Statement of the American Insurance Association

U.S. property and casualty insurers strongly supported the 1999 U.S-China bilateral agreement on China’s accession to the World Trade Organization (WTO) because of the far-reaching and comprehensive market access commitments it provided for U.S. insurers to the Chinese market. The agreement did not completely open the market for U.S. insurers, but it opened it significantly enough to generate further confidence among U.S. insurance companies already invested in China or those contemplating investments in the future.

The U.S. property and casualty insurance industry and its trade association, the American Insurance Association, spent considerable time and resources lobbying in support of Permanent Normal Trade Relations for China in 2000, largely based on the quality of the 1999 agreement. It lobbied hundreds of congressional offices and contacted every Member of the House and Senate in support of PNTR.

One year later, the AIA is proud to offer its continued strong support for China’s accession to the WTO and for the granting of Normal Trade Relations (NTR) for China again this year until accession becomes a reality. The U.S. property and casualty insurance industry has had various issues subject to negotiation since the 1999 agreement, and more recently in the WTO Working Party on China’s Accession, in an effort to clear up ambiguities in that agreement. We are happy to report to the House Ways and Means Trade Subcommittee that these issues have progressed to our satisfaction and will result in meaningful market opening opportunities for many U.S. property and casualty insurers.

These issues have included:

• The elimination of the mandatory 20 percent reinsurance cession on non-life insurance products. The Working Party report calls for a phase-out of this cession over a period of four years. The AIA has expressed concern over the cession in the past and supports its timely phase-out.
• Opening the market to "large-scale commercial risks." Large commercial risks in China have always been a targeted market for U.S. property and casualty insurers, and the U.S. prioritized the opening of this market in the 1999 agreement. Language in the Working Party report will set the parameters for the "large-scale commercial" risk market at approximately $50,000 in U.S. premium value and an $18 million investment level. While these parameters will limit access to China’s commercial market for U.S. insurers, this opening in the commercial market is a good start and one that we hope to build on in future negotiations.
• Master policy coverage. The agreement will permit insurers to underwrite blanket coverage for the same person’s property and liabilities but located in different places. This will make it easier and more efficient for an insurer to underwrite the risks of one company that conducts business in multiple locations throughout the country.
• Licensing criteria. We have reviewed language currently in the Working Party report that addresses criteria for license applications from U.S. insurers and believe that it should provide for a fair and transparent system for awarding licenses in a timely and fair manner. Last year, the AIA reported that over 20 U.S. insurance companies were currently operating in China in some capacity, and this criteria should help them become licensed if they meet the relevant qualifications.

The AIA remains committed to China’s WTO accession and continued congressional support for NTR for China. We are happy to report that all issues of concern to us appear to be on the verge of being favorably resolved in the Working Party report, and we will continue to work with USTR negotiators toward that end. We understand that all parties involved – the U.S., China and all WTO countries – will continue to watch China’s accession with great interest and optimism, and stand ready to assist China in any way in successfully adhering to the terms of accession and to WTO membership in general. Anything less would be a disservice to global trade and prosperity, the effectiveness of the WTO, U.S. trade policy, and, importantly, to the Chinese people and private sector that will benefit from a healthy and open property and casualty insurance sector.

INSURANCE AND CHINA

• Compared to other major countries, China’s insurance market is relatively new and still evolving. Foreign participation in the market is even more recent with many foreign insurance companies just beginning to establish a presence in China in the last decade.
• Insurance was nationalized in China in 1949, and until the late 1980s the market was dominated by a small number of state-owned insurance companies in China. China began to gradually award licenses to foreign insurers in the early 1990s, but the business activities of the licensed companies have been heavily restricted and still are today.
• As in most developing countries, insurance has not been a major component of China’s economy in the past. As the economy in China has gradually expanded and undergone some reform, more types of insurance products (that are common in developed countries) are now in higher demand.
• Currently, the Chinese market is still largely closed to foreign insurance companies. While several foreign insurance companies have operating licenses in China, the extent to which they can operate and sell their products is extremely limited.
• The Chinese Insurance Regulatory Commission (CIRC) was created in 1998 to regulate the business of insurance in China. The creation of a single agency to regulate the business is indicative of the increasing importance of insurance to the Chinese economy.
• Currently, there are nearly 30 insurance companies operating with licenses in China, including Chinese and non-Chinese companies.

• The Chinese economy experienced significant growth in the 1990s. Continued economic reforms will generate new economic growth and significant new opportunities for U.S. insurers. As China continues to open its doors to foreign investment, U.S. insurers want to insure both commercial and personal lines exposures to both foreign and Chinese consumers.
• China, with a population of 1.2 billion, represents the largest untapped market for property-casualty and life insurance products. Based on SIGMA (Swiss Re) data, China has a very low penetration rate of 1.22 (total insurance premiums as a share of gross domestic product), which places it 65th of 82 countries in the survey. The per capita spending on insurance policies in China in 1996 was U.S. $ 6, which places it 78th among 82 countries. Per capita spending on insurance policies in the U.S. was $2,460 in the same year.
• Total insurance premiums in China in 1998 (property/casualty and life) amounted to U.S. $15.1 billion. The annual growth rate in the insurance market from 1993-98 averaged 29.7%.

• Currently, foreign insurers are allowed to conduct limited business activities in two Chinese cities only, Shanghai and Guangzhou. Depending on the type of insurance a foreign company sells, the company, if licensed, faces significant restrictions on what form of ownership it may assume, what products it can sell and to whom, where it can sell its products, whether it must comply with a different set of regulations from domestic companies, and a host of other barriers that prevent it from competing freely in that market.
• Property/casualty insurers are allowed only to sell products to other foreign entities in China. They are not allowed to sell directly to Chinese consumers.
• The first U.S. company to receive an operating license in China was AIG in 1992. The second and most recent U.S. insurer, Aetna, received a license in 1997. Both companies are severely limited in how they operate and what products they can sell. The Chinese government announced in April 2000 that an additional license was to be awarded to The Chubb Corporation, and this license has since been approved.
• Seven individual insurance companies from Japan, Canada, Switzerland, German, France, the U.K., and Australia have also received licenses since 1992.
• Over 100 other foreign insurance companies, including 20 from the U.S., have established a physical presence in China with the hope of becoming licensed in the future.