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Q&A: Steven Chang, Munich Reinsurance China Co.

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Q&A: Steven Chang, Munich Reinsurance China Co.

Steven Chang is CEO of Munich Reinsurance China Co. in Beijing. He joined American Re, part of Munich Reinsurance Co., in 1997. From 2002 until 2008, he was chief representative in Munich Re’s office in Shanghai, before moving back to Beijing to become deputy CEO of Munich Re’s Beijing branch office before becoming CEO a year later. He spoke to Business Insurance Senior Editor Sarah Veysey during the Rendez-vous de Septembre in Monte Carlo, Monaco. Edited excerpts follow.

Q: What is the reinsurance market like in China?

A: In China, there are three segments to the reinsurance market: China Re, the government-owned reinsurer that plays a dominant role in both life and property and casualty; seven reinsurers, including Munich Re and Hannover Re Group, that have opened up in China; and companies writing China business from outside.

From a Munich Re perspective, we always position ourselves as a premium provider. In my portfolio, about 80% of the business is specialty based on bilateral agreement with buyers.

Q: What effects are regulatory changes having on the market?

A: There are several regulatory changes taking place. The China Insurance Regulatory Commission (with its China Risk Oriented Solvency System slated for finalization by the end of this year, a transitional period in 2015 and full implementation in 2016) decided to largely follow the theme of Solvency II but made it very clear that it had to reflect the specifics of China.

At the moment, C-ROSS is very risk-based. For example, for natural catastrophe risk, the capital requirements for reinsurers will increase. We really welcome this change because it is an alignment with how we operate in the home office.

Currently, for reinsurance branch offices, no capital must be held locally. But under the C-ROSS draft, we would be required to establish local capital. That is quite a change for us, but it will be an even larger change for those overseas companies writing China reinsurance business because there will be a credit risk capital charge for those reinsurers that run on an overseas basis.

Q: Are there any areas of business that are ripe for development?

A: The government earlier this year published a document on how it thinks the insurance market can support the development of the economy.

For natural catastrophe, we see three layers of development. First, the development of a national natural catastrophe pool — we will try to support the regulator and our clients to do groundwork on that.

Secondly, the development of regional natural catastrophe pools — we’ll try to develop solutions at the provisional level.

And third, commercial natural cat business — we actively support our clients there.

In the coming three to five years, natural catastrophe will become one of the most important areas for the reinsurance industry in China.

And various liability classes — for example, food security is a very important topic, as is environmental liability.

Also, because of the development of the middle class in China, there is great potential for personal lines business.

The challenge we have is the need to develop the primary market knowledge. We think we have the know-how to do it, and we bring mature products from our home office.

Q: How can companies increase their penetration in the Chinese reinsurance market?

A: A presence in the market is very important, obviously. But when you have a presence, you have to understand the market and judge how the market will develop. We think that a local team is important because you can link culturally and be close to the client.