China Medical Insurance market and Swiss Re Value Proposition

1. China Medical Insurance market and Swiss Re Value Proposition Kelvyn Young 10 April 2008

2. Social insurance Private insurance Out-of-pocket Tax financing Note: The original data is taken from WHO World Health Statistics 2007. Government involvement is measured as “general government expenditure”, which include social health insurance, as % of total health expenditure (THE). Insurance component is measured by the % of health spending financed by social health insurance and private prepaid plans. When reporting the data to WHO, there may be inconsistencies in definitions among 191 member countries. Source: Swiss Re Economic Research & Consulting Private sector participation is gaining popularity in healthcare

3. Evolution of medical insurance business Insurability / Infrastructure Managed care Integrated state and private offering Full reimburse-ment Hospital cash Increasingly mature market and sophisticated buyers Critical illness USA market Regulatory burden, little incentive Asia market Life only Risk not insurable No opportunity Stay away Insurer’s involvement Administration Underwriting, product devt Active claims management Source: Swiss Re Economic Research & Consulting; Swiss Re L&H

4. Top 10 US companies Top non US companies *Kaiser data refers to revenue, not NPE, Cigna: includes disability & life business, Aetna: includes group life, disability & LTC, AXA: includes all health lines, including disability, Allianz: German health business only. Source: Company financial statements, Conning, Swiss Re Economic Research & Consulting World top 10 health underwriters World top health underwriters by net premiums earned

5. Overview:Healthcare in China Healthcare expenditure: 4.7% of China’s GDP (1) • 2004: more than RMB 759 billion (USD95 billion) • 2007: estimated to be more than RMB 1,000 billion (USD 137 billion) (2) • 52% directly paid by households • 6% of which by commercial health insurance A national priority • Social health insurance now a reality, but offers basic coverage: • 1998: basic medical insurance system for urban employees (180 m people covered end 2007) • 2003: rural cooperative medical system for rural residents (730 million people covered end 2007) • 2010(3): target for universal coverage • Significant work on improving hospital administration and delivery 1. WHO 2005 2. Swiss Re Economic Research & Consulting 3 . Premier Wen Jiabao

6. Medical insurance in China: large-scale potential Growing demand and affordability • 70% of affluent and upper mass customers (estimated at 41 million households by 2010) would consider commercial medical insurance (1) • 15% of the 70% would consider expensive next-generation products priced at RMB 7,400 (USD 1,000) p.a. Consumers want better services • As affluence grows, customers seek better services, such as: • Shorter waiting time • Cashless services • Better pre- and post-admission follow-ups, etc • Opportunities for introduction of new generation products Market potential for commercial health insurance (including critical illness) • RMB 489 billion (USD 67 billion) in annual premiums (2) 1. Shanghai and Qingdao survey 2006 2. Swiss Re Economic Research & Consulting

7. 2000 2001 2002 2003 2004 2005 2006 2007 2015 Just how large is China’s potential? Health insurance premium income USD Bn, excluding Critical Illness • By 2015, China GDP will reach USD8.4 trillion, (excluding exchange rate effect). Of the 5% spent on health, if 1.5% is funded via private medical insurance (excluding critical illness), the market will still reach USD6.3bn (CAGR: 12%) • Between 2007 and 2015, affluent population will increase their demand for supplement scheme on top of social health insurance which will keep expanding. Actual figures in-between vary year by year. (RMB46bn) 6.3 6 5 4 (RMB19bn) 3 2.6 2.2 1.9 2 1.0 1.0 1 0.5 0.3 0.3 0 Source: McKinsey, Swiss Re Economic Research & Consulting

8. Health business volume • Total health insurance – includes large proportion of long term or short term CI business, accident medex etc, • A few companies sell Long term care and Income protection, but premium volume is very small 3. Volume increased from 2004 to 2006, small growth during year 2007. 4. Loss ratio is low for CI and individual PMI which mainly includes hospital cash and hospital reimbursement. 5. Group medical business experience is worse then individual Slide 8 source: CIRC yearly published data

9. Contributions & funds for Basic medical insurance system Contribution • Fund • Decision to establish a basic medical insurance system for urban enterprise employeestate council 1998 • Guidance on participating basic medical insurance for urban flexible work forceMinistry of Social Labour and Security[2003] no.10 Slide 9

