China Q3 Market Dynamics
Landscape
Reported cases of COVID-19 have generally remained low in China in 2021, with fewer than 100 new cases recorded each day. However, the virus has continued to have a massive impact, as cases have been suppressed through periodic local lockdowns. The arrival of the Delta variant in particular has been met by a return of stay-at-home orders and the shutting down of inter-regional travel as well as a reinvigoration of mass testing and vaccination programs. Vaccination campaigns, which saw slow progress initially, had by late September ensured that over 70% of the population had received two doses.
Lockdown measures have combined with power shortages and a debt crisis in the real estate sector to weigh on growth.
The second quarter of 2021 saw GDP growth of 1.3%, and in late September Goldman Sachs cut its third quarter growth forecast to zero while forecasting 7.8% growth over 2021 as a whole. Inflation dropped slightly in August, from a year-on-year figure of 1.0% to 0.8%, and the People’s Bank of China kept the benchmark one-year loan prime rate at 3.85% for the sixteenth consecutive month. After major floods hit the Henan Province in July, the beginning of October saw China Reinsurance issue the first mainland catastrophe bond to be sold in Hong Kong, following regulatory approval.
Key Indices - China
Market Dynamics
China Featured Products Q3 2021
Q3 Automobile Summary
Overall (Soft) Favourable market conditions continue, driven largely by insurance reform that went into effect in September, 2020.
Rates (Down) Auto insurance is tariff rated, and quotes are only available via the government platform. In light of insurance reforms that took effect in September, 2020, renewals are experiencing significant rate decreases.
Capacity (Ample) Sufficient capacity continues to be available..
Underwriting (Prudent) Auto underwriters have become more cautious and selective in light of government pricing regulation which makes some poor performing risks like trucks, taxis, ride hailing cars, trailers, and luxury cars unprofitable.
Limits (Increasing) As pricing continues to fall and the road accident compensation standard rises, many insureds are choosing to increase their limit. Limits have risen 100% year-over-year.
Deductibles (Decreasing) The September, 2020, insurance reforms stipulated that deductibles no longer apply to Auto coverage. So, while historically, deductible buy-backs were common, they are no longer needed as deductibles have essentially been reduced to nil.
Coverages (Broadening) Basic coverage terms are standardized nationally, and there is a trend to broaden them, driven by insureds looking to secure more coverage now that prices are lower, and also by insurers looking to maintain premium levels in the face of reduced rates.
A Look Ahead (Soft) The impacts of the September, 2020, insurance reforms have now been digested by insurers for a full annual renewal cycle. So, while there will be less pressure in terms of adjusting underwriting appetites, profitability expectations, etc., there is growing pressure to maintain and increase premium to fill pricing gaps.
Q3 Casualty/Liability Summary
Overall (Stable) As insurers continue to gain experience in this product, market conditions are stabilizing.
Rates (Flat) Pricing is generally flat and decreases can be achieved for favorable risk types.
Capacity (Ample) Sufficient capacity continues to be available.
Underwriting (Flexible) Local insurers remain flexible while international insurers rely on a more conservative and rigorous underwriting approach based on risk type and, in particular, the amount and type of overseas exposures.
Limits (Stable) Expiring limits can be achieved on most policies.
Deductibles (Stable) Expiring deductibles can be achieved on most policies.
Coverages (Stable) Coverages remain stable. Changes are not being imposed accross-the-board but some are required on a risk specific basis.
A Look Ahead (Stable) Conditions are expected to remain stable, barring any major losses in this space.
Q3 Cyber Summary
Overall (Challenging) Market conditions are challenging due to elevated risk and poor loss performance, particularly related to ransomware. In addition, global insurers have tightened their underwriting approaches as part of the transition to centralized underwriting, which has led to a restriction of some coverages coupled with rate increases.
Rates (>+30%) Pricing is up significantly due to poor performance, elevated risk, and as part of the shift to centralized underwriting.
Capacity (Constrained) Capacity has contracted materially as insurers remain cautious about risk frequency and severity.
Underwriting (Stringent) Underwriting has become rigorous and very selective. There is a growing trend amongst underwriters to request supplemental applications, mostly focused on ransomware.
Limits (Decreasing) As risk evolves and cyber events become more common and severe, many insureds are seeking higher limits but the market is very constrained, with few insurers willing to provide them.
Deductibles (Increasing) Deductibles have increased significantly, even for well-performing risks.
Coverages (Restricting) Underwriters are imposing coverage restrictions, especially related to ransomware.
A Look Ahead (Challenging) The market will remain challenging; however, as more local insurers enter the market with their new underwriting techniques and methodologies, some relief is expected.
Q3 Employers Liability/Workers Compensation Summary
Overall (Stable) The market is stable overall, with insurer appetite focused on well-performing risks and favourable risk types.
Rates (Flat) Pricing remains flat as a result of strong competition, especially for large risks with favourable performance.
Capacity (Ample) Capacity is sufficient, driving healthy market appetite and competition.
Underwriting (Flexible) Underwriting is flexible and accommodating as insurer appetite remains strong.
Limits (Stable) Limits remain steady and increases can often be achieved if requested.
Deductibles (Not Applicable)
Coverages (Stable) Expiring coverages can be achieved on most policies.
A Look Ahead (Stable) The market is expected to experience further competition, especially for larger risks, leading to more favourable conditions.
Q3 Products Liability Summary
Overall (Stable) The market is stable, with healthy competition, especially following Amazon’s supplier insurance mandate that has served to broaden insurer appetite in Products Liability.
Rates (Flat) Pricing remains flat as loss experience remains favorable and competition is strong.
Capacity (Ample) Capacity continues to be sufficient.
Underwriting (Prudent) While local underwriters remain flexible, underwriters from international insurers are rigorous in their risk evaluation, especially related to oversea exposures.
Limits (Stable) As the Product Recall market becomes more challenging, insurers are sub-limiting or otherwise tightening Recall extensions. Other Products Liability limits remain stable.
Deductibles (Stable) Deductibles remain stable in general; however, insurers are mandating increases for complex or critical products.
Coverages (Stable) Expiring coverages can be achieved on most policies.
A Look Ahead (Stable) The market is expected to become more competitive for small to mid-sized risks while a tightening is expected for complex risks and critical products.
Q3 Surety Summary
Overall (Stable) The market is generally stable, despite the withdrawal of a major international insurer from this space. There was an immediate capacity contraction but local insurers have helped to fill the void.
Rates (Flat) Local insurers have expanded their Surety solutions, which has served to keep rates stable.
Capacity (Stable) Capacity contracted following poor loss experience and the withdrawal of a major insurer; however, local insurers are mobilizing to address the need.
Underwriting (Prudent) Existing and new insurers are cautious and conservative.
Limits (Stable) Expiring limits can be achieved in most cases.
Deductibles (Not Applicable)
Coverages (Stable) Expiring coverages can be achieved in most cases.
A Look Ahead (Stable) The Surety market is expected to remain stable as capacity stabilizes and new markets in this space continue to mature.