Introduction:

China's insurance sector has registered 10 to 15 percent revenue growth for several consecutive years. Total income from premiums is likely to top US$20 billion in 2001.

By 2005, the total value of insurance premiums is expected to reach US$33.82 billion, constituting 2.3 percent of China's total GDP. The average premium per person will be US$27.78.

Despite such rapid growth, the insurance industry is still a small part of the entire economy. Compared with 11 percent in Japan and 8 percent in the United States, the insurance industry only represents less than 2 percent of China's GDP. It is no wonder that global insurance companies look to China as a driver for their industry's growth over the next several years.

Laws and Regulations Governing Foreign Insurance Companies in China

Statutory Qualifications:

Foreign insurance companies that apply for establishment of foreign-invested insurance organizations in China should meet the following requirements:

• Over 30 years of insurance business operation;

• Total assets exceeding US$5 billion at the end of the year prior to the application; and

• Has had a representative office in China for at least 2 years.

Capital Funds

The minimum registered capital required for a JV insurance company is listed as follow:

• Not less than US$20 million for life insurance business;

• Not less than US$20 million for non-life insurance business.

Guarantee Funds

• 20% of the actual paid-up capital of a JV insurance company should be set aside as guarantee funds;

• Foreign insurers setting up wholly owned branches in China need to deposit US$4 million with the government as required by the China Insurance Regulatory Commission (CIRC) as guarantee funds for either property insurance or life insurance operations.

Problems

China's domestic insurers will face challenges as China opens the sector to foreign competition as stipulated by WTO accession agreements.

• Most life insurance companies in the country have payout obligations that are significantly greater than their current return on investments

• Shortages of actuaries and professional insurance management staff have contributed to poor business practices by insurance companies