Moves afoot in China to set up insurance exchange

SHANGHAI is taking steps to launch a national insurance exchange as part of efforts to promote the city as an international financial centre, according to Chinese media reports. Shanghai’s Pudong New Area has applied to set up the exchange to trade insurance policies and related derivatives, and the proposal has been submitted to the China Insurance Regulatory Commission for approval.

The exchange will start by trading original and reinsurance policies and will gradually expand to trade securitised products such as catastrophe bonds and insurance derivatives, the report said, citing Xu Wenhu, Director of the research team at the local-level Shanghai insurance exchange. Participants in the market will include insurers, reinsurers, insurance brokers, securities investors, asset management and risk management companies.

“Trading at a centralised institution could help save on information costs,” said Chen Dongmei, an Associate Professor of the insurance faculty at Shanghai’s Fudan University. “The operation of an exchange will involve many aspects and different stakeholders, according to our research on some foreign exchanges such as the New York Stock Exchange. It’s only feasible to set up a relatively simple platform in China as a derivatives market has not yet been established,” Prof Chen said.

Hao Yansu, professor at the Central University of Finance and Economics, says that the trading of insurance products will require the full development of China’s capital markets. He adds that from a regulatory perspective, the securitisation of insurance products would need the approval of the securities regulator, China Securities Regulatory Commission.

Other observers have said that China is not ready for the insurance exchange, which is originally to be launched this month. One factor is that the Chinese reinsurance market is not fully developed. Furthermore, there is a lack of the necessary regulatory framework governing the proposed exchange’s structure, products, and procedures.