On 20 April, China Agricultural Reinsurance Pool (“CARP”) convened the Sixth General Meeting and On-site Exchange on Subjects of Agricultural Insurance in Shanghai. Over 90 representatives of the CIRC, the Ministry of Finance, the Ministry of Agriculture, the State Forestry Administration and 37 China P&C companies and reinsurance companies attended the Meeting.
Liu Feng, Director of the Property Insurance Supervision Department of the CIRC, fully recognized the effectiveness of CARP since its establishment, introduced the good development opportunities of China’s agricultural insurance and put forward requirements for further improving the system and mechanism of CARP. Liu Feng pointed out that the establishment of CARP was a material breakthrough in the development history of China’s agricultural insurance as well as an essential exploration for implementation of policies in relation to the improvement of agricultural reinsurance system and establishment of catastrophe risk dispersion mechanism by the Party and the State Council. The implementation over the past two years reflected that the establishment of CARP complied with the actual requirements for reform and development of China’s agricultural insurance and the system design achieved and even exceeded expectations.
Liu Feng stated certain requirements. The first is to unify thoughts and enhance awareness. Agricultural insurance is a national policy of “Strengthen Agriculture and Benefit Farmers” which has a strong policy nature and quasi-publicity. CARP is not only a risk community but also a community of interests. Members share risks and create win-win situation through cooperation. The second is to strengthen responsibilities and serve the public. CARP will further expand the underwriting capacity, enhance the support for innovative products as well as provide insurance support for the fields in which the State encourages development, including poverty alleviation insurance, price insurance, agricultural product insurance with local characteristics and advantages and high-security products of new agricultural operating entities, with risks under control. The third is to optimize system and improve mechanism. It has to strike a balance between business development and risk control so as to achieve collaborative development of insurance and reinsurance.
According to the figures, in 2016, China’s agricultural insurance claim expenses amounted to RMB34.8 billion, representing 10 times of the national agricultural disaster relief funds. Risks such as earthquakes and hail excluded from coverage in developed countries are insured under China’s agricultural insurance. Agricultural insurance plays a prominent role before material disasters. Agricultural insurance has become an important source of funds for post-disaster reconstruction work in disaster areas and has fully reflected its cornerstone effect for rural finance. Currently, the number of members of CARP has extended to 32 member companies and 5 observer companies and the underwriting capacity has amounted to RMB360 billion, providing adequate and stable underwriting capacity for the industry.
Wang Jinchen, Deputy Inspector of Department of Finance under the Ministry of Agriculture, pointed out that this year’s work report proposed to improve the agricultural reinsurance system. CARP established the pilot program of catastrophe insurance of operating entities of appropriate scale in 13 major grain-producing provinces and regions to play an active role. With enhancement in scale development, intensification and socialization of agriculture in China, large number of new agricultural operating entities emerges. Agricultural insurance has extended to production, processing, transport, sales, quality safety and other segments, providing comprehensive protection against risk.
Zhang Yanhong, Deputy Director of the Planning and Finance Department of the State Forestry Administration, pointed out that forestry insurance in China started late but developed rapidly. It plays an important complementary policy role in promoting national forest tenure reforms and financial innovation, while there are still problems and challenges in development of China’s forestry insurance. The next step is to issue guidance on the expansion of forestry insurance, promote cooperation between insurance companies and the forestry authorities and expand and enrich supply of forestry insurance in order to gradually achieve full coverage of forestry insurance.
Wang Yetian, Head of the management agency for CARP, expressed at the meeting that, CARP firmly implemented the work requirements of “Coverage Expansion, Standard Enhancement and Quality Improvement” by CIRC since its establishment. It actively served reform of product terms in the industry and provided reinsurance protection for over 100 innovative agricultural insurance products in high-security fields and high risk areas in which the State encourages development such as target price insurance for industry development, agricultural product insurance with local characteristics and advantages, index-based weather insurance and fishery insurance, to effectively solve the problems of not being underwritten by international reinsurance companies and concerns of insurance companies, promoting the implementation of national policies of supporting agriculture. In particular, since 2015, CARP has been actively cooperating with reform of product terms with central financial subsidies jointly launched by the CIRC, the Ministry of Finance and the Ministry of Agriculture. Payout ratio of new agricultural insurance products significantly increased by 10 percentage points, and CARP strived to maintain the reinsurance underwriting conditions. Suppressing the impact of increasing risk exposures on insurance companies through stabilizing reinsurance conditions, CARP provided strong support for smooth promotion of product reforms.
Jiang Caishi, Chairman of the General Meeting of CARP, pointed out that for the past two years, the actual risk obligation borne by CARP exceeded RMB350 billion and the accumulated claims paid amounted to RMB9.8 billion. Especially in the extreme weather disasters in recent years such as major droughts in Liaoning and Heilongjiang and major flood in the South, claims paid by CARP represented over 40% of the total claims. It strongly resolved the regional and basin-wide agricultural catastrophe risk and effectively ensured the balanced operation of agricultural insurance system. However, due to the rapid accumulation of operational risk in agricultural insurance in recent years, larger selectivity and volatility of business ceded out, together with the impact of regional extreme weather disasters, the overall payout ratio of CARP business significantly increased and recorded losses for two consecutive years. Effective surplus accumulation was not achieved during normal years, which was unfavorable to the enhancement of agricultural disaster risk capacity and long-term stable operation of CARP. As the risk community and the community of interests in the industry, CARP will further intensify the reform on the system and mechanism of CARP. While continuing to expand the underwriting capacity of the industry and providing support for agricultural modernization reform, CARP will first enhance scientific assessment on businesses with continuous losses, optimize its ceding structures and conditions, push forward centralization and equalization of ceding proportion, reduce risk of business adverse selection and achieve matching of risk diversification and risk consideration. Secondly, CARP will promote standardized ceding of agricultural insurance business with financial support and establish linkage mechanism between pricing of reinsurance and insurance according to the principle of breakeven and meager profit. Thirdly, it will explore into purchasing excess of loss reinsurance and other methods to provide effective risk diversification channels for catastrophe risks hard to be borne by agricultural reinsurance system, enhancing catastrophe risk capacity of CARP.