While general commercial insurance companies have been expanding rapidly, the ranks of captive insurance companies have also been growing over the past two years. Since the beginning of 2017, one captive has officially opened for business, some are making opening preparations, and others have entered the pre-disclosure stage—frequent moves all around.
It is increasingly common for large enterprises (groups) to establish captive insurance companies. So how are the captives currently in the market performing? From the 2016 annual reports, the reporter found that last year the two captives registered in mainland China operated stably with solid profitability. And since their establishment, both have remained profitable every year.
CNPC Captive Property Insurance Co., Ltd. ("CNPC Captive") was established at the end of 2013. In 2016, its insurance business income was RMB 507 million, down about 8.9% year on year; investment income was about RMB 324 million, up about 5%; and net profit was about RMB 283 million, down slightly by about 1% from 2015. In 2014 and 2015, CNPC Captive's net profits were about RMB 286 million and RMB 173 million respectively—in other words, the company has remained profitable for three consecutive years since its establishment.
In terms of risk control, CNPC Captive noted that the internal insurance business of China National Petroleum Corporation (7.470, -0.02, -0.27%) is characterized by large risks and high concentration: a misestimate of catastrophe losses, inadequate insurance pricing or unreasonable reinsurance arrangements could lead to temporary solvency shortfalls and underwriting risk.
To this end, drawing on major property loss events in the oil industry in recent years and the corresponding insurance claim cases, the company held in-depth discussions with group clients and set about formulating a management mechanism for major risk events, aiming at the group-wide level to effectively control the protection of petroleum equipment and property values, and to effectively control direct loss costs and insurance costs. In 2016, the company experienced no major risk events.
Industry insiders analyze that the primary purpose of a captive's operation is to help its parent company achieve its risk management objectives, and CNPC Captive's actions described above reflect exactly that. Reducing a captive's claim payments through disaster prevention and loss mitigation is a win-win choice for both the captive and its parent company.
Ranked by premium income, CNPC Captive's top five lines of business in 2016 were commercial property insurance, liability insurance, energy insurance, cargo insurance and hull insurance. Among them, commercial property, energy and cargo insurance achieved positive underwriting profits, while the other two posted negative underwriting results.
China Railway Property Insurance Captive Co., Ltd. ("China Railway Captive") was established in July 2015. In 2016, the company's insurance business income was about RMB 689 million, and investment income was about RMB 46.782 million. In terms of operations, building on profitability in its opening year, China Railway Captive remained profitable in 2016, achieving a net profit of about RMB 92.692 million—two consecutive years of profit. Since 2015 was not a full year of operation, no year-on-year comparison of its operating data is made here.
China Railway Captive's top five insurance products by direct premium income in 2016 were engineering insurance, accident injury insurance, motor vehicle insurance, liability insurance and commercial property insurance. Among them, accident injury and motor vehicle insurance posted positive underwriting profits, while the other three major lines posted negative underwriting results.
Industry insiders point out that although the two captives have achieved the enviable record of profitability every year since opening, their operating history is still short and cannot yet reflect performance over a longer horizon. A captive's high risk concentration may cause sharp swings in its annual operating results, and the companies should have full awareness of and preparation for this risk characteristic.
In 2017, the captive insurance sector saw continuous activity: in February, COSCO Shipping Property Insurance Captive Co., Ltd. opened for business; in March, China Datang Group Property Insurance Captive Co., Ltd. entered pre-disclosure; and in April, Guangdong Yuedian Property Insurance Captive Co., Ltd. (in preparation) held its inaugural meeting—marking that Yuedian Captive had basically completed opening preparations and was qualified to apply for opening.
In addition to the captives above, captives already established in China include the CNOOC captive, the CGN captive and the Sinopec captive, all registered in Hong Kong. To date, eight captives have opened or are in preparation; counting those still planned, the number of such insurance companies is about to reach double digits.
Source: Securities Times, 2017-05-10