A short summary of significant developments in the Chinese insurance market in 2015.
C-ROSS Regulations Issued
On 17 February 2015, China Insurance Regulatory Commission ("CIRC") issued 17 regulations regarding the China Risk Oriented Solvency System ("C-ROSS"), which established that the Chinese insurance industry had entered the C-ROSS transition period. In July 2015, the CIRC further requested all insurance companies to carry out self-assessment on solvency risk management. The C-ROSS system is expected to be officially implemented in 2016.
Reinsurance Registration Requirements Issued
On 5 March 2015, the CIRC issued "Notice on Implementation of Reinsurance Registration Administration", which was set to come into force from 1 January 2016. The reinsurance registration system is another important supervisory measure of the CIRC in respect of reinsurance business regulation. According to this notice, all the reinsurance brokers and reinsurers (both onshore and offshore) that conduct reinsurance or retrocession business with a ceding company in China shall register with the CIRC reinsurance registration system. Those entities satisfying the relevant criteria will be listed on the valid lists and can be selected by Chinese insurers to conduct business with. Chinese cedants cannot select reinsurers that are not registered in the system. It also provides that entities concealing information or issuing false information will be removed from the valid lists and prohibited from engaging in Chinese reinsurance business.
Reform of Premium Rates of Commercial Auto Insurance
On 20 March 2015, the CIRC issued "Work Plan on Deepening the Pilot Reform of the Administration System of Terms and Premium Rates of Commercial Auto Insurance". In the work plan, the CIRC set out the first 6 pilot cities for commercial auto insurance reform. By the end of 2015, the pilot programme had been extended to apply to 18 cities, and, according to the work plan, the reform will be further extended to apply on a nation-wide basis in the first half of 2016.
The reform aims to give the market players more pricing autonomy, i.e. insurance companies can adjust the premium rates in accordance with the different types of risk concerned (including spare parts and whole vehicle price ratio, risk of the type of vehicle and previous traffic violation record). Before the reform, the premium rates were determined by the purchasing price of new vehicles. After reform, premium rates for those low risk clients can be as low as 40% of the original premium rates.
Internet Insurance
In June 2015, the CIRC issued preliminary approval of the establishment of Yi An Property Insurance Company, An Xin Property Insurance Co Ltd and Taikang Online Property Insurance Company. Zhong An Insurance is no longer the only online insurance company in China. In addition, on 26 November 2015, global insurer Allianz, Chinese internet giant Baidu and Asian investor Hillhouse Capital Group announced their plan to establish another online insurance company "Bai An" in China.
In the meantime, and from a regulatory perspective, the CIRC issued "Notice on Issuing the Interim Measures for the Supervision of the Internet Insurance Business" on 22 July 2015, which specified the basic requirements of participating in internet insurance business, including the qualifications of entities to participate in internet insurance business, operation criteria, geographic scope of internet insurance business, information disclosure and CIRC supervisory rules.
Insurance Intermediary Market Reform
On 17 September 2015, the CIRC issued the "Opinions on Deepening Reform of Insurance Intermediary Market", in which the CIRC mentioned the intention to raise leading Chinese insurance intermediaries with professional expertise and international competitiveness, and to develop a large amount of small local regional professional insurance agencies. This regulation also aims to reform the current market access criteria of insurance intermediaries.
In addition, this regulation mentioned the proposal of allowing independent individual agents, and encouraged insurance companies to reform their current model of individual agents.
The Launch of Trial Tax Credit Plan for Health Insurance
On 11 December 2015, the Ministry of Finance, the State Administration of Tax and the CIRC jointly promulgated the "Circular on the Launch of Pilot Program of Individual Income Tax Credit for Commercial Health Insurance". This circular has officially specified pilot cities, product specifications and individual income tax deductions in respect of the tax credit for purchasing commercial health insurance. Individuals who purchase these health insurance products will be allowed to have no more than RMB 2,400 of premium payments deducted from their taxable income each year. The circular comes into effect from 1 January 2016.
Trend for Insurance Companies Acquiring Stocks of Listed Companies
During 2015 a lot of Chinese insurance companies acquired more than 5% of the stocks in a variety of listed companies in China. The acquiring insurance companies include star enterprises such as Anbang and Fund Sino Life, as well as new players Foresea Life, Huaxia Insurance, Guohua Life, Shanghai Life, Junkang Life (previously known as Zhengde Life), PICC Property Management and China Life. Most of the listed companies are those in the financial sector, real estate developers of first-tier cities and those in the fast moving consumer goods industry.
In view of the above, on 23 December 2015, the CIRC issued "Insurance Company Fund Management Information Disclosure Rule No 3: Acquisition of Stocks of Listed Companies", which set out information disclosure rules for insurance companies acquiring stocks. Insurance companies shall not only disclose the basic information including the name of the stock, code of the stock, date of public announcement and date of trade, but also information regarding the source of funds, investment ratio and management method etc.
Shanghai Insurance Exchange Design Plan Approved by Regulators
In December 2015, the design plan for the proposed Shanghai Insurance Exchange was approved by the State Council. The preparation work has formally started and the insurance exchange has a registered capital of RMB5 billion. The key investors include Shanghai International Group, large or local insurance companies and many state-owned non-insurance companies, but the details of the shareholding structure have not been disclosed. Mr Yujin Zeng, the head of the fund management department of the CIRC may assume the position of chairman of the proposed insurance exchange company.
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