Stricter rules create competition in China’s life market

Stricter regulations rolled out by the Chinese Insurance Regulatory Commission (CIRC) in 2016 have created a more competitive environment in China’s life market, according to an AM Best briefing, Asia-Pacific Reinsurance Movement.

Increased competition has prompted small and medium-sized life insurance companies to offer higher interest rate guarantees in universal life products in order to increase their market share, according to AM Best.

But in March, the CIRC ordered life insurance companies to stop offering one-year term-savings-type life insurance business.

Also—within a period of three years—they must reduce one-to-three-year term-savings-type life insurance business sales to 90 percent, 70 percent, and 50 percent of total sales in each consecutive year (and to not more than 50 percent after three years).

The bancassurance channel, according to industry sources, is the main form of distribution for selling savings-type life insurance business as part of a wealth management service, particularly in promoting universal life products.

Universal life products offer expected returns at 4 to 6 percent per annum over a two-to-three-year term. Following regulatory intervention, the sales activity of such products has cooled down, but it is still promoted as a “limited time offer” sales strategy.

In August, CIRC introduced further supervisory measures on life insurance companies, extending its focus to savings-type life insurance business across all maturity terms, whereas previously it was on maturities of three years or less.

CIRC will look into the product term, asset allocation, asset and liability matching, investment return of the underlying assets, and valuation of insurance liabilities, for each of the four categories (less than three years, three to five years, five to 10 years, and longer than 10 years).

According to AM Best, the focus of the supervision is to scrutinise the universal life business interest margin and risk of loss.

“These regulatory actions are part of the growing pains of a fledgling marketplace and the depressed global interest rate environment,” said AM Best.

“The stricter regulatory oversight and intervention will create additional pressures for life insurance companies in China.”