001786.

(20) Company China Limited (AIU),9 Mitsui Sumitomo Insurance (China) Company, Ltd., and Tokio Marine & Nichido Fire Insurance Co. (China) Ltd. Table 2-3: The Market Share of Life Insurance Companies in China─2010 Life Insurance Companies. Market Share (%). China Life Insurance Company. 32.65. Ping An Life Insurance Company of China, Ltd. 15.31. Xinhua Life Insurance Company Limited. 9.24. Other Chinese Life Insurance Companies. 37.65. Foreign Life Insurance Companies. 5.15. Note: The data is counted until June 2010.. 政治大. Source: Taiwan Insurance Institute, China’s Insurance Market Research, https://fsr.tii.org.tw/iiroc/fcontent/research/research02.asp. 立. ‧ 國. 學. Table 2-4: The Market Share of Property Insurance Companies in China─June 2010 Property Insurance Companies. 14.36. y. 12.96. sit. 32.66. Ping An Property & Casualty Insurance Company Of China Ltd.. Nat. China Pacific Property Insurance. io. er. Other Chinese Property Insurance Companies Foreign Property Insurance Companies. n. al. Ch. Note: The data is counted until June 2010.. engchi U. 39. ‧. PICC Property and Casualty Company Limited. Market Share (%). v ni. 1.02. Source: Taiwan Insurance Institute, China’s Insurance Market Research, https://fsr.tii.org.tw/iiroc/fcontent/research/research02.asp. Currently, foreign life insurers gain better than their non-life counterparts. AIA, the life insurance arm of AIG in China, is a superior benchmark of foreign life insurers’ influence in the industry. AIA’s relative achievement in China is on account of its long presence in the country. It started life insurance operations in Shanghai in 1992 and had gone in other cities previous to that. As such, the pace of AIA’s growth. 9. Chartis Insurance Company China Limited is a China registered wholly owned property & casualty subsidiary of Chartis. The year of 2007 heralded an important milestone for the Company in China. In July of 2007, the CIRC approved the conversion of its branches in China into a wholly owned subsidiary. Chartis China is currently the largest foreign property-casualty insurer in China. See http://www.chartisinsurance.com.cn/en/aboutus/about_aiu.html 12. DOI:10.6814/NCCU202001786.

(21) in China is a much more valid benchmark to measure the development of foreign insurers (Zhao and Liu, 2007). On the other hand, the performance of foreign non-life insurance businesses was rather disappointing. In 2009, Chartis Insurance Company China Limited (AIU), the non-life insurance arm of AIG, was ranked first among all foreign non-life insurers with a premium of RMB0.8 billion. However, it only takes up among all non-life insurers in China with a market share of 0.27%. Foreign firms have faced a tough market in the past few years. According to the PricewaterhouseCoopers report, foreign insurers in China, the market share for overseas life insurance companies was around 5 %, while property and casualty firms only had 1 percent (Zhang, 2010). As the percentage showed in the following table, foreign life insurers accounted for 5.23% of China’s life insurance market in 2009 as compared to only 2.64% in. 政治大. 2004, whereas foreign non-life insurers merely accounted for 1.06% of China’s. 立. non-life market share in 2009 and a figure that keeps unchanged as compared to 2004.. ‧ 國. 學. Table 2-5: The Comparison of Insurance Market Share between Chinese Insurance. Chinese Life. Foreign Life. Insurance (%). Insurance (%). Insurance (%). Insurance (%). 98.79. 1.21. 97.36. 2.64. 2006. 98.79. 2007. 98.84. 2008. 98.82. 2009 2010. al. 1.31. sit. er. 98.69. 91.10. 8.09. 94.09. 5.91. 92.00. 8.00. 1.18. 95.08. 4.92. 98.94. 1.06. 94.77. 5.23. 98.98. 1.02. 94.85. 5.15. n. 2005. y. Foreign Property. io. 2004. Chinese Property. Nat. Year. ‧. Companies and Foreign Insurance Companies─2004-2010. Ch. 1.21 e n1.16 gchi U. v ni. Note: The data is counted until June 2010. Source: Taiwan Insurance Institute, China’s Insurance Market Research, https://fsr.tii.org.tw/iiroc/fcontent/research/research02.asp. 13. DOI:10.6814/NCCU202001786.

