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Insurance rivalry to heat up
( 2004-01-08 00:49) (China Daily)

The recent arrival of global reinsurance giants is poised to intensify competition in one of the world's fastest-growing insurance markets.

Their local presence will also presumably give a strong impetus to China Re, their sole Chinese competitor, in its efforts to improve competitiveness, while benefiting the local market with their expertise and resources, analysts say.

Gao Cong, general manager of the Swiss Re Beijing Branch, which opened last month, told China Daily that his company expects overall market competition in both direct and reinsurance sectors to be exciting.

"Swiss Re will participate vigorously in this competition with both foreign and domestic players, and will target achieving the maximum market share possible while still maintaining profitability," Gao added.

But China Re, the sole local reinsurer, is not as confident.

General Manager Dai Fengju has admitted that his firm lags far behind its foreign counterparts in such key areas as capital strength, services and repayment capacity.

It is already losing its privileged dominance in the market. With its lifeline protective policy -- which requires local insurers to cede 20 per cent of their non-life business to the State-owned firm -- being dismantled gradually under China's World Trade Organization commitments, China Re's mandatory premium income is expected to be dive at an estimated average of 40-50 annually until 2006.

"That will have a considerable impact on China Re's payment capacity," Dai said. "The group faces a severe situation."

Dai's situation can be more clearly seen in commercial or non-mandatory lines. In 2002, Chinese primary insurers gave 90 per cent of their commercial business, or US$6.7 billion, to foreign reinsurance companies, statistics indicate.

With their local branches up and running, foreign competitors are now in an even stronger position. For Swiss Re, Gao said the Beijing branch is "an essential step to doing profitable business in China, because Swiss Re personnel will be on the ground, and will be better able to learn from the market and understand how best to adapt our expertise and resources to China's specific needs."

He believes this combination of global strength and local presence, combined with an eagerness to learn from the market and share the company's expertise, gives them a particular competitive advantage.

Another major global reinsurer, Munich Re, which became the first among foreign reinsurers to open a Chinese branch just days before Swiss Re, declined to comment for this story.

Gao said his firm's geographic focus will be wherever its clients -- Chinese insurers -- decide to point their attention, which currently includes major urban centres, major industrial centres and key development zones.

But China Re has its own competitive advantage in such areas as low operating expenses and strong ties with local insurers, analysts say, and is already moving to strengthen capital base and gain access to foreign expertise.

Late last year, China Re restructured itself into a group company and established two reinsurance subsidiaries, for life and non-life respectively, and a direct insurance arm in property and casualty.

It also ushered in a group of domestic and foreign investors, bringing in a total of nearly 2 billion yuan (US$240 million) in additional capital.

Foreign insurers' market share remains small at present, at less than 1 per cent in non-life and close to 2 per cent in life insurance.

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