Cablegate: Guangzhou Insurance Conference Nov. 28-29

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RUEHIN/AIT TAIPEI 6770
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 BEIJING 007535

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E.O. 12958: N/A
TAGS: ECON ETRD WTRO EFIN EINV CH
SUBJECT: GUANGZHOU INSURANCE CONFERENCE NOV. 28-29

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1. (SBU) Summary. Participants at the 8th annual China
Rendezvous Insurance Conference in Guangzhou November
28-29 discussed insurance challenges in the China
market for foreign insurance and reinsurance companies.
Industry participants lamented the lack of insurance
product awareness among the populace, poor perception
of insurance, difficulty in opening branches,
inability to make concurrent branch applications,
discriminatory reinsurance regulations, and
restrictions on foreign firms hoping to enter the auto
insurance and political risk insurance markets. End
Summary.

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100 Percent Penetration by 2020
-------------------------------

2. (SBU) During the two-day conference, China
Insurance Regulatory Commission (CIRC) Commissioner of
Guangdong Province Huang Hong said CIRC's objective is
to get insurance penetration to all households and
individuals in China by 2020. He noted the need to
use "Chinese characteristics" to develop the insurance
industry, but did not elaborate further as to which
specific steps CIRC was planning to take in
accomplishing its objectives. Several industry
participants emphasized the need to increase insurance
product awareness among the populace and called on
CIRC to play a lead role. One of the organizers of
the conference suggested CIRC adopt an "Indian" model
and employ innovative strategies like sponsoring
popular sporting events and utilizing radio, audio-
visual media, and music concerts to boost awareness.

3. (SBU) Chairman of the Guangdong Insurance
Association and General Manager of China Life, Zheng
Dong, said CIRC and the Ministry of Education had
recently published a notice stating that insurance
would be taught at the secondary school level.
However, participants emphasized that this has not
happened yet and doubted when the Ministry of
Education and CIRC could make it happen.

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Poor Perception of Insurance
----------------------------

4. (SBU) Sino Life Insurance Company Liaoning Branch
General Manager Li Qiu discussed the challenge of
reducing poor perception of insurance, particularly
that of insurance agents, as an important step in
increasing insurance product penetration among Chinese
households. He emphasized that lack of professional
training, lack of transparency, limited product choice,
and lack of consumer education all contributed to this
negative perception. The average Chinese household
continues to view insurance in terms of a "cost" as
opposed to a "savings" product, he stressed.

5. (SBU) In response to Li's remarks, several foreign
insurance and reinsurance firm representatives
suggested that tax incentives at both the personal and
corporate level would not only reverse this trend, but
also encourage the development of private pensions. A
favorable tax environment would also benefit the
development of the health care insurance market, they
argued.

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Market Access Concerns - Opening Branches
-----------------------------------------

6. (SBU) Foreign insurance and reinsurance company
representatives noted that foreign firms do not have
sufficiently established insurance brands in China yet.
One of the challenges in establishing a brand is first

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establishing a branch office in China. Vice President
and General Manager of the Hong Kong branch of
Transatlantic Reinsurance Company, Peter Ho Kin Chung,
said their firm had applied to open a branch in
Beijing three times, since 2001, but each time had
been refused by CIRC without receiving a complete
written notice of the reason for refusal. Ho Kin
Chung stated Transatlantic submitted an application
for branch approval in August, 2007 but given previous
refusals, Transatlantic would like United States
Government assistance in advocating their case.
Without a branch office, United States firms like
Transatlantic Reinsurance Company cannot conduct
underwriting business services and are effectively
shut out from doing reinsurance in Mainland China.
The cumbersome process of opening a branch in China,
coupled with the inability to concurrently apply to
open multiple branches, restricts foreign insurance
firms from entering the market, industry participants
said.