(22) 2.3.3 The Unbalanced Development According to Yukon Huang’s interview in 2010,10 he states that China’s quick economic development has started off mainly from the deliberate geographic concentration of financial motivations, resources, investment, and people in the coastal areas to understand economies of scale and specialization. Realizing this spatial element of China’s economic policy is important to knowing the grounds behind the country’s unbalanced development model. The spatial development of China’s insurance market follows the economic growth model and also has the unbalanced issues. No matter in life or property insurance business, most of the premium income comes from the big cities or coastal provinces.. 政治大. Table 2-6: The Top Ten Areas of Insurance Premium Income in China─2009. Amount. Property. Amount. Share. Insurance. Share. Premium. Insurance. Share. in total (%) Premium in total (%) Premium in total (%). 95.95. 8.62. 23.91. 8.31. Nat. 8.15. 22.83. 7.94. Beijing. 69.75. 6.26. 16.44. 5.72. Shangdong. 67.75. Shanghai. 66.50. Hebei. 60.18. Sichuan. er. 90.77. io. Jiangsu. y. Guangdong. Amount. ‧. Volume. Life. sit. Total. Unit: RMB billion. 學. Areas. ‧ 國. 立. n. 17.36 6.04v a l 6.08 ni C h 15.18 U 5.28 5.97 engchi. 65.19. 8.74. 61.94. 8.31. 46.60. 6.25. 45.05. 6.04. 45.83. 6.15. 5.40. 12,86. 4.47. 43.92. 5.89. 57.92. 5.20. 14.87. 5.17. 38.61. 5.18. Henan. 56.53. 5.08. 9.77. 3.40. 43.44. 5.83. Zheijing. 53.80. 4.83. 19.63. 6.83. 3.02. 4.05. Hubei. 37.24. 3.34. 6.89. 3.40. 27.86. 3.74. Total. 1113.7. -. 287.5. -. 745.73. -. Note: The accident insurance premiums and health insurance premiums are not included. Source: China Insurance Regulatory Commission, the Statistics of Premium in Different Areas of China, http://www.circ.gov.cn/web/site0/tab61/. 10. Yukon Huang is a senior associate in the Carnegie Asia Program, where his research focuses on China’s economic development and its impact on Asia and the global economy. 14. DOI:10.6814/NCCU202001786.

(23) Generally speaking, Chinese property insurance developed better in the eastern regions than in the western regions. This was consistent with the Chinese economic and social situations, in which eastern coastal regions were much more developed than western inland regions. In 2009, Guangdong ranked first with RMB95.95 billion worth of premiums, accounting for 8.3% of China’s property insurance market. In the half-year of 2010, the top five provinces that created the most total property insurance premiums among China’s 31 provinces, municipalities, and autonomous regions were all placed in the eastern costal region. Guangdong, Jiangsu, Zhejiang, Shandong, Beijing are the five leading property insurance markets. The consequence of this deliberate government policy was the appearance of an economic geography that originally favored the coastal cities with a stress on trade and production. Nevertheless, over time, competition within China has conducted a. 政治大. rebalancing of growth. Besides, with the infrastructure of western provinces and. 立. increasing income of individuals, it is believed that the insurance industries will grow. ‧ 國. 學. in inland provinces. However, it indeed needs to take a few years to reach the purpose of balanced development in insurance industries. At the moment, China’s heavy. ‧. dependence on investment and a great trade surplus is not sustainable, and the rebalancing process will be not easy. Unbalanced growth will not facilitate long-term. sit. y. Nat. insurance economic growth, and it is argued that it is possible to see China’s insurance. io. n. al. er. growth rate slow in the future.. 2.4 The Legal Framework Ch. engchi. i n U. v. The rapid growth of the insurance industry required the establishment of a legal framework. In 1995 the National People’s Congress promulgated a formal insurance law. Another major step was the establishment of the CIRC in November of 1998. The CIRC was set up to regulate the insurance market, promote its development, formulate and enforce related laws and regulations. Originally, the People's Bank of China (PBOC) was responsible for insurance, but this sector was transferred to the CIRC to deepen financial reforms, minimize financial risks, and shore up the fledgling financial services industry. CIRC took over insurance regulation responsibilities from the People's Bank of China (PBOC). After being a member of the WTO, the Chinese government has significantly improved the. 15. DOI:10.6814/NCCU202001786.

