China Re enters new areas to avoid risks
(Business Weekly)
Updated: 2004-07-15 14:49

China Reinsurance Group (China Re) is planning to step into a number of new business areas in a bid to enhance its leading position in the competitive reinsurance market.

Dai Fengju, president of the nation's sole State-owned reinsurance group, said recently at a reinsurance conference that these new areas include the launching of agricultural reinsurance services and the establishment of a reinsurance foundation for earthquakes and other catastrophes -- areas that were believed by many insurers as with high risks but poor profit margins.

The move is believed to be another significant step taken by the giant Chinese reinsurer to further diversify its business lines following its foray into the direct insurance market last year by establishing Dadi Property Insurance Co -- a non-life commercial insurer -- in Shanghai.

It will also help offset the company's losses in the compulsory reinsurance business.

Dai said: "A management group has been established to study how the reinsurance business could play a more significant role in warding off special risks, such as earthquakes."

He said the company has already been discussing co-operations in the field of agricultural reinsurance with Shanghai Anxin Agroinsurance Co, a State-owned insurance company launched earlier this year to tap China's vulnerable agricultural insurance market.

Agricultural insurance is a a new product in China, launched just a decade ago. Although it was welcomed by farmers, it has been almost a complete failure due to frequent natural disasters and a lack of expertise.

In a bid to develop the business and help develop the nation's vulnerable agricultural sector, Shanghai Anxin was established based on the agricultural insurance department of the People's Insurance Company of China, China's largest non-life reinsurer.

But Dai did not give any specific details on when the firm would enter the new business areas.

China Re's commercial reinsurance sector is expected to witness intense competition in the upcoming years as many leading foreign reinsurers, such as Munich Re and Swiss Re, have already set up reinsurance arms in China, and China Re's premiums generated from compulsory reinsurance services have dramatically fallen as the country has agreed to fully open the sector five years after the country's accession to the World Trade Organization.

But China Insurance Regulatory Commission (CIRC) Vice-Chairman Feng Xiaozeng said good opportunities exist in sectors such as transportation, telecommunications, water treatment, energy and power development.

He urged China's reinsurance sector to make greater efforts to tap these new areas, which also include reinsurance services for private firms, liabilities and agriculture.

"Despite the high risks, these areas, which are still in their infancy, have a high potential that should be developed," said Feng.

Strategic line-ups with other insurance companies that offer direct insurance services, including not only domestic players, but also foreign insurers, are highlighted on the company's agenda, but Dai did not reveal any further details.

"We are planning to discuss the establishment of a reinsurance consortium with other insurers and reinsurers, that could better ward off huge potential risks," said Dai.

China Re had total assets of 24.52 billion yuan (US$2.96 billion) at the end of 2003, a year-on-year rise of 16.26 per cent. And its fund reserves also saw a sharp increase to 18.37 billion yuan (US$2.21 billion).

The State Council gave China Re the green light last year to restructure itself into a holding company, which split it into three new companies -- China Life Reinsuance Co, China Property Reinsurance Co and China Dadi Property Insurance Co, with China Re holding controlling stakes of 45.1 per cent, 45 per cent and 60 per cent respectively.

"The establishment of the new companies not only sets up a firewall between different businesses to ward off risks, but also extends our network to be much closer to its customers," said Dai.

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