Development of Chinas Insurance

Industry and Actuarial Practice

under the New Normal
November 2016

Wang Zheng, Secretary-General, China Association of Actuaries (CAA)

Wang Zheng, the Fellow of CAA, graduated from School of Mathematical

Science of Peking University, the incumbent Secretary-General of CAA.
Mr. Wang had worked in the Finance and Accounting Department,
General Office and Life Insurance Supervision Department of China
Insurance regulatory commission (CIRC) with experience in solvency
supervision and life insurance regulation.

Contents

I.

Overview of Chinas Insurance Industry

II. The Economic and Social Environment for Insurance

Industry Development under the New Normal

III. The Actuarial Practice and Exploration in China

I.

Overview of Chinas Insurance Industry

1.

Current Status of Chinas Insurance Market

2.

Implementation of Supervision on China Risk

Oriented Solvency System (C-ROSS)

1.

Current Status of Chinas Insurance Market

Insurance Institutions and Practitioners

Reinsurance, 9

Institutions

Group, 11
Life, 76

Asset Management, 22

Insurance
Companies, 163

Property,
78

5.65
Increased 936, 200
than 2016 beginning

Practitioners
1.06

2016 Mid-Year
Employee

Agent

1.

Current Status of Chinas Insurance Market

Premium, business structure and foreign-funded share

Rapid growth in insurance businesses in the first half year.

Original insurance
premium income
(CNY trillion)

Premium year-onyear growth

Growth rate year-onyear growth

Insurance Industry

1.88

37.29%

18.02%

P&C insurance

0.43

7.07%

-3.83%

Life insurance

1.18

45.02%

23.75%

69.55%

32.87%

New business
Ordinary life insurance

0.75

79.45%

Health insurance

0.24

89.37%

Increase in foreign market share in the first half year.

Original insurance
premium income

Market shares

(CNY trillion)

Market shares yearon-year growth

Chinese-funded insurance companies

1.79

94.90%

Foreign-funded insurance companies

0.10

5.10%

0.72%

Foreign-funded property insurance companies

0.01

2.02%

0.02%

Foreign-funded life insurance companies

0.09

6.10%

0.65%

1.

Current Status of Chinas Insurance Market

Investment of Insurance fund

Declining yield rate of insurance fund in the first half year.

Fund Amount
(CNY trillion)
Insurance companies
bank deposits and bonds
stocks and securities

Compared with
beginning of
the year

Realized yield
(CNY trillion)

Year-on-year
growth
(CNY trillion)

12.56

12.37%

0.29

-0.22(42.32%)

6.57(52.28%)

-3.89%

0.14

-0.003

1.70(13.5%)

-1.68%

0.02

-0.26

2.

Implementation of Supervision on C-ROSS

Construction and framework

Risk-based
Capital Requirement
No. 1Actual Capital
No. 2 Minimum Capital
No. 3 Liability Assessment
under Life Insurance Contract
No. 4 Minimum Insurance
Risk Capital (For Non-Life
Insurance Business)
No. 5 Minimum Insurance
Risk Capital (For Life
Insurance Business)
No. 6 Minimum Insurance
Risk Capital (For Reinsurance
Companies)
No. 7 Minimum Market
Risk Capital
No. 8 Minimum Credit Risk
Capital
No. 9Stress Testing

Practicability

Comparable

Risk Management
Requirement

Information Disclosure
Requirement

No. 10: Integrated Risk Rating

(Classified Regulation)
No. 11: Solvency Aligned Risk
Management Requirements
and Assessment
No. 12: Liquidity risk

No. 13: Solvency Information

Disclosure
No. 14: Solvency Information
Exchange
No. 15: Credit Ratings of
Insurance Companies

No. 16 Solvency Report

No. 17: Insurance groups

Solvency Risk Management

8

2.

Implementation of Supervision on C-ROSS

Implementation and exploration

Industrial solvency adequacy ratio is high

Company

Aggregated
Solvency ratio

Core
Solvency ratio

Property

278%

255%

Life

250%

227%

Reinsurance

418%

418%

Amounts proportion of eligible companies is 98%

Assets proportion of eligible companies 99%
Only 3 companies are ineligible

Integrated Risk Rating

Rating A
Rating B
Rating C
Rating D

SARMRA

Amounts and assets proportion of eligible

companies are close to 100%

Capital strength gradually-increased

Industry solvency surplus was CNY 1.91 trillion at the

end of June

Increased CNY 64.9 billion compared with beginning

of this year, with the increased rate of 3.6%

Risk-resistance capability of the industry has been

increased

98%, low risk

2%, high risk

Solvency Aligned Risk Management

Requirements and Assessment

2.

Implementation of Supervision on C-ROSS

Effect

Positive effects have been obtained to reach the original intention of system design
from the implementation of C-ROSS.

