Moody’s Investors Service has released a stable outlook for China’s property and casualty (P&C) insurance industry, citing regulatory measures that protect the sector against the narrowing in underwriting margins caused by heightened motor insurance competition.
“Our stable outlook is mainly driven by our expectation that insurers’ underwriting profit and capitalization will remain stable, supported by measures implemented by the authorities to mitigate aggressive pricing and acquisition expense practices,” said Moody’s analyst Kelvin Kwok.
“The outlook is further based on the receding level of risk from alternative investments and the strong growth in non-motor lines over the next 12-18 months,” he added.
The global ratings agency expects the industry’s underwriting profitability to remain stable with a combined ratio below 100% in the coming 12 to 18 months. This will be driven by increased regulator scrutiny, to prevent unwarranted price competition and runaway growth in acquisition expenses. In tandem with increased discipline in managing operating expenses, this will help offset a higher loss ratio in the motor line due to more liberalised pricing.
The P&C industry’s capitalisation remains solid, with its weighted average comprehensive solvency ratio under the China Risk Oriented Solvency System (C-ROSS) at 263% as of end-2017, well above the regulatory minimum of 100%.
Moody’s expects the industry to rely less on alternative investments, due to regulators clamping down on several investment vehicles and increasing yields of traditional investments. The sector is forecast to grow in the low double digits in the next 12 to 18 months.
Non-motor lines, such as agricultural and liability insurance, are expected to grow strongly due to stable growth in the economy and beneficial policy initiatives. Motor premium growth, however, will slow on subdued car sales and ongoing price liberalisation.
Moody’s report noted the increased adoption of technology in the industry, with Chinese insurers outpacing their counterparts in other more-developed markets such as Hong Kong, Australia, and Japan. While this opens up risks due to competition with technology companies, Moody’s believes that the threat of market disruption is quite limited due to high barriers to entry in the motor insurance sector, as well as non-motor lines such as agriculture, commercial property, and liability insurance.
