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Inherit, Innovate and Lead
To maintain market leading position
by taking data and technical advantages
October 2016
P&C Reinsurance
Contents
Market leading position 1
Strong data capabilities 2
Proactive business innovation 3
1
− Implementing national strategic plans like the Belt
and Road Initiatives”.
− Strengthening innovation of insurance products, services,
management and technology, utilizing insurance to
innovate the provision of public service.
− Supporting insurance companies to use new
technologies like internet and mobile internet, cloud
computing, and big data, to promote the innovation of
distribution channel and service model in insurance
industry. Pilot
Equipment
Insurance
Public liability
insurance:
Environment
pollution, food,
medical etc.
IDI
− Enhancing protection of national projects incl. agriculture,
transportation, energy and water conservancy.
− Strengthening the innovation of reinsurance product and
services, facilitating the innovation of insurance market.
− Supporting reinsurance companies to participate in the
infrastructure construction, such as data platform,
catastrophe management and risk management.
Credit &
guarantee
insurance
Internet
insurance
Index insurance,
Catastrophe Bond
Agricultural
credit
Insurance +
Futures
Special
agricultural
products
Weather
index, price
index
Catastrophe
insurance Diversification of
catastrophe risk
Agriculture
insurance
Farmer house,
agricultural
machinery
Guidance
Reinsurance
market
Direct
insurance
market
1.1 New situation of industry development
Non-motor insurance is the key to innovation in the future, which is policy oriented.
“Innovation development” is an important guidance
for the 13th five-year development plan of the industry.
To develop the insurance market under “new normal”
with new idea, new thinking and new technology, exploring
new product, new channel and new model, expanding
insurance services, exploiting insurance service potentials,
extending insurance coverage, stimulating industry vitality.
The State Council's New 10
Opinions
13th Five-Year Development
Plan
2
− In the first half of 2016, premium of non-motor insurance accounts for nearly 30%
of the total premium and is on the rise over the years. The reinsurance demand of
non-motor business is also on the rise.
Non-motor insurance is the key to innovation in the future.
1.1 New situation of industry development
0%
10%
20%
30%
40%
50%
60%
70%
80%
2011 2012 2013 2014 2015 2016H
Direct insurance portfolio by premium
Motor Non-motor
3
Data resources
and analysis
Reinsurers aim to provide comprehensive solutions
Capital strength
New product R&D Client services
Comprehensive
reinsurance solutions
1.1 New situation of industry development
4
1.2 Leading position in the industry
In the first half of 2016, reinsurance premium
income from our P&C reinsurance business was
RMB 12,903 million, including RMB 11,328 million
from domestic business.
5
1.2 Leading position in the industry--business breadth
Leadership
client coverage
client service
We continue to maintain good client relationship, serving 91% of P&C insurance companies in China. We have established long-term & stable relationship with major primary insurance companies in China and strengthened our relationship with them through business cooperation, technical communication and client services.
Being a predominant
lead reinsurer in
domestic market, we
are the lead reinsurer
for nearly 30% of
treaties in the market,
which possess nearly
40% of the total
premium in P&C
reinsurance market.
We provide customized services to
meet the needs of diversified clients,
including conventional insurers,
regional insurers, captive insurers,
mutual insurers, foreign insurers, in
the areas of risk analysis, reinsurance
program design, pricing & training
service.
6
1.2 Leading position in the industry--Deep Cooperation
We reach cooperation agreements and strengthen cooperation with clients, providing an entire solution, making clients' insurance business more secured.
We share insurance data with clients, helping to improve their data analytical ability and assisting their risk assessment & management.
We reach cooperation agreements with third party institutions, such as China Academy of Agricultural Sciences and China Meteorological Administration, enhancing understanding meteorological effects on agricultural production, improving our ability for loss prevention and servicing our clients better. 7
CNIP
Nuclear
CARP
Agriculture
CREIP
Catastrophe
China Re Group is the management institution and
chairman company of CNIP. We also underwrite
global nuclear insurance business via CNIP.