Reflect Risk Comprehensively

Promote Transformation & Upgrading

Expand International Influence

10

II.

The Economic and Social Environment for Insurance

Industry Development under the New Normal
1.

The 13th Five-Year Economic Development Plan

2.

The New Urbanization

3.

The Demands of the Service Industry: "Entertainment,

Education, Health-care and Elderly-care"

4.

The Aging Population

5.

The Healthy China Construction and the Combination of

Healthcare and Elderly-care

6.

The Innovation and Development of Science and Technology

and Related Influences

11

The New Normal Economic and Social Environment

The new normal, explained in one

sentence, is the transition from a emerging
industrial country that continues to develop
at a high speed to a moderately developed
country or developed country.

12

1.

The 13th Five-Year Economic Development Plan

Basic characteristics of the new

normal economy

Mainlines of Economic Reform and

Development under the New
Normal

Economy has shifted gear from the

previous high speed to a medium-to-high
speed growth

Innovation

Economic structure is constantly

improved and upgraded, with the
services consumption needs have
gradually become the main body

Green

Coordination

Open

Sharing
Economy is increasingly driven by
innovation instead of input and
investment

The Development Goals of the Fiveyear Plan

Achieve doubled GDP and urban and
rural residents per capita income by 2020
than these of 2010
Achieve remarkable results of innovationdriven development, with deep
integration of technology and economy

Achieve higher proportion of the service

industries
Significantly improve the quality of
urbanization
Increase the depth and range of the
opening, with basic balance of
international payments

13

1.

The 13th Five-Year Economic Development Plan

Specific Economic Indicators

Indicators

2015

2020

Growth

GDP (CNY trillion)

67.7

>92.7

Annual >6.5%

Urbanization rate of resident population

(%)

56.1

60

3.9

Urbanization rate of registered resident

population (%)

39.9

45

5.1

50.5

56

5.5

Value-added proportion of the service

industries (%)

14

2.

The New Urbanization

The urbanization has entered a new transition stage mainly with the
quality-oriented development

In 1978-2013, the
urbanization of China
experienced a period of low
starting point and high speed

The urbanization rate was increased from 17.9% to 53.7%. Beijing/Tianjin/Hebei, Yangtze
River Delta and Pearl River Delta, have clustered 18% population on 2.8% area of the
country, creating 36% of GDP, and become the main platforms for the economic growth and
the participation in international economic cooperation and competition

Today

The development of the urbanization and industrialization, and of the informatization and
agriculture modernization, have been the core content of the modernization

China is still in the 30%-70% range of rapid development of urbanization

In the next five years

There will be the healthy and orderly development of urbanization, to realize the transfer of
about 100 million agricultural population and other residents to be settled in the cities and
towns

15

2.

The New Urbanization

The maximum potential of expanding domestic demand is the urbanization

The circumstance of
urbanization

Currently, Chinas resident population urbanization rate is 56%, while the registered
resident population urbanization rate is only about 40%, which are far below the number of
80% of the average level of developed countries with a large room for development

Enable more farmers increase income through employment

The advantage of increasing
urbanization level

Enjoy better public services by transferring to citizens

Create continuous upgrading of consumption structure and release consumption potentials

Create large investment needs for urban infrastructure, public facilities and housing
construction

Urbanization and the service industry are closely related

Service industry

In the process of urbanization, the population cluster, lifestyle changes, improvement of

living standards, will expand the needs of life services; the production optimization, the
linkage of the three industries, the segmentation of social division of labor, will also expand
production demands for life services
Urbanization brings innovation agglomeration and the spread of knowledge, which can
enhance innovation, drive the upgrading of traditional industries and the development of
new industries

16

3.

"Entertainment, Education, Health-care and Elderly-care"

Entertainment,
Education, Health-care
and Elderly-care:
Sunrise Industries

Service Industry is
Future Economic
Mainstream

China, 51%

Service Support
Policies should be
Perfected

Civil
Aviation

Electric
Power

Gas

Railways
Municipal
Utility

Postal
Services

Oil

Internet

Medical
Education Care
Finance

US, 80%
Service

Others

Trade
Logistics

Health
Care

Culture
Elderly
Care

Child
Education Care

Sports

17

4.

The Aging Population

China had entered the Aging Society

Situation is Extremely Grim

210 million aged 60 years

140 million aged 65 years, proportion >10%

Aging before getting rich

1.4 times of European Union

Imbalance between urban and rural

development
The smaller sizes of the families, the weaker
of family support functions

Population Aging Trend

2020, 248 million aged 60 years, >17.17%
2050, 400 million aged 60 years, >30%

AGING

2051+, stable

Prospects of the Elderly-care Industry

Policies and Measures
Accelerate policies construction
Full liberalization of the elderly-care service
market

Elderly finance
Elderly supplies
Elderly services
Elderly real estate

18

5.