(24) transparency and effectiveness of commercial policy-making, including laws and decrees, the status of the legal system and the administrative environment. In the 1980s the legal system was practically unrecognizable to a guest from a developed western economy, and it would probably be unusual for the average Chinese citizen to press charges or file suit when abuses occurred. Nowadays, the construction for civil and commercial law has developed in leaps and bounds, a more and more independent judiciary is promoting faith in the legal procedure, and consequently courts at all levels are clogged with new cases. However, there are some issues. One the one hand, China has experienced a long way from a traditional communist economy, where the state had full control of all assets and authority over nearly every commercial transaction; after the economic reform, undoubtedly the mainland has turned into much more market-oriented. On the other hand, the. 政治大. government still owns and runs a considerable amount of the system, and specifically. 立. the “commanding heights” of heavy industry, capital-intensive services and the. ‧ 國. 學. financial system (Anderson, 2006).. Besides, as for the official supervision, as some insurance firms operated. ‧. illegally, provided very high agent commissions and returned and very low premiums to ensure a bigger market share, it led to the firms' inability to make repayments.. sit. y. Nat. Consequently, the CIRC set about regulating supervision and claims settlement. io. er. processes, and controlled the approval of new firms. Blocked the sale of insurance policies with high interest kickbacks, encouraged policies with fewer interest rate. n. al. Ch. i n U. v. risks, and required greater honesty. Moreover, the CIRC attempted to stop unfair. engchi. competition by standardizing all policy terms and premiums (Allison, 2001). Next, in 2008, the CIRC has issued a large number of new regulations coping with topics such as minimum capital for insurance companies, investment regulations, reserving standards and the founding of a policyholders' protection fund. Further relaxations of investment regulations allow life insurers to go with the maturities of their assets and liabilities more effectively and improve returns. In the non-life market, the introduction of compulsory motor third party liability will stimulate demand. 11 Furthermore, one of the most significant regulatory updates in 2009 was the announcement of the new law insurance law after being amended and approved by 11. See “ Major Changes, Rapid Growth,” China Insurance Market Review, November 09, 2008, available at http://www.asiaing.com/ 16. DOI:10.6814/NCCU202001786.

(25) the Standing Committee of the National People’s Congress. The new insurance law comes into force on October first, 2009. The law authorizes the CIRC to limit the capital operations of insurers that have fragile solvency ratios, control the wages of their executives, and force them to auction non-performance assets or put up insurance assets for sale. Since the reform and open policy commenced, China insurance businesses have increased rapidly, service field has been extended, market system has been improved progressively, laws and regulations have been completed gradually, supervision level has been enhanced constantly, risks have been prevented effectively and the complete strength has been reinforced noticeably, which performed an energetic role in improving reform, shielding economy, stabilizing society and benefiting people. Insurance industry is one of the greatest developing industries in national economy. 12. 政治大. All in all, the CIRC has presented the intention to execute structural. 立. development to the market following quick growth in the insurance industry so far in. ‧ 國. 學. 2010. The domestic insurance segment desires more discipline and risk prevention, essentially in asset management risks, risks control from loose internal running. ‧. control, and solvency risk. The CIRC also takes strict actions into consideration, such as taking control of, or restructuring, insurers that cannot get their operations better. sit er. io. 2.5 Summary. y. Nat. and cannot complete solvency requirements over a long period of time.. al. n. iv n C China’s insurance market was h stopped from 1950s e n g c h i Uto 1978, and luckily with the economic reforms and open policy, the insurance industries have the opportunity of rebirth. The need for insurance in China is getting higher attributable to rapid economic growth and increased income. Reform systems have provided a wide base for the development of commercial insurance. What’s more, the entries of WTO promote the development of insurance business speedily. It is a key essence for China’s insurance industries to change its structure and improve the competition. With the impact and cooperation from foreign insurance companies, local insurance companies can learn the professional insurance skills and improve their service.. 12. See “Report on China Insurance Industry, 2010-2015,”China Investment Consulting, available at http://www.ocn.com.cn 17. DOI:10.6814/NCCU202001786.

