Trazo de la Red de Flujo

a. Enterprise Annuity Business

Concern

Foreign insurers should be

permitted to obtain licences to set up specialised pension companies when taking into consideration their experience and expertise in overseas markets. This should be accompanied and facilitated by strengthened communication links among all relevant government bodies on granting enterprise annuity licences.

Assessment

In the interest of allowing China’s insurance market to develop more rapidly, it is recommended that any decisions by life insurance companies to expand into related businesses, such as health insurance, corporate pension and asset management be business-based and reside with its respective boards. It should not be restricted by regulation.

Many European life insurers have experience in supporting the development of enterprise annuity schemes and wish to bring this

European Business in China Position Paper – Insurance Working Group 2009

expertise to assist developments in China. Allowing foreign insurance ventures into these areas is consistent with the spirit of WTO accession conditions. The Working Group acknowledges the need for the Chinese regulators to differentiate and permit only those foreign players with the expertise, track record and financial strength to venture into China. In this selection process, transparent criteria should be made public. Proven expertise of the overseas parent company should be taken into account as an alternative to satisfying local qualifications, permitting foreign parent companies to choose whether they wish to establish an independent pension company in China or link their pension business with existing life business companies. In the former case, the current requirement that specifies a representative office has to have been in place in China for a minimum of two years should be dropped.

Recommendation

• Encourage foreign insurers to set up specialised pension companies providing enterprise annuity services, including administrator, trustee and investment services.

b. Investment and Asset Management

Concern

The limitations on foreign insurers’

investment plans constitute a distinct

disadvantage when compared to domestic insurance companies and the limitations particularly impair the ability of foreign insurers to serve the different requirements of varying consumer groups.

Assessment

The opening process of the investment regulatory plans for insurance institutions has contributed enormous advantages for the

companies that have the status of Qualified Domestic Institutional Investor (QDII). These advantages are not only limited to the improvement in their investment income but also allow them to reduce the risk on financial operations and to offer products related to operations in foreign currencies. The Insurance Working Group recognizes CIRC’s efforts to expand the investments channels available to insurance companies and welcomes the recent announcement from CIRC that foreign and domestic insurers will receive equal treatment and be allowed to apply for a QDII licence. However, the Working Group remains concerned as one of the conditions for a trustor to fulfil the QDII application is to have two independent directors. This is a distinct disadvantage for both local and foreign joint ventures. The Working Group believes that foreign insurance companies should be allowed to invest in equities and infrastructure investment channels if they have the technical ability.

European Business in China Position Paper – Insurance Working Group 2009

Currently, such channels are only open to insurance companies with insurance asset management subsidiaries. Existing regulations stipulate that only insurers that have held licences for more than eight years and have assets of over CNY 10 billion (CNY 50 billion for non-life companies) are permitted to establish an insurance asset management company. Although the limitation applies to both local and foreign insurers, it effectively excludes all foreign companies entering the market after China’s WTO accession in 2001 or whose parent companies have a proven track record of successful asset management – including third party asset management – for several decades overseas. Foreign companies’ international operating experience and capital should, therefore, be accredited in fulfilment of local operating experience and asset threshold requirements.

Recommendation

• Consider the total assets of the parent company and the third party when setting minimum asset requirements for asset management companies

• Permit investment in equities – including China domestic equities - infrastructure and other strategic investment opportunities to be part of the investment mandate of foreign insurers.

c. Compulsory Lines

Concern

Foreign non-life insurers are not allowed to write compulsory

insurance business, including motor third party liability insurance.

Assessment

In an emerging market with low levels of insurance awareness, strong regional and social differences and the subsequent need to enhance basic insurance coverage in public liability, disaster recovery or environmental protection, compulsory insurance lines may become a rapidly expanding and a wide-ranging field of the insurance business. This has been the case for the compulsory Motor Third Party Liability Cover (MTPL) introduced in 2006.

Nowadays, motor insurance business in China accounts for more than 70% of the total non-life premiums, and is usually the initial contact individual clients have with insurance products. However, foreign insurers have not been able to follow this expansion, as their limitation on writing compulsory lines makes it impossible for them to sell any motor insurance products. Furthermore, this restriction limits the capability of foreign insurers to develop commercial networks designed to reach individual clients, as they cannot produce enough business income to support the expansion of sales points and the creation of their own agent force.

European Business in China Position Paper – Insurance Working Group 2009

This fact becomes more relevant when considering the importance for the market of increasing the efficiency of product distribution and guaranteeing correct assessment on products and covers for individual clients. While it was agreed during the negotiations for the accession of China into the WTO that foreign insurers in the non-life industry would be banned from writing statutory insurance lines, a limitation like this is not possible to maintain if China wants to meet the “Free Market Access Principle” that is inherent to the spirit of WTO.

Recommendation

• Eliminate any restrictions that hinder foreign insurers accessing compulsory lines of business, such as those which presently limit foreign insurers from underwriting compulsory motor third party liability insurance.

d. Health Insurance

Concern

In view of the urgency of providing supplementary health insurance to urban employees and stand-alone health insurance coverage to a vast number of self-employed people in China, European specialist companies could provide additional technical know-how and increase the extent of insurance coverage.

However, their involvement is impaired by shareholding limitations related to investment into domestic

health insurance companies. In addition, health insurance operations should be recognized as a separate field of insurance business that should follow different actuarial and operational rules compared to life and non-life insurance companies.

Both the urgency of expanding the health insurance coverage and the specific principles in operating this line of business should lead the regulator to draft particular licensing conditions for foreign health insurers willing to invest in China. In view of the current need to strengthen the private and corporate layers in the social security system, there should be tax incentives for individuals and corporations who are willing to purchase commercial health insurance.

Assessment

In many foreign countries, individuals will get a tax relief or tax break for their health insurance premiums paid into the public system or the private system. Health insurance is part of the overall comprehensive social security system in many countries and the tax incentives help both the buyers of the products and the health insurance market to develop.

Such incentives should be extended to individuals as well as companies in order to create higher demand for the benefit of shaping the multi-layered social security system.

Health insurance operating principles are distinctly different from standard life insurance and as non-life

European Business in China Position Paper – Insurance Working Group 2009

insurance. Both the high average frequency of claims and the long-term need to set aside a technical aging reserve require different organisational structures. For these reasons, the health insurance sector should not be considered a special line in a life insurance company or for short-term coverage in nonlife companies, and this should be considered in the future organisation of the sector and subsequently lead to specific licensing conditions for foreign specialist health insurers.

Health insurance entails a complex line of services which includes the insurance company, service companies for claims assessment and policy distribution, community health centres for initial medical guidance as well as hospitals and specialised clinics. In view of this chain of service modules, health insurers should be permitted to invest into other parts of this chain in order to improve claims management as well as quality and appropriateness of medical services.

Recommendation

• Promote private health insurance through tax breaks or tax relief

• Recognize health insurance as an independent sector of insurance business with subsequently different requirements in licensing foreign health insurers.

3. Increase Flexibility for Foreign