China Re P&C, together with 23 insurance companies
founded CARP and operates as the Admin Agency and
main underwriting capacity provider.
We were in charge of the design and
development of the first nationwide residential
building earthquake insurance product, being
the major reinsurer.
1.3 Market influence
Participating in the operation of 3 insurance/reinsurance pools.
8
China Re P&C actively participated in the construction of China second-generation solvency
supervisory system (C-ROSS) from 2012 to 2015, mainly focusing on the research project of
minimum capital requirement for non-life insurance catastrophe risks.
China Re P&C has actively participated in the reform of motor insurance ratemaking since
2014 and made a positive contribution to the optimization of the rating model and the
catastrophe risk rating of motor insurance.
1.3 Market influence
9
Taking the lead in several important projects for the industry.
Working with Insurance Association of China, we take the lead in important projects as a
member in the P&C reinsurance specialized committee, including researches on catastrophe
insurance, coping with the issue of value added tax, specification of reinsurance business
operating procedure.
1.3 Market influence
10
As the deputy president of Shanghai Institute of Marine Insurance, we coordinate with the
Institute to develop professional index for the first time in the world and work out the Shanghai
Marine Insurance Index (SMII), which was issued on September 26, 2016, and converted the
basic data into big data.
1.3 Market influence
11
1.4 Applying int’l experience to home market
China Re has achieved extensive
int’l developments with years of
efforts
China Re is in an advantageous position to create
synergy between home and abroad and apply
international experience to home market to lead business
innovation and develop innovative products and services
for itself and its clients
Int’l Biz Dept. in
Beijing office has a
track record of over
ten years, accessing
all types and lines of
P&C reinsurance biz
in developed and
emerging markets
China Re
Syndicate 2088 in
Lloyd’s of London
started independent
underwriting since
Jan 1 2015,
accessing worldwide
business
China Re
Singapore Branch
has been opened on
July 25 2016 and is
covering all
important and
emerging markets in
Asia Pac region 12
Contents
Market leading position 1
Strong data capabilities 2
Proactive business innovation 3
13
Leading Position in Data Analysis and Modeling Capability
China Re P&C originated from the Reinsurance Department of People’s Insurance Company
in 1949 and became a separate legal entity in 1996. It has accumulated plentiful experience
and gained a leading position in data analysis and modeling capability after undertaking
business in China reinsurance market for so many years.
Distinctive Online Services Platform
Proprietary Reinsurance Enterprise Analysis and Pricing System (REAPS)
Powerful catastrophe modeling research capability
First Economic Capital Model in the industry
14
2.1 Proprietary China Re P&C Online Services Platform
By integrating resources, China Re P&C developed China Re P&C Online Services Platform
in 2015 and launched it to market in the 2015 China P&C Reinsurance Market Conference.
Currently the Platform includes the services of China Re Exposure Curves, Catastrophe
Insurance Pricing Tools, High-Value Motor Insurance Pricing System, General Aviation
Insurance Underwriting and Pricing System as well as actuarial and claims publications.
15
2.1.1 The First Set of China’s Property Exposure Curves——
China Re Exposure Curves Based on 500 thousand commercial property insurance data collected from the insurance
market, China Re P&C released the first set of China’s property exposure curves —— China
Re Exposure Curves on China P&C Reinsurance Market Conference in September 2013.
16
2.1.1 Significance of China Re Exposure Curves to China’s
Insurance Market Exposure curves calibrate the loss distribution of property risks. Based on the industry loss
data, exposure curves represent the average loss level of a type of risks.
Before the release of China Re Exposure Curves, China reinsurance industry mainly relied on
exposure curves from the international market to evaluate the risks of property insurance in
China. However, it is questionable whether international curves can actually fit China’s market.
Comparatively, based on China insurance data, China Re Exposure Curves reflect China’s
risks much better.
It is a must to develop
China’s own exposure
curves
The categories of risks are not the same.
The characteristics
of risks are different.
