China's reinsurers are investing in technology and systems to support the expanded coverage of non-motor and, in particular, catastrophe insurance. These business lines will help sustain growth, although they could expose the sector to more profit volatility, according to an article by S&P Global Ratings, titled "A Decade Since The Sichuan Earthquake, Catastrophe Reinsurance Is Gaining Momentum In China".
"The ongoing expansion into non-motor P&C business offers new growth avenues but will expose Chinese reinsurers to potential volatility, given the rising uncertainties associated with catastrophe exposures, insufficient underwriting expertise, and evolving risk-management frameworks," said S&P Global Ratings credit analyst Ms Wenwen Chen. "By our estimates, the reinsurance cession rates for China's P&C sector will stabilise at around 9% by 2020."
2018 marks the 10th anniversary of a massive earthquake in Sichuan province that killed more than 69,000 people and caused huge property losses. Back then, less than 1% of losses were covered by insurance claims. In the decade since that disaster, authorities have invested in systems to improve everything from construction standards to insurance markets.
China's property and casualty (P&C) penetration has deepened since 2008, but remains low, with national coverage worth less than 2% of GDP.
S&P expects domestic reinsurers will increase investments in catastrophe modelling to counter uncertainties, following growing catastrophe exposures. This also comes after the establishment of China's first earthquake catastrophe model in 2015.
Until 2015, China had only one dedicated domestic reinsurer, but has since issued three additional such licences. At 31 July 2018, there are also seven global reinsurers with branches in China.