7. (SBU) Singapore Reinsurance Corporation
representatives noted the advantages domestic firms
have in selling insurance products. Singapore
Reinsurance Corporation Shanghai Representative Office
Chief Representative Wilson Wu, for example, noted the
extensive network of China Life, China's largest
domestic insurance company, with a vast distribution
network to sell insurance products through more than
10 commercial banks at over 90,000 branches, as well
as through postal savings institutions. Foreign firms
have limited distribution channels as CIRC continues
to implement regulations that benefit state-owned or
state-controlled reinsurance companies, Wu said.

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Discriminatory Reinsurance Regulations
--------------------------------------

8. (SBU) Marsh Insurance Company representatives also
noted that CIRC's October 28, 2005, "Regulations on
Administration of Reinsurance Business" continues to
favor state-owned or state-controlled insurance
companies with respect to reinsurance cessions.
CIRC's November 28 "Notice Concerning Issues Relating
to the Security of the Reinsurance Business,"
effective January 1, 2008 does not eliminate the
requirement that foreign insurance companies must
first offer reinsurance to at least two local Chinese
reinsurance companies.

9. (U) Industry analysts point to Articles 11 and 22
in the 2005 "Regulations on Administration of
Reinsurance Business" that discriminate against
foreign reinsurance companies. Article 11 states that,
when arranging treaty and facultative reinsurance,
primary insurers should send out reinsurance
invitations to at least two professional licensed
insurance companies located in China prior to offering
the business to foreign firms located outside the
People's Republic of China. Article 22 states that,
unless otherwise approved by CIRC, foreign insurers
shall not have reinsurance business with its
affiliated overseas companies. According to foreign
reinsurance company representatives, both articles are
meant to protect China Reinsurance Company's monopoly
over the reinsurance business.

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Restricted Markets - Auto and Political Risk Insurance
--------------------------------------------- ---------

10. (SBU) While auto insurance premiums account for 70
percent of China's general insurance market, foreign
firms are restricted from underwriting mandatory third
party liability (MTPL) auto insurance in China,
effectively shutting them out from the auto insurance
market. In addition to MTPL, no foreign insurance
company has received approval from CIRC to provide
political risk insurance (PRI) coverage for Chinese

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companies. According to industry analysts, China
Export and Credit Insurance Corporation (Sinosure),
jointly administered by CIRC and MOF, and wholly owned
by the Chinese government, is currently the only
insurer allowed to sell political risk insurance in
China for non-domestic exposures. Foreign insurance
company representatives told Econoff that these
restrictions are in place to ensure People's Insurance
Company of China (PICC), China Pacific Insurance
Corporation (CPIC), and Ping An's dominant position in
the MTPL auto insurance market, while protecting
Sinosure's monopoly in the PRI market.

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Tianjin as National Insurance Experimental Zone
--------------------------------------------- --

11. (SBU) CIRC and the Tianjin government jointly
issued an "Opinion on Accelerating the Innovation
Development of Insurance Reform Experimental Zone in
Tianjin Binhai New Area" on November 21. One of the
promoters of the ntional experimental zone in Tianjin,
Bohai Insurance Vice General Manager Qi Zhi Qiang,
stated that all major national insurance reform
measures would be tried out first in Binhai. He said
Tianjin Binhai was chosen because of its specific
geographic location. The Binhai New Area consists of
a 2,270 square kilometer of land along the coast,
complete with a free trade zone, a financial street
and one of China's largest bonded port areas. Other
industry analysts, however, believe Tianjin was chosen
because the Mayor of Tianjin, former central bank
governor Dai Xianglong, is one of President Hu
Jintao's friends. As for insurance reform measures
that Binhai will implement, Qi did not offer any
specific examples. Most conference participants
confided that it is too early to determine whether the
new experimental zone would be a success or failure.

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Conference Participants
-----------------------

12. (U) Conference Participants included: Secretary
General of the People's Government of Guangdong
Province Li Han Dong, CIRC Commissioner of Guangdong
Province Huang Hong, and 330 delegates from various
domestic and international insurance and reinsurance
companies and related firms. The November 28-29 two-
day conference was organized by China Reinsurance
Company and Singapore Reinsurance Company.

Randt

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