(26) As for the market share, although the property insurance was earlier than life insurance, the premium volume of life insurance business has extremely over the premiums of property insurance business. Also, most of the insurance market is still controlled by the Chinese enterprises, particularly the top life or property insurance companies are still owned by the state. The unbalanced growth in insurance industries is like the economic developing model and mainly on the coastal regions. Finally, the legal structure and official supervision have been established and the government tries to remove the limitations slowly but surely. However, it has some boundaries for the foreign coming investors and cannot fulfill the aim of free market and competition.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. 18. DOI:10.6814/NCCU202001786.

(27) Chapter 3 International Property Insurance Market In 2009, the global economy experienced its deepest recession since the 1930s as world gross domestic product (GDP) dropped and the industrialized countries were severely affected across the board. However, GDP growth slowed in the emerging market countries. As a whole, these countries dealt with the global financial crisis better than the industrialized countries, even though with weak regional disparities. Emerging Asia performed well due to substantial GDP growth in China and Indian, the region’s two leading economies. Owing to the recession, commodity inflation fell considerably in 2009. Inflation is predictable to stay low until the rising supply in. 政治大. manufacturing and the labor market is decreased. The individuals or the governments. 立. reduce spending to narrow their budget deficits, and it led to the low and slow growth. ‧ 國. 學. of the insurance market.. 13. Before discussing China’s property insurance market, at first it is very critical to. ‧. look into the international property insurance market. Property insurance relies on the reinsurance to disperse risks and is related to the global very much. Therefore, in the. sit. y. Nat. first part of the chapter, the global property insurance market will be described, especially the premium volume, the insurance density and penetration. Next, the. io. n. al. er. statistics from some developed countries, like the USA, UK, Japan and Taiwan, will. i n U. v. be evaluated so as to predict the future development in China. Moreover, the study. Ch. engchi. regarding the losses and profitability of the world property insurance will facilitate to see the outlook of the global property insurance. In the second part of this chapter, due to the similar developing model and historical background, Taiwan’s property insurance market will be introduced and particularly after the Economic Cooperation Framework Agreement (ECFA), it is important to understand Taiwan property insurance enterprises how to handle the huge market in China.. 3.1 The World Property Insurance Market A series of events, together with the global economic crisis and an above-average number of catastrophic and non-catastrophic losses in 2008, has speeded up a shift 13. See the report “World Insurance in 2009”, Swiss Reinsurance Company Ltd, available at http://www.swissre.com/sigma/ 19. DOI:10.6814/NCCU202001786.

(28) away from the soft property insurance market of the past two years. The global insurance market is experiencing the hard time. Property and casualty markets are tightening or pulling down, while not necessary hardening considerably. Competition in the global property insurance marketplace keeps strong. Insurers are aggressively seeking both present and new business opportunities and are actively competing to achieve premium revenue. As a general rule, rate decreases at renewal were still being acquired in the global casualty market, although the percentage of the reduction was not as large as earlier in the financial crisis year. Insurers are starting to push back on reduction and many are seeking to remain rates flat (Marsh, 2009).. 3.1.1 The Overview of the World Property Insurance Market. 政治大. Non-life insurers’ solvency turned down sharply in 2008 because of declining financial asset prices and therefore caused the capital shortage in the insurance. 立. industry. Although these days that prices stops falling, insurers will find it difficult to. ‧ 國. 學. raise prices in the existing economic environment, especially in the industrialized countries.14 Underwriting outcome in the US will carry on being affected by losses. ‧. coming up from financial crisis. In most other markets, insurers are expected to progress profitability by concentrating on underwriting discipline and reducing. sit. y. Nat. expenses.. er. io. The economic slump will limit demand for non-life insurance mainly in the commercial lines of business. Demand for personal lines of insurance is probable to. n. al. Ch. i n U. v. be less affected, in view of the fact that insurance spending is less discretionary and. engchi. unrestricted, in particular in the industrialized markets. Nevertheless, the economic circumstances will also impact this sector and insurance demand will recovers after 2010.15 On an inflation-adjusted basis, global insurance premium contracted by 1% to USD4066 billion in 2009. This is an improvement over 2008, when global premiums shrank 3.6%. Life insurance accounted for 57.3% of total premiums in 2009 compared to 42.7% for non-life insurance. Life premium fells 2 % to USD2332 billion in 2009, while non-life premiums remained flat at USD1735 billion. In most countries, 14. The industrialized countries include North America, Western Europe (excluding Turkey), Japan, Hong Kong, Singapore, South Korea, Taiwan, Oceania, and Israel. 15 See the report “World Insurance in 2009”, Swiss Reinsurance Company Ltd, available at http://www.swissre.com/sigma/ 20. DOI:10.6814/NCCU202001786.

