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By CYRIL TUOHY, managing editor of Risk & Insurance®

China is an insurance market that abounds with contradiction. It's huge, it's underpenetrated, it's growing at breakneck speed. Insurance density is wafer-thin, its middle class is burgeoning and foreign insurers are underrepresented.

The regulatory burdens are immense. The country is sensitive to foreign carriers moving in on its home turf, and by Western standards, the country tolerates a relatively high level of corruption.

That's the opportunity and the risk of the world's most populous nation and the most lucrative marketplace on earth ... potentially.

So where did things stand with regard to China in 2010? The numbers are both very big and very small.

China's nonlife premium volume in 2010 reached $72 billion, an increase of 27.5 percent compared with 2009, according to the latest data released by Swiss Re. Life premium volume last year hit $143 billion, an increase of 25.6 percent compared with 2009, Swiss Re also said.

Total premium volume in China reached $215 billion, an increase of 26.2 percent. The increase was by far the largest in percentage terms and far outpaced average global premium volume growth of 2.7 percent, Swiss Re said, in a report released last week.

NO. 2 SOON

Last year, China ranked sixth in total premium volume behind the United States, Japan, the United Kingdom, France and Germany. Analysts don't expect China to remain there for long.

"China is likely to become the second largest insurance market within a decade," wrote Daniel Staib, Thomas Holzheu and Clarence Wong, in their "World Insurance in 2010" market update.

With an exploding middle class with disposable income to buy Buicks and Toyotas, and with aircraft manufacturers forecasting China as their No. 1 growth market for the next 10 or 15 years, there's no shortage of property to underwrite.

Property/casualty insurers operating in China include Allianz, AXA, Chartis, Chubb, Groupama, Liberty Mutual, Mitsui Sumitomo, Sun Alliance, Tokio Marine and Zurich. HSBC and ACE have significant holdings in domestic Chinese property/casualty carriers.

STAGNANT HOWEVER

Despite big percentage increases in premium volume in the China market in 2010 from the previous year, market share among property/casualty carriers remains stagnant and very small.

Some carriers are even recalibrating their expectations with regard to the Chinese market, according to a report issued last September by PricewaterhouseCoopers.

Market share for foreign property/casualty companies in China is just 1 percent, and survey respondents didn't see their share increasing by 2013. Life companies estimated their share at around 5 percent but had expected it to be at about 10 percent this year, according to a previous PwC survey conducted in 2008.

"Many foreign players are taking a fresh look at their business models and are re-examining their China positions," wrote consultants Shu-Yen Liu and Peter Whalley. "Some that have been in the market for several years and were unable to generate satisfactory profits/growth are now taking a long hard look at the future feasibility of their relationships with local partners."

Regulatory issues and competition from domestic insurers are among the top challenges faced by foreign insurance carriers in China, Liew and Whalley wrote, in a report titled "Foreign Insurance Companies in China."

As one political risk industry consultant noted at the annual gathering of the Risk and Insurance Management Society Inc. (RIMS) in Vancouver in May, when it comes to the China market, Chinese carriers are going to profit from Chinese risks before allowing foreign carriers to make money off of them.

July 11, 2011

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