The Healthy China Construction and the Combination of Healthcare and Elderly-care

Average life expectancy (years old)

2015: 76.34 2020: 77.3 2030:79.0
The premature mortality of major chronic diseases (%)
2015: 19.1
2020: 10% lower than that of 2015

Targets

2030: 30% lower than that of 2015

The total scale of health service industry (CNY trillion):
2020: > 8 2030: 16

Healthy China

Policy Related

Encourage enterprises and individuals to participate in

commercial health insurance

Promote the cooperation of commercial insurers with

medical, physical examination, nursing agencies etc.

New Commercial
Mode

Health and elderly care communities

Hospitals
Internet + Health

19

6.

The Innovation and Development of Science and Technology and Related Influences

Internet+

Big Data
Cloud Computing

Genetic Technology

Artificial Intelligence

20

III.

The Actuarial Practice and Exploration in China

1.

The Development of Actuary in China

2.

The Third Version of Life Table in China

3.

The Evaluation Criteria of Life Insurance Embedded Value

4.

Financial Data Analyst

5.

The Benchmark Yield Curve

21

The Third Version of Mortality Table in China

Launched in 2014

With the project team of

10 insurance companies

Took two years to complete

Life expectancy has increased by nearly 3 years

The sample data volume ranked first in the
world: 340 million insurance policies, 1.85 million
claims, covering 180 million population
Application of advanced technologies such as
data mining: automatic clean 95% of all claims
data, accuracy higher than 97%
The first Mortality table for pension plans

The experience analysis should be normalized and be more frequent, so as to reflect the latest trends in mortality;
The existing data should be dug deeper, and the study of mortality should be strengthened, so as to provide support
for the national population policy;

The internal and external publicity should be improved, so as to share the results of the life table within the entire
industry and to enhance the international influence of the new life table.

22

Financial Data Analyst

Financial data analyst ("FDA"), as the new direction of personnel training of China Association of Actuaries, is focused on
the personnel needs of predictive modelling and data analysis in the areas such as insurance and financial industries,
with the applications of data processing, data analysis and data mining techniques as the main contents, with training
and certification as the mode of personnel training and objective assessment.

Purpose

System

Applied for the positions of

quantitative analysis

Basic: focusing on basic skills

training

Providing high-quality learning and

assessment platforms

Intermediate: mastering the

predictive modeling skills in
specialized areas

Elevating the levels of statistical

modeling and big data

Advanced: mastering the skills of

modeling analysis and application
in the big data environment

23

Financial Data Analyst

Curriculum

Example
Level

Course Category
Data processing tools

Data Processing
Tools

Use of statistical
software

Data analysis
techniques

Basic

Curriculum Contents
SQL, Oracle, Excel, VBA, and SAS base.
Statistical analysis (data, statistical sampling and
sampling distributions, mathematical statistics,
regression analysis)

Data analysis practices (data compression, query,

Data analysis practices extracting, cleaning and integration, basic
statistical analysis, complex statistical analysis)

Data Analysis
Techniques

Statistical analysis
and the principles
of data mining

Intermediate

Data processing tools

SAS EM (data mining, regression analysis, neural

networks, and so on)

Data analysis and

modeling techniques

Modern methods of data analysis (method of

multivariate statistical analysis, factor analysis,
principal component analysis, time sequence, and
so on)

Data modeling practices

Data Analysis
Practices

Case study
Practices of data
analysis techniques
and tools in actual
work

Advanced

Auto insurance pricing models, vehicle type and

rate grading, renewal analysis, etc.

Data processing tools

PYTHON, Hadoop, Spark

Data analysis and

modeling techniques

Machine learning and data mining (pattern mining,

clustering, classification algorithm, neural
networks)

Data modeling practices Anti-fraud models, grading models, UBI, etc.

24

The Benchmark Yield Curve of China

As early as in the 1970s, the central banks or the ministries of finance of various countries began the
practice and studies in the preparation of benchmark yield curve.

The empirical research in China was started in the late 20th century. ChinaBond, Wind and many
institutions have conducted positive explorations, but there still is more room to improve.

The establishment of the benchmark yield curve is an

important part of the accelerating of the process of
interest rate marketization
The benchmark yield curve will play an important role in
the process of rate marketization of insurance industry

CAA has conducted research on the benchmark yield

curve of China

25

The Benchmark Yield Curve of China

Stable Macroeconomic Long Term

Ultimate Rate

Deep Liquidity
Market
Observed Data

Rate

Benchmark Yield Curve

Interpolation with
Smith-Wilson Theory

11

T1

16

21

26

31

36

41
46
51
Years +

56

61

T2

66

71

76

81

86

26

THANK YOU!
wangzheng@e-caa.org.cn