10. Basic Fund 1. Inpatient but limits 2. Outpatient treatment of cancer (radiotherapy, chemotherapy), renal dialysis 3. Emergency room fees leading to an inpatient claim Additional Fund 1. Outpatient above a deductible 2. Inpatient above the basic funds benefits Individual Account 1. Covers the gaps of the basic and additional funds Cover within the different funds Slide 10

11. Summary of outpatient and inpatient cover outpatient expenses inpatient expenses Slide 11

12. SHI – Urban Scheme - Overview • Inpatient • Employer pays approx 8% - Employee pay 2% • Deductible: from 600 -2000 RMB, for example Beijing 1300 RMB • The amount may differ by hospital grade, employment status or even DOB • Copayment of the basic fund: from 3% to 30% depending on the hospital grade, employment status or amount of actual medical expenses • Upper limit of the basic fund: From 24000 (Taiyuan) to 145000 (Guangzhou) • Maximum amount paid by additional fund: No limit set for some cities such as Shanghai, Hangzhou, For other cities the limits vary from 100,000 to 300,000 RMB (Wuhan & Chongqing) • Copayment from additional fund: from 2% to 25%

13. SHI Overview • Outpatient • Only some developed areas provide supplementary outpatient coverage, e.g. Beijing Shanghai: with deductible 1542 for active work or 771 for retiree (varying by DOB), no SA, Copayment 30%-100% for actively work and 20%-55% for retiree • One company has designed their own out-patient product for those areas where there is no O/P SHI coverage

14. QI_BU Product features in the current market In Patient Out Patient The example above is based on the features of the Beijing market The features are typical of some companies, most however only have two sub-products, one is for Inpatient and the other is for outpatient

15. Hospital Providers in China • Around 300,000 medical providers in the China mainland • 4 kinds of medical structures in China mainland: government, joint ventures, foreign owned and private. Approx90% hospitalsare government hospitals • Governmental hospitals in China belong to different systems: Ministry of Health (MOH), Ministry of Education (MOE), Army, City, the state etc. Most hospitals are not commercial or service oriented and have no service procedure and thus it can be difficult to build networks • Hospitals are divided into 3 grades: grade 3 (best), grade 2 and grade 1. Grade 3 hospitals are found in big cities. Hospitals with the name of “ Peoples’ Hospital” are usually the highest graded hospital • Hospitals are graded on the evaluation of the hardware butnot service

16. What’s standing in the way?Key challenges in China

17. Sales and marketing Administration Medical management Underwriting Pharma. cost Mgt. Case / disease Mgt. Building provider network Provider cost Mgt. Customer service / retention Payment processing Customer acquisition Product / benefit design Claims Mgt. (adjudication) = current gaps Swiss Re’s business model goes beyond the traditional reinsurance model • Success in medical (re)insurance demands the ability to operate and exert influence across the medical management and insurance value chains • Professional approaches to product management, claims management and medical provider management are all key success factors • Swiss Re will work, together with its partner organisations, to develop the key components of the value chain that do not currently feature in the local medical insurance markets

18. Prestige Health Medical Service Provider 1 Policyholder services Medical Service Provider 2 Network management Medical Service Provider 3 Claims management Data capture Medical Service Provider 4 Experience analysis - Distribution & sales - Premium collection - Policyholder administration - Customer service Medical Service Provider n Prestige Health:Full-service capabilities Medical Insurers Swiss Re Beijing Branch Product development, pricing and reinsurance capacity Beijing 2 April 2008 Chee Kok POH CEO, Prestige Health

19. Prestige Health benefits chain:people, hospitals, insurers & the State Consumers: Better services and more affordable products Hospitals: Widens customer base, offers patients better services and enhance hospital’s reputation Insurers: More confidence over insurance cost and profitability thereby offering more competitive products the State: Contributes to sustainable medical insurance industry growth and promotes better use of hospital resource

20. Swiss Re’s strategy to help clients succeed • Core team in place plus strong local teams • Team totally dedicated to growing and developing PMI market • Claims Management strategy to ensure control of key aspects of the risk • Engage with regulators and governments to assist with development of the market • Provide clients with tools for success • Helping clients with data analytics and the full suite of risk management solutions • Help clients to grow their business via innovative product ideas

21. Appendix 1. MedeGuide