(29) insurance grew more rapidly than GDP, which illustrates the strength of the industry. As credit and stock markets recovered in 2009, the industry was able to re-establish its capital base. Investment consequences and overall productivity also improved. After the financial crisis, it is expected that overall premium growth in the industry will turn optimistic and profitability will keep on getting better.16 Table 3-1: Premium Volume by Region and Organization─2009 Premium Volume. Change. (USD million). Share of world Insurance. inflation-adjusted market (%). penetration. (%). 2009. Insurance density. (%). (USD). 2008. 2009. 2008. 2009. 2009. 2009. America. 1,349,495 1,450,407. -6.1. -2.5. 33.19. 6.91. 1,470.2. Europe. 1,610,620 1,703,713. 7.58. 1,861.5. 6.08. 243.1. Asia. 立. 989,451 934,577. -1.1. -3.6. 100.00. 6.98. 595.1. Industrialized 3,532,716 3,706,806. -1.8. -5.3. 86.88. 8.61. 3,404.9. 3.5. 11.0. 13.12. 2.89. 91.5. Nat. markets. 533,379 513,265. ‧. Emerging. y. countries. ‧ 國. 4,066,095 4,220,070. 學. World. -9.9 39.61 政1.8 治大 2.8 6.4 24.33. sit. Note: Insurance penetration (premium as a percentage of GDP) and density (premium per capital). er. io. include cross-border business.. Source: Swiss Re, World Insurance in 2009, Sigma No 2/2010, http://www.swissre.com/sigma/. n. al. Ch. engchi. i n U. v. During the financial tsunami, the insurance industry continued to afford cover and pay claim. There was no deficiency of capacity and premium rates did not go up. Nothing like the banking area, insurers did not obtain government support in the forms of capital or guarantees, with the exception of in a few cases. Since the middle of 2009, the economies of the emerging market countries and many industrialized countries enhanced the prospect for premium volumes.17 In general, non-life insurance was not significantly impacted in the period of financial crisis. Notwithstanding losses on the investment part, insurers had more than 16. The Study is based on the direct premium volume of insurance companies, regardless of whether they are privately or state owned. Premiums paid to state social insurers are not included. Also, the study examines non-life and life premium volume in 159 countries. See the report “World Insurance in 2009”, Swiss Reinsurance Company Ltd, available at http://www.swissre.com/sigma/ 17 The emerging countries include Latin America, Central and Eastern Europe, South and East Asia, the Middle East (excluding Israel) and Central Asia, Turkey, Africa. 21. DOI:10.6814/NCCU202001786.