17
2.1.1 Chinese Characteristics of China Re Exposure Curves
The risk classification of China Re Exposure Curves is consistent with the general
classification of China's property insurance, including high-risk industrial risks, low-risk
industrial risks, storage risks, common commercial risks. This risk classification is in line with
the actual situation of China's property insurance market, and it is the unique curve which
adopts China’s risk classification in the international market.
Storage risks have
the highest
probability of
suffering a total loss.
Low-risk industrial
risks suffer more from
small partial losses
than from total losses.
High-risk industrial
risks and common
commercial risks are
between storage
risks and low-risk
industrial risks.
18
2.1.1 China’s Risk Features Reflected by China Re Exposure
Curves Compared with international exposure curves, China Re Exposure Curves are closer to the
top left corner. It shows that:
(1) In the international market, the proportion of total losses is higher than that of China and
the proportion of small and medium losses is lower than that of China;
(2) In China’s market, however, most property insurance claims are small and medium
losses and the number of total losses is very small.
19
2.1.1 Market Responses to China Re Exposure Curves
Compared with international market exposure curves, China Re Exposure Curves reflect the
risk characteristics of China property insurance market better and receive positive responses
from the market.
In China, the majority of
property losses are small
partial losses, and total
losses are very rare.
The price from international
curves is too high for
Chinese risks, which does
not reflect the reality of
China market.
Head Actuary of a large domestic
insurance company Head of an international broker’s
China branch
20
2.1.1 Update of China Re Exposure Curves with the Times
By analyzing updated insurance claim data, there were obvious trends of increase in both the
frequency and severity of property claims during the recent years. Based on the research
results, China Re P&C released the updated property exposure curves in September 2015.
China Re Exposure Curves 2013 version was constructed with mixed exponential distribution
curve fitting, while in the 2015 version MBBEFD curve fitting and Wang Transform were
utilized.
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
0% 20% 40% 60% 80% 100%
Change of the Shape of Curves
原始曲线
大赔案占比增加
21
2.1.2 User-Friendly Catastrophe Insurance Pricing Tools
As it may be difficult for general insurance professionals to run the complicated catastrophe
models, by integrating its own research findings on China catastrophe risks and the results of
catastrophe models, China Re P&C developed the earthquake insurance pricing tool in 2012
and the typhoon insurance pricing tool in 2013, which provide important technical guidance for
the assessment of China earthquake and typhoon risks.
22
2.1.3 High-Value Motor Insurance Pricing System to Improve
Underwriting Efficiency
China Re P&C released the high-value motor insurance pricing system in 2015, which was an
online system to improve the underwriting and reinsurance cession efficiency for high-value
motor risks.
The system is the only one of its kind in Chinese market which can arrange both proportional
and non-proportional reinsurance, and it is very convenient for users to operate.
23
2.1.3 Distinctive Features of High-Value Motor Insurance Risks
High-value motor insurance risk has its own features, compared with ordinary motor
insurance business .
24
2.1.4 Explore Market Potential——General Aviation Insurance
Underwriting and Pricing System
With the gradual opening up of China's low altitude flying area, China's insurance market pays
more attention to the potential of the general aviation sector. Based on around 480 thousands
risks and claims data of general aviation insurance acquired from the market, China Re P&C
developed General Aviation Insurance Underwriting and Pricing System in September 2016.
The System provides the market with an important technical guidance on general aviation
insurance business.
25
2.1.4 General Aviation Insurance UW & Pricing System
China Re P&C General Aviation Insurance Underwriting and Pricing System is mainly based
on the generalized linear model (GLM) methodology and many risk variables, including
aircraft type, manufacturer, operating zone, seat capacity and so on.
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Goodness of Fitting for GA GLM
求和项:sum_expo 求和项:act_relative 求和项:pred_relative
0
5000
10000
1 2 3 4 5 6 7 8
Risk Premiums for different aircraft groups
26
2.1.5 Technical Publication for the Industry——China Re P&C
Actuarial Quarterly Newsletter ReAct - China Re P&C Actuarial Quarterly Newsletter was launched in early 2011 and it is a
publication for industry information and technical communication. It is published at the end of
the second month of each quarter and is distributed to the market extensively, including the
regulator, the insurance industry association, the actuarial association, local insurance
companies as well as universities.
