Swiss Reinsurance, one of the world's biggest reinsurance groups, expects the mainland to be a major driver of growth for the company in the next decade, particularly once the central government has formulated a policy on natural catastrophe risk management.
Even though Swiss Re opened its first branch just two months ago offering reinsurance services in health and life, as well as property and casualty, the issue of natural catastrophe on the mainland has concerned it for years.
In 1999, the company opened a research centre at Beijing Normal University to collect and interpret data from natural catastrophes, develop risk measures and establish links with other research institutes and state organisations. One of the first important products of this collaboration with BNU will be published next week when Swiss Re releases a "disaster atlas" describing China's natural disaster systems in unprecedented detail.
More than any other nation, China suffers from a potentially calamitous variety of natural perils, most particularly floods and typhoon. Over the past 12 years, for example, China has experienced three of the world's worst floods, the most severe in mid-1998, which caused an estimated bn in loss and damage.
Swiss Re, like other big reinsurers including Munich Re, is urging the Chinese government to examine ways of using co-operation between the public and private sectors regarding natural catastrophe cover that will have the knock-on effect of helping the mainland develop and deepen its capital markets.
"China is a unique landscape with a unique set of circumstances. We have talked to the China Insurance Regulatory Commission [the country's regulator] who gave us quite a good reception," says Pierre Ozendo, Swiss Re's chief executive in Asia. "We discussed what we thought was needed: a partnership between the private and public sector to establish a pool of funds and share risk. Our role allows us to help diversify. We can help mitigate big risk."
Swiss Re, its foreign competitors and home-grown insurers can provide capacity, but foreign entrantssintosthe China market believe the government needs to accelerate the creation of capital. "The more China grows, the more the country has to lose," says Mr Ozendo. The good news, he adds, is that the mainland has often shown it can outpace the West's expectations. "China has shown time and time again that it can change swiftly and definitively," he says. Other countries have tailored so-called "nat cat" systems to suit their circumstances. Japan, for example, has issued natural catastrophe bonds or swaps to offset earthquake risk.
The insurance market generally is growing swiftly in China. According to Swiss Re's forecasts, premium income from property and casualty is expected to grow from .4bn in 2002 to .9bn in 2012. Life premium income estimates are even more dramatic. Income from this business rose from just over bn in 2001 to bn in 2002, and Swiss Re calculates that this number will rise to bn by 2012 as more Chinese save to prepare for retirement.
Mr Ozendo says the authorities are clearly paying a lot of attention to the insurance sector and not just because they must do so under World Trade Organisation rules. "The pipeline of initial public offerings for insurance companies shows China is focused. The administration knows this industry consumes a lot of capital."
Last year, international investors welcomed former state-owned insurers - People's Insurance Company of China (PICC) and China Life. Moreover, the mainland's sole reinsurer, China Re, is restructuring itselfsintosseparate reinsurance, non-life and direct insurance companies to make itself more competitive.