(30) sufficient capacity to meet demand. Non-Life premiums stayed stable in 2009, declining just 0.1%. While non-life premiums cut down in the US and Europe, they climbed in the other regions. Compared to the sharp decrease in GDP, this is a remarkable consequence. Global non-life premiums fell a little by 0.1% to USD1733bn in 2009. The result was mainly driven by falling premiums in the US and Western Europe. However, there were also some positive developments. Non-life insurance in the newly industrialized Asian economies also continued to grow up. Premium income in the industrialized countries, which produced 87% of the world’s total volume, continued to bear the after effects of the financial crisis, falling 1.8% to USD3533 billion in 2009. However, the non-life insurance premiums of 2009 in the emerging market raised by only 2.9%, while premium volume raised to. 政治大. USD248 billion. In more than two thirds of the emerging countries, insurance. 立. premium grew more rapidly than GDP; as a result, penetration increased. Insurance. ‧ 國. 學. related to international trade as well as motor was in charge of the slow developments. However, non-life premiums should increase now while the economic recovery is. ‧. processing in most markets.. Nat. al. Share of world Insurance. inflation-adjusted market (%). n. (USD million). Change. er. io. Premium Volume. sit. y. Table 3-2: Premium Volume by Region and Organization in Non-life Business─2009. Ch. (%). e n g c2008 hi. 2009. 2008. 2009. America. 769,869. 783,545. -1.0. Europe. 657,105. 707,615. Asia. 257,184. Un. iv. Insurance. penetration (%). density (USD). 2009. 2009. 2009. -2.1. 44.38. 3.94. 838.8. -1.2. 0.3. 37.88. 3.05. 750.6. 238,428. 5.6. 2.3. 14.83. 1.57. 62.8. 1,734,529 1,780,776. -0.1. -0.5. 100.00. 2.98. 253.9. Industrialized 1,485,759 1,538,691. -0.6. -1.6. 85.66. 3.60 1,424.9. 2.9. 7.5. 14.34. 1.35. World countries Emerging. 248,770. 242,085. 42.7. markets Source: Swiss Re, World Insurance in 2009, Sigma No 2/2010, http://www.swissre.com/sigma/. From Table 3-2, non-life premiums in emerging Asia grew by 14% to USD257 billion in 2009. The region’s positive performance was held up by strong development 22. DOI:10.6814/NCCU202001786.

(31) in China. Throughout the region, aggressive government financial support has facilitated to generate a channel of infrastructure construction developments, which in turn has benefited the non-life insurance area. However, external trade has been weak, which has decreased demand for marine insurance. Natural catastrophe losses were not anticipated to be a key issue, even though a series of typhoons hit China and Southeast Asia in mid-2009. These events were not likely to drastically lower insurers’ underwriting incomes, which were further improved by enhancing investment results All in all, from the 2007 – 2009 global economic downturn prompting some of the major insurers to reconsider their continual attendance in the country. Since the 2007 global financial crises happened, international insurers have been weighing up business operations and moving activities worldwide to exploit developing and. 政治大. emerging growth markets. (Thomas, 2010). 立. Recently, most markets that were in recession in 2009 are on track for a strong. ‧ 國. 學. economic recovery, which will prop up non-life insurance business. The most important challenges are continuous price pressure and growing inflation in several. ‧. regional markets. At the same time, regulators are planning tighter solvency standards, which could impact capital sufficiency, especially for those small domestic insurers.. sit. y. Nat. er. io. 3.1.2 The Market Scales in the USA, UK, Japan and Taiwan. al. iv n C to offer the reference for China’s property U The American property h e n insurance i market. h c g insurance market takes up the most share of world market and the UK market has the n. In this part, some examples will be taken from the USA, UK, Japan and Taiwan. historical background in property insurance. Also, China’s GDP might be over Japan’s GDP in 2010, together with the cross-strait relation, so it is suitable to look into the market developments from the four countries. In 2009, the ranking of American GDP is top one in the world, and also the ranking of non-life insurance premium volume is the number one. American non-life insurance market occupies around 37% share of world market and non-life insurance business is over 56% share of total business. Generally speaking, the non-life insurance market is a quite mature market and has no huge disparities compared to life insurance market. However, in the UK, Japan, and Taiwan, the non-life insurance market share is pretty low in the world insurance market and cannot compete with the 23. DOI:10.6814/NCCU202001786.