ReAct-China Re P&C Actuarial Quarterly Newsletter was awarded “2016 Excellent Internal
Publication of the Insurance Industry” by the Insurance Association of China in October 2016.
27
2.2 The Core of Risk Analysis——Reinsurance Enterprise
Analysis and Pricing System (REAPS) China Re P&C developed the Reinsurance Enterprise Analysis and Pricing System (REAPS)
in 2012 ,which has become the core platform of China Re P&C’s underwriting, pricing and
portfolio analysis.
REAPS integrates advanced quantitative analysis methods in the current international
reinsurance industry.
28
2.3 The First Insurance Entity in China Licensing Both RMS
and AIR Catastrophe Models China Re P&C licensed RMS catastrophe models since 2010 and AIR catastrophe models
since 2012, which made China Re P&C the first insurance entity in China who licenses both
RMS and AIR catastrophe models.
RMS
• China Typhoon Model
• China Earthquake Model-Property Loss
• China Earthquake Model-Casualty Damage
• International Models including earthquake, typhoon, ect for different countries
AIR
• China Typhoon Model
• China Earthquake Model
• China Agricultural MPCI Model
29
2.3 Leading Position in Catastrophe Risk and Model Research
In 2014, China Re P&C helped RMS to upgrade its China typhoon model through technical
cooperation on China typhoon research. The updated RMS China typhoon model makes
users understand China typhoon risk better and provides a more effective quantitative
analysis tool for typhoon risk management.
30
China Re P&C played an active role in the CARP’s researches together with China Meteorological
Administration (CMA), China Academy of Agricultural Sciences (CAAS), and other relevant government
departments and research institutes, developing agricultural meteorological disaster model to improve the level
of industry risk management.
Research with CMA
Research with CAAS
2.4 Agricultural disaster model
31
2.5 Cultivated the First Catastrophe Professionals in China
Insurance Industry China Re P&C cultivated the first and so far the only one RMS Certified Catastrophe Risk
Analyst (CCRA) and the first AIR Certified Catastrophe Modeler (CCM) in China insurance
industry.
In August 2016, China Re P&C co-hosted with AIR the first Certified Catastrophe
Modeler(CCM) training program and exams in China.
32
2.6 Construction of the First Economic Capital Model in the
Industry China Re P&C carried out the economic capital project phase I and phase II in 2013 and
2014, and have used the model in the management of the company. Based on the model, the
company further clarified its risk appetite and the risk limits, improved the pricing and the
performance evaluation processes as well as the optimization of the retro-management.
Economic Capital Model Structure
33
Contents
Market leading position 1
Strong data capabilities 2
Proactive business innovation 3
34
3.1 Index-based Insurance
1
2 3
4
Definition
Advantage
Applicable
Insurance
China Re
P&C
Linking insured losses with an
index (constituted by one or
several parameters), making
indemnities according to
different index levels
Compensation is not on the
basis of actual losses, but the
pre-set index level
Use objective parameters as
triggers, with fair information &
transparent structure
Avert adverse selection, and
avoid moral hazard
Reduce claims time, improve
claims efficiency, reduce
management costs
Insurance with high claim
costs or moral hazard,
such as agricultural
insurance, catastrophe
insurance, innovative
insurance, etc.
Specialized research and
analysis team
High market awareness, provide
customized products timely
Experiences and resources to
cooperate with professional
research institutions
35
Trigger
Point Limit
CLmt
Ci
dx
Policy-holder: Photovoltaic power generation enterprises
Subject: Annual solar radiation index
Triggers: Solar radiation index derived from
meteorological radiation data is less than the set value
Claims: Start the compensation at attachment level, to fill
the gap between solar radiation index and attachment level
until the limit is exhausted
3.1.1 Solar Radiation Index Insurance
zenith sun
Inclined surface normal
south horizon
36
Policy-holder: Wind power enterprises
Subject: Annual equivalent full load
hours of wind power output
Triggers: The equivalent full load hours
derived from wind tower data less than
the pre-set value
Claims: Start to pay the indemnity
when the trigger is activated, keep
filling up the gap between equivalent
full load hours and pre-set value until
the limit is exhausted
3.1.2 Wind Index Insurance
Output (Kw)
Speed (m/s)
Power Curve
37
3.1.3 AGRICULTURAL INDEX INSURANCE
As a member of CARP, China Re P&C provided
professional services such as product
development, terms design, pricing for innovative
agricultural insurance products (e.g. weather or
price index insurance and agricultural
Loans Bond Insurance).
