It did not make international headlines or significant waves outside the industry, but the completion of the first inward business agreement through a global reinsurance trading platform in Shanghai was a significant step towards building the city into a global reinsurance hub.
Shanghai’s plans to become a reinsurance hub have solidified over the past few months. The development of new rules for the industry, attempts to attract talent, and the launch of the international reinsurance trading platform launched in October, through the Shanghai Insurance Exchange, are all part of these plans.
The first inward agreement announced on Nov. 6 was a concrete result of these plans and efforts.
“The Shanghai Insurance Exchange has been in existence for a long time, but it encompasses various other business segments, including a platform for international reinsurance transactions,” Paul Qi, Executive Director of Business Development (China) at Redbridge Insurance, told (Re)in Asia.
Paul Qi
Executive Director at Redbridge InsuranceRedbridge Insurance, an insurer from Barbados, was one of the first global institutions to enter the reinsurance centre and have a trading seat. The platform has garnered significant attention from global insurers, many of which are keen to use it as a vehicle to tap into the potentially huge Chinese market, understand operating policies and processes, and minimise transaction costs.
“Prior to the launch of this centre, they were very interested in the Chinese market but lacked understanding and communication mechanisms,” said Qi. “Due to the high transaction costs, these global insurers had limited opportunities to enter the Chinese market. Now, through the reinsurance trading platform, they can directly engage with Chinese insurance companies, thereby accessing business cooperation opportunities.”
The international reinsurance trading platform of the Shanghai Insurance Exchange launched on October 26 during the Shanghai International Reinsurance Conference. The launch built on a June announcement by the National Financial Regulatory Administration (NFRA) of the establishment of an international board in Shanghai, which included implementation rules and a digital reinsurance trading system, (Re)in Asia reported.
The deal, announced on Nov. 6, involved two companies registered with this international board. AXA Hong Kong Property & Casualty Insurance was the cedent and AXA Tianping Property & Casualty Insurance is the reinsurer. The deal involved cross-border motor insurance business in the Greater Bay Area (GBA) region.
Scott Yin
Chief Actuary and Chief Pricing Officer at AXA Tianping“The establishment of the international reinsurance board aims to consolidate the strength of the entire market to formulate unified and transparent rules, which will help build the reinsurance infrastructure of the entire Chinese market,” said Scott Yin, Chief Actuary and Chief Pricing Officer at AXA Tianping, told (Re) in Asia. “It can greatly accelerate the development of the domestic reinsurance market.”
“It can facilitate risk diversification for overseas markets and provide a new option for global insurers,” said Yin, who is also head of AXA Tianping’s Reinsurance Operation Center in Shanghai.
Growing interest
Interest in the role of Shanghai as a reinsurance hub has been growing among global insurers and reinsurers.
One key driver of this interest is the uncertain global macroeconomic environment, which often translates to challenges for companies in ensuring financial soundness, which has led to weakened global underwriting capacity, this can be a problem in the reinsurance sector that requires large amounts of capital to move across borders.
“A lot of businesses around the world are seeking capacity, and Chinese insurers have not been severely affected by the pandemic,” said Qi of Redbridge. “The economic environment in China is relatively robust and the financial capacity of these insurance companies remains reliable.”
Qi believes Chinese insurers have excess transitional capacity to offer, which aligns with the capacity sought by insurers worldwide.
Additionally, state support gives the centralised trading platform in Shanghai added credibility, making it a trustworthy platform, said Yin.
“The new approach of the Reinsurance Exchange is to place risks in the emerging market of China, rather than selecting specific reinsurers for transactions. All companies participating in the platform are accredited and have their creditworthiness and ratings,” Yin added. “This choice approach synergises with the reputation and ratings of the Reinsurance Exchange, offering trustworthy options for global players.”
Reorganising resources
The reinsurance trading platform of the Shanghai Insurance Exchange is one of the largest projects within China’s evolving insurance regulatory system. As a trading platform, it can centralise access qualifications and facilitate international reinsurance transactions.
Not only does the trading platform create potential opportunities for insurers, but the establishment of the Shanghai International Reinsurance Trading Centre gives global insurers with a long-standing presence in China, such as AXA Tianping, an opportunity to reorganise resources and make them more efficient.
“Our reinsurance business is decentralised. Apart from our reinsurance department, various other departments within the company handle the business, including business and finance departments. Many individuals are involved in reinsurance work, scattered across different locations within the company,” said Yin.
Through the centre, the company can centralise and strengthen core functions and this makes it possible to streamline processes, Yin said.
The same is true for specific reinsurance transactions, which can be carried out more efficiently.
In the past, international reinsurance transactions were often conducted on a point-to-point basis without a centralised platform for aggregation. The launch of the new platform changes this long-standing approach by aggregating information from and among reinsurance companies.
“For instance, a reinsurance company can post its business requirements on the platform, and other companies can provide corresponding services through the platform. This type of information aggregation transaction promotes business cooperation and partner matching,” said Qi.
Another notable change that impacts foreign companies is the ability to engage with domestic companies without physical meetings or contact. Before the launch, foreign companies had to visit China for face-to-face meetings and negotiations if they wanted to engage with domestic institutions in China. The new platform eliminates this need for a physical presence.
Infrastructure support
At a practical level, the Shanghai Insurance Exchange can generate significant practical benefits for insurers and reinsurers.
One such benefit is to facilitate support for transactions by making the handling of support materials like documents and contracts more efficient. All of these can be shared and managed through the platform, protecting intellectual property rights and expediting processes, said Qi.
The Exchange also provides a platform with specialized know-how in cross-border RMB and international mainstream currency settlements, which can accelerate transaction processes for companies both domestic and international.
“Previously, global representatives had to visit the State Administration of Foreign Exchange for certain transaction registrations, leading to significant friction,” said Qi.
Yin, for his part, pointed to infrastructure support that offers highly transparent rules for on-market trading facilities, including standardized data specifications. Additionally, facilities for domestic reinsurance cross-border income and expenditure settlements can reduce cross-border transaction costs and settlement cycles.
But the launch of the Exchange is an early step. There are significant challenges that will have to be addressed for the efforts to build Shanghai into a global reinsurance hub to be successful.
Looking ahead, Qi believes it will be necessary to ensure proper operations and maintenance for consistent long-term operations.
“Similar to an online e-commerce platform, it needs more communication and active transactions from both sides to create a lively market,” said Qi.
And then there is the chronic shortage of talent with the necessary expertise and know-how to help the industry grow.
For now, there is a limited number of people with experience in reinsurance to support operations and ongoing development, and that could be a challenge. Yin expects China to put in place more programs to foster and nurture more insurance talent.
