The life insurance industry in China, in aggregate, delivers returns for investors that are consistently below its cost of capital. While some carriers have created significant value, others are dragging industry returns down to below zero.

China’s life insurance market, after 20 years of unprecedented growth, is poised to become the world’s third largest. Value creation remains another story. The industry’s aggregate returns over the last decade have exceeded the cost of equity by just half of one percent (Exhibit 1), far less than lower-risk investments. The industry seems to oscillate between bursts of high growth and contraction as it issues attractive guarantees and piles up longterm risks and is then forced to face the consequences.

The industry’s poor performance at the aggregate level, however, obscures some great success stories of carriers that have navigated the changing marketplace wisely, creating significant value for shareholders and policyholders. We expect a handful to further widen their lead in the next few years by transforming their business models to adapt to a new marketplace and grasp big opportunities while the stragglers falter and even disappear.

insurance-exhibit-1

What have the winners done differently? Offered a more attractive product mix? Executed better within product lines? Achieved higher investment returns?

To answer these questions, we launched The Life Journey, which began with research into publicly available data for China’s life insurance industry since 2003. We focused on the top 12 life insurers and conducted a broader regional analysis. We also interviewed industry analysts and executives, and conducted in-depth research on eight insurers who jointly represent 60% of gross premiums in China, to gain a better understanding of the underlying drivers of performance.

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About the authors: Parker Shi is a Director in McKinsey’s New Jersey office, Vivek Agrawal is a Director in the Tokyo office, and Rae Chen is a Partner in the Shanghai office. Image Credit:Flickr/Ioannis Skaltsas