China's insurance sector remains well-capitalized: Moody's

Tracy Li
Life insurers, P&C insurance companies and reinsurers all recorded high solvency ratios. 
Tracy Li

China’s insurance sector remains well-capitalized, with life insurers, property and casualty (P&C) insurance companies as well as reinsurers all recording high solvency ratios, Moody’s Investors Service said on Monday.

All three sub-sectors reported average comprehensive solvency ratios of more than 200 percent, well above regulatory minimum of 100 percent.

Solvency ratio of an insurance company is the size of its capital relative to premiums written. It is a key metric used to measure the risk an insurer faces of claims that it cannot absorb.

The ratio was down among life insurers and reinsurers in 2018, but was up for P&C players, the rating agency’s report said.

Chinese life insurers' capitalization eased in 2018. Their core solvency ratios dropped to 203 percent at the year-end from 212 percent a year before, and comprehensive solvency ratios fell by 10 percentage points to stay at 214 percent over the same period.

These two ratios, nevertheless, are well above their respective regulatory minimums of 50 percent and 100 percent, the report noted.

The decline was mainly caused by lower available capital due to equity losses amid volatile capital markets and higher minimum required capital from market risk, Moody’s said.

The rating agency expects the industry's solvency metrics to stabilize in 2019, because of slow premium growth and assuming the recovery of the equity market would continue.

Meanwhile, China’s life sector continues to shift its business mix toward protection-type products, away from short and medium-term plans. And Moody’s believes moderate premium growth rates will dominate solvency trends and limit capital pressure on life insurers in the next 12-18 months.

In contrast, Chinese P&C insurers' capitalization improved in 2018. Their core solvency ratios increased by 5 percentage points annually to 236 percent at the year-end, and the comprehensive solvency ratio grew to 271 percent from 262 percent over the same period.

The improvement was mainly a result of capital injections many insurers received in that year, Moody’s said.

However, the report expects further improvement to be limited by lower motor insurance underwriting earnings and non-motor business growth.

The P&C industry's underwriting profit is projected to be weak as a result of motor pricing deregulation and higher agent commission. Additionally, rapid growth in non-motor products will likely reduce industry solvency.

Reinsurers' solvency declined amid business growth among major reinsurers, which account for around 60 percent of the country’s reinsurance market.

Strong reinsurance growth was driven by life insurers' shift toward protection-type products and non-life insurers' development of their non-motor lines, both of which add to the need for risk diversification, according to the report.

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