One Belt, One Road to create $35.5bn commercial premium

One Belt, One Road to create $35.5bn commercial premium

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China’s One Belt One Road (B&R) plan will drive a huge boost in commercial insurance premium, two-thirds of which will go to China’s own rapidly expanding insurance market, according to Swiss Re.

The report noted that China’s B&R overseas investment will continue to increase demand for commercial re/insurance in China and abroad.

The B&R strategy, which launched in March 2015, aims to link China via trade arteries across Asia to Africa and Europe. The plan connects 65 countries and spans six main economic corridors and one maritime route, linking 62% of the world’s population and 30% of global GDP.

About $7bn of commercial premium will be derived from those B&R projects already announced, the Sigma study estimated – some $5.5bn of which is expected to go to Chinese insurers.

Another $27bn commercial premium could be developed by future B&R investment to 2030, Swiss Re estimated – with $16bn earmarked for Chinese firms, according to the reinsurer’s estimates.

Increased trade and trade liberalisation driven by B&R could also mean an additional $1.5bn commercial premium boost for Chinese insurers by 2030: $900m of which would come from cargo insurance; and another $600m in the trade credit insurance market.

Adding up all of that means the B&R strategy could mean about $35.5bn of additional commercial premium spending, some $23bn of which Swiss Re estimated would be taken by China’s insurers.

Premium growth will affect some lines more than others, the reinsurer thought: engineering seeing the biggest premium potential (51% of the total); then property (32%); and then marine (15%).

The initial construction phase would be followed by ongoing re/insurance spends, shifting towards a boom in property premium over time, according to the study.

Swiss Re’s study noted that Chinese firms would face cultural and operational challenges to meet the risk transfer demand arising from B&R investment and support the strategy with effective risk transfer.

Swiss Re’s report noted that Chinese commercial insurance premium had already reached $56.4bn in 2015 and had increased by a 17.9% compound growth rate annually over the preceding decade, making it the second largest commercial insurance market in the world today.

Commercial insurance represented 42% of non-life insurance premium in 2015, owing to the continued dominance of motor premium in China’s non-life market.

The context of China’s economic slowdown as a result of weaker external demand and investment growth means the government has sought to rebalance the Chinese economy, from exports and foreign investment to a consumption model.

“The new normal is lower, but more stable and sustainable growth,” said the Swiss Re study.

“At the same time, the government is encouraging Chinese enterprises to invest overseas, partly to acquire new technologies and secure supplies of raw materials,” added the Sigma report.

Swiss Re noted that Chinese outward direct investment “expanded rapidly” between 2006 and 2015, at a 22.7% compound annual growth rate.

That rise meant that in 2015 for the first time China was a net outward capital exporter and investor, coinciding with the B&R launch.

Total Chinese B&R overseas investment reached $51.1bn between March 2015 and July 2016, with a $1trn spend predicted up to 2030, according to Swiss Re’s own estimate.

The Asia Infrastructure Investment Bank is currently the largest financial services focused fund underpinning B&R, spending $500m on infrastructure projects jointly run with the Asia Development Bank, since its December 2015 inception to July 2016.

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