(32) share of life insurance market. Besides, China’s GDP is on the top 3 of the world and expected to be over Japan soon; however, the ranking by non-life premium volume is only 9 and we can find the experience from most of the other countries, the ranking of non-life insurance premiums is similar to that in GDP; that means China’s property insurance still needs promoting actively and has huge developing potentiality. Table 3-3: Macroeconomic Indicators and Non-life Premium Volume by Region-2009 Country. Population (million). USD. Ranking. billion. Non-life. Ranking. Share of. Share of. by. Total. World. Non-life. Business. Market. premiums. (%). (%). 1. 56.8. 37.32. 4. 29.6. 5.28. 3. 21.1. 6.16. by GDP Premiums. (GDP). (USD million). 14,258. UK. 61.7. 2,186. 127.2. 5,099. 2. 106,856. 23.1. 379. 26. 11,443. 19. 18.0. 0.66. China. 1345.8. 4,736. 3. 53,872. 9. 33.0. 3.11. World. 6832.8. 58,216. -. 1,734,529. -. 42.7. 100.00. Taiwan. ‧ 國. Japan. 立. ‧. 307.2. 學. 治政1 647,401 大 6 91,560. USA. io. sit. y. Nat. Source: Swiss Re, World Insurance in 2009, Sigma No 2/2010, http://www.swissre.com/sigma/. iv Insurance Density n U. n. al. er. Table 3-4: Insurance Penetration and Insurance Density by Region─2009 Insurance Penetration. Ch. e n g c h i(Premium Per Capita in USD). (Premium as % of GDP) Ranking. Total. Non-life. Business. Business. Ranking. Total. Non-life. Business. Business. USA. 16. 8.0. 4.5. 10. 3,710.0. 2,107.3. UK. 3. 12.9. 3.0. 5. 4,578.8. 1,051.2. Japan. 9. 9.9. 2.1. 9. 3,979.0. 840.4. Taiwan. 1. 16.8. 3.0. 18. 2,752.1. 494.8. China. 44. 3.4. 1.1. 64. 121.2. 40.0. World. -. 7.0. 3.0. -. 595.1. 253.9. Source: Swiss Re, World Insurance in 2009, Sigma No 2/2010, http://www.swissre.com/sigma/. From the aforementioned table 3-4, compared to the four countries, the insurance 24. DOI:10.6814/NCCU202001786.

(33) penetration and density of China’s non-life insurance is far away from the four countries and below the world average. In most of the four countries, the insurance penetration is above the world average and particularly the GDP ranking of Taiwan is 26 but the insurance penetration is number one. Insurance penetration can reflect the position of insurance industries in national economic development; with the rapid economic growth in China, it is likely to have a higher insurance penetration in the coming future. Moreover, regarding the insurance density, the non-life insurance premium per capita is USD40. The world average is USD253.9 and the other four countries all exceed the world average considerably. It shows the coverage ratio of insurance is not enough, the insurance education still has to be promoted and the risk management needs improving significantly.. 立. 政治大. 3.1.3 The Losses and Profitability of the World Property Insurance. ‧ 國. 學. Market. Loss from natural disasters and man-made events in 2008 were more than the. ‧. long-term average. Property insurers had losses of USD53 billion from natural catastrophes. Insured losses from man-made disasters amounted to USD7.7 billion.. y. Nat. sit. The US was the most affected area with two main hurricanes, land led to insured. er. io. losses of USD20 billion and USD4 billion respectively. In the USA, in company with. al. iv n C catastrophes, from a series of singular to the h edisasters i Uextensive damage caused by h n c g hurricanes (Marsh, 2009). n. the deepening of the global economic crisis 2008 was marked by a number of. In 2008, tornadoes and thunderstorms produced extra losses of USD2.4 billion. Losses in Europe increased after storms and in China, snowstorms and freezing rain in early 2008 resulted in insured losses of USD1.3 billion. Insured losses from natural catastrophes in 2009 were below average at a roughly USD22 billion. Losses were highest in North American, where insurers paid out over USD 12.7billion in claims. The two worst events of 2009 occurred in Europe when winter storm Klaus hit France and Spain in January, resulting in losses of over USD1.2 billion. The third costliest event took place in Australia, where the Victoria bush fires set off damages in excess of USD1billion.18 18. Swiss Re, World Insurance in 2009, Sigma No 2/2010, http://www.swissre.com/sigma/ 25. DOI:10.6814/NCCU202001786.

