Good things in store for Chinese life insurers

BEIJING - China's insurance industry is expected to outstrip its counterparts in other emerging markets in 2012 ,even though many observers say the country's growth will slow during the same time, according to a report issued on Thursday by the reinsurance giant Swiss Re AG.

Swiss Re's report said life-insurance premiums in China are expected to increase by 11 percent (in real terms) in 2012. That comes in stark contrast to this year, when they are expected to contract by 6 percent - a response, in part, to the introduction of new accounting standards and tighter regulations on bancassurance, or the sale of insurance by banks.

"As life insurers have changed their business structure to adapt to tighter regulations on bancassurance, their premium income is expected to see a strong rebound next year," said Xing Li, a Swiss Re economist based in Beijing. "This is also fuelled by vibrant domestic consumption and more supportive monetary and fiscal policies."

China's GDP is expected to expand by 8.8 percent in 2012, 0.3 of a percentage point below what was expected for 2011, the company said in the report. As for global GDP, that is expected to be stymied next year by Europe's debt troubles and to grow by only 2.9 percent.

Fitch Ratings, one of the three big rating agencies in the world, said life-insurers are likely to see their investments dragged down by the world economy next year. That will cause insurers' profitability and capitalization to remain subject to pressure in 2012, the ratings agency said.

Even so, Fitch doubted it would significantly change its ratings of Chinese life insurers in the next 12 to 24 months, especially since they have both adequate capital buffers and the ability to raise money from outside sources.

"Fitch sees a possible further weakening of capitalization, due to the pullback in the stock market and persistent capital needs for business expansion," said Joyce Huang, director in Fitch's Asia Pacific Insurance team.

Huang said Chinese life-insurance companies are incapable of raising the capital they need from internal sources, a situation that has made it essential for them to find external sources of funding.

Reuters reported on Thursday that New China Life Insurance Co Ltd, the third-largest life insurer in the country, raised about $1.9 billion in a dual initial public offering in Hong Kong and Shanghai, a deal that was priced toward the bottom end of the expected range.

The company, which is 15 percent owned by the Swiss insurer Zurich Financial Services AG, raised about $1.31 billion in the Hong Kong portion of the IPO and about $580 million in Shanghai.

Despite New China Life's experience, few other Chinese insurers are publicly listed or have access to equity from the capital markets. To maintain their capital cushions, some insurers have turned to issuing subordinated debt.

Meanwhile, the premiums on insurance products other than life insurance are projected to increase by 12 percent in real terms in 2012. So far this year, they have risen by 15 percent, keeping them in line with the moderately slower economic growth that has been seen, according to Swiss Re.

As for motor insurance, Xing said China's planned liberalization of prices for that product will bring about more competition.

"So the real growth rate of non-life premiums is forecast to ease modestly in 2012," she said.