Temp Rainfall Wind ……
Cotton Maize Wheat ……
Agricultural meteorological disaster model
Cotton temperature
index insurance in
Xinjiang
38
Layer 1
Special Reserve
Reinsurance
Earthquake
Insurance Pool
Policyholder
Fiscal
Emergency Plan In China, earthquake is a big threat to people’s life and
property. From Tangshan earthquake to Wenchuan
earthquake, then to Yushu earthquake, each of them caused
massive loss of human’s lives and property. In this
circumstance, it’s necessary and urgent to have a set of
catastrophe risk solutions using the insurance mechanism
under the national disaster prevention and mitigation
framework.
In 2015, under the lead of the CIRC, a number of qualified
property/casualty insurance companies jointly founded
China Residential Earthquake Insurance Pool (CREIP). As a
major participant, China Re P&C serves as the sole
reinsurance observer.
The purpose of the CREIP is to integrate the underwriting
capacity of insurance industry, build a business platform for
residential earthquake insurance pool, develop standardized
earthquake insurance products, establish a unified standard
for underwriting and claim settlement service, jointly react to
the earthquake disaster, collect hazard information and
manage it centrally.
Ris
k S
pre
ad
ing
Mech
an
ism
3.2 Catastrophe Insurance - Framework
Layer 2
Layer 3
Layer 4
Top Layer
39
3.2 Catastrophe Insurance-China Re’s Contribution
Earthquake Insurance System for Urban and Rural Residents
Designed the first nationwide residential earthquake insurance products, calculated rate in accordance with the
specified areas and its risk, and came into effect since July 1.
Set regional limits, to achieve the goal of "total amount control, quota management", control the overall risk
exposure within a certain amount.
Assisted the insurance pool in designing the layered scheme and reinsurance solutions based on international
experience and domestic practice.
40
郑州
合肥
济南
郑州
合肥 南京
上海
台北 福州
南昌 杭州
广州
长沙
南宁
贵阳 昆明
武汉 重庆 成都
兰州
银川
呼和浩特
西宁
拉萨
乌鲁木齐
西安
太原 石家庄
北京 沈阳
长春
天津
哈尔滨
香港 澳门
海口
In 2013, Ningbo suffered a serious flash flooding affected by typhoon Fitow.
In 2008, Wenchuan 5.12 earthquake, the direct economic losses is more than RMB 800 billion.
In 2014, a magnitude-6.5 earthquake hit
Ludian, resulting in some fatalities, tens
of thousands of houses collapsed, small
earthquake caused huge disaster.
3.3 Catastrophe Insurance in Practice
In the local catastrophe insurance pilot projects, as a major participant, China Re P&C worked
with governments, regulatory authorities and industry peers to provide risk assessment,
actuarial analysis, product design and other important technical supports as well as adequate
reinsurance capacity support for each project.
41
1000+ page
Sponsor
China Re P&C
Issued Limit
US$50 million
Risk Transferred
Earthquake Risk in Mainland China
Terms
Three-year
SPV
Panda Re incorporated in
Bermuda
3.4 Cat Bond
On July 1, 2015, as the sponsor, China Re P&C issued China’s FIRST cat bond through
Panda Re, a special purpose vehicle (SPV) set up in Bermuda, thus successfully transferred
Chinese earthquake exposure to offshore capital market. With this successful issuance of cat
bond, alternative risk transfer tools have received a great interest by regulators and major
market players.