(34) After some years of solid profitability, underwriting results came to a negative side in 2009. The profitability in European markets is not good mainly due to a rapid deterioration of motor insurance business. In Japan, declining motor liability premiums caused negative underwriting consequences, while in the US and Australian markets, underwriting results went better after the high natural catastrophe losses in 2008. Nevertheless, underwriting profitability in fact turned down if average natural catastrophe losses adopted. Profitability in 2009 was further held back by poor investment results produced by diminishing investment yields and significant reduction in the value of invested assets. In addition, lower prices in non-life harm profitability in 2009. The overall profitability increased by reason of the improvement of credit and equity markets. Shareholders’ capital also made a strong recovery. In many countries, capital had. 政治大. nearly returned to its pre-crisis levels. Non-life premium increase in the industrialized. 立. countries is steadily predictable to rise. The continued pressure on rates will impede. ‧ 國. 學. profitability and hamper premium growth. As interest rates are still to stay low in 2010, investment returns are negatively affected. The general profitability and return. ‧. on equity (ROE) is below average.19. sit. y. Nat. 3.1.4 The Outlook of the World Property Insurance Market. er. io. After the financial crisis, an improvement in prices and an increase in interest rates rely on the stability and pace of the universal economic recovery. Take the. n. al. Ch. i n U. v. fragile nature of the economic recovery into consideration; premium growth in the. engchi. industrialized countries will be slow to recommence. In the emerging markets, on the other hand, economic growth will move premium development back to the normal levels, although not in all areas. Despite the fact that the financial catastrophe affects pricing, it has been less severe than might have been estimated. After a while, efficient risk and capital management practices have facilitated the industry to absorb the shocks of 2008. Looking forward to the future, there are numerous unknowns that could negatively have an effect on rates, for example, another above-average catastrophe year or another financial shock. On the other hand, a resolution of the credit crisis could 19 ROE is expressed as a percentage and calculated as: Return on Equity = Net Income/Shareholder's Equity. See http://www.investopedia.com/terms/r/returnonequity.asp 26. DOI:10.6814/NCCU202001786.

(35) refurbish asset values and develop the financial conditions of insurers and reinsurance companies. In 2010 and 2011, the economies of the US, China and many emerging market countries are projected to grow up considerably.. 3.2 The Property Insurance Market in Taiwan The insurance industry of Taiwan is the one of the major insurance markets in the Asia pacific region. The industry has been rising mainly in virtue of liberalization policies of the government, increased consciousness, tendency of wealth accumulation plus the mounting economy and improved per capita income. Apart from this, the insurance industry has also benefited from the rolling demand for insurance products. Taiwan is essentially known for the number one of insurance penetration in the. 治政大rate, the industry has high region-second only to Japan. In terms of penetration 立 penetration rate and there is great difference; life has very high penetration rate and world and having one of the highest insurance densities in the Asia Pacific. ‧ 國. 學. non-life has very low penetration. The critical ground behind this disparity is due to the receptiveness of life insurance products, together with the decreasing investment. ‧. by domestic consumers in automobiles, and natural disaster exposures have limited the growth of the non-life insurance business. In the coming years, although the life. y. Nat. sit. area will keep on ruling the insurance market, the non-life part is likely to set up. er. io. through the growth in casualty, liability, engineering and natural disaster insurance.20. al. n. iv n C Table 3-5: Insurance Penetration andhInsurance DensityUin Taiwan and China─2009 engchi Insurance Penetration. Insurance Density. (Premium as % of GDP). (Premium Per Capita in USD). Ranking. Total. Life. Non-life Ranking. Business Business Business. Taiwan. Total. Life. Non-life. Business Business Business. 1. 16.8. 13.8. 3.0. 18 2,752.1 2,253.3. 494.8. China. 44. 3.4. 2.3. 1.1. 64. 121.2. 81.1. 40.0. World. -. 7.0. 4.0. 3.0. -. 595.1. 341.2. 253.9. Source: Swiss Re, World Insurance in 2009, Sigma No 2/2010, http://www.swissre.com/sigma/. 20. See “Taiwan Insurance Intelligence-Market Research Report, 2010,” Aarkstore Enterprise , available at http://www.prlog.org/ 27. DOI:10.6814/NCCU202001786.