42
SPV
The actual issuer
Mainly set up in the Cayman Islands,
Bermuda and other markets
Underwriters, legal advisors, SPV
managers, trustees, etc.
Bond trading platform
Insurers and reinsurers etc.
Risk subject provider
Cost undertaker
Special catastrophe
funds, hedge funds,
asset management
institutions
Invest in cat bonds for profits
The ultimate risk taker
Cat Bond
Major Players
3.4 Cat Bond
43
3.5 NEW PRODUCTS IN THE MARKET
Encouraged by the governments, products like IDI, first pilot equipment insurance and performance bond
are vital to national wellbeing and the people's livelihood. China Re attaches great importance to these
sectors and has become the reinsurance leader in the above area. We are market leader in terms of:
01 Close relations and frequent interactions with the
government authorities.
02 Profound understanding of national policy
03 Advantageous position with accurate
assessment of risks, quick decision-making,
and swift action
44
3.5.1 INHERENT DEFECTS INSURANCE
Inherent Defects Insurance(IDI) provides indemnities to home owners against the losses
caused by inherent defects in the construction of the building.
Latest Developments
Shanghai
Shanghai Govt. approved IDI
pilot program in June 2016.
Program covers all public
housing in Shanghai and
commercial residential
buildings in New Pudong
District.
Launch time:
OCT 2016
Beijing
Beijing Govt. approved IDI
pilot program in JAN 2016
Program covers all newly built
commercial residential
buildings .
Launch time: expected 2017
Ministry of Housing &
Urban-Rural Development
2016 Pilot programs started in Beijing, Shanghai , and then expanded to other regions； 2018 All newly-built houses to be covered by IDI； 2020 IDI covers all municipal infrastructures, all newly-built, expanded, and reconstructed buildings. The coming five yeas would be crucial for IDI development
45
Market Potential：
National Bureau of Statistics announced that in 2015, the floor area of newly-built
residential building reached 1.067 billion square meters. Since the Ministry of Housing
& Urban Rural Development has already set the goal to “ to maintain a steady
development of the housing market during next five years”, it can be expected that IDI
sector would have great growth potential.
China RE P&C’s Goal To be the reinsurance Leader of IDI
3.5.1 INHERENT DEFECTS INSURANCE
46
3.5.2 FIRST PILOT EQUIPMENT SCHEME COMPREHENSIVE INSURANCE
Background
This insurance product is designed to
encourage the development of modern
equipment manufacturing industry.
Premium subsidies would be provided
to the manufacturers by both the
central govt. and local govt.
This is the second nationwide Govt.-
subsided insurance product in addition
to Agriculture insurance.
Market Potentail
Since Yr 2015, the pilot program
covers 14 industries, 360 types of
equipment. According to our
estimation, total value of the
equipment covers in the first year
will amount to 80 billion RMB.
China Re has established
reinsurance cooperation in this area
with all major underwriters in the
market .
47
3.5.3 PERFORMANCE BOND
Since year 2014, both the
central and local govt.
have encouraged
insurance companies to
provide performance
bond to contractors.
According to stat., in
2015, new construction
contract value amounted
to RMB 18.4 trillion.
Normal limit of a bond
policy is 10% of the
contract value.
We have signed
reinsurance contracts
with the majority insurers
in Bond biz in the market.
Background Potential Our Goal
48
Summary
Inherit Based on decades’ of business experience, client resources and data
accumulation in China’s market, we keep consolidating our technical advantages,
strengthening our competitiveness on data analysis, product pricing and client
services.
Innovate By constantly improving our technical strength, taking our advantage on
comprehensive reinsurance solutions, product R&D, and drawing on international
experience, we are in a good position to seize the market opportunities brought by
innovative development, and facilitate the innovation and transformation of the
industry.
Lead We are seizing strategic opportunities brought by the State Council's 10 New
Opinions and the industry’s 13th 5 year development plan, and actively participating in
industry major projects. With built influence in the industry, we will keep increasing our
clients loyalty and maintain a leading position in the market.
49
Q&A
