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The non-life insurance market in China has been presented with a negative outlook by ratings agency A.M. Best, but conditions are expected to improve soon.
A report by the agency said that competition is intensifying, investment risks are increasing, and regulators are clamping down. These conditions contribute to a challenging environment for non-life insurers in China.
There are 85 non-life insurers operating in China, but the five largest firms corner the lion’s share of the market, with a combined 70%. These top five insurers have seen their combined ratio improved slightly to 97.8% in 2017 from a weighted average of 98.3% in 2016. This means that the current market conditions favour these large insurers, the report said.
According to A.M. Best, underwriting margins will remain under pressure in the medium term, with smaller insurers taking the brunt. The sector’s profitability has historically been dependent on investment income, given weak underwriting results. The report adds that investment income is likely to remain volatile, given the domestic investment market’s volatility. A trend towards investment in loan-type and alternative investments could increase credit risk and the potential for asset/liability mismatch.
However, the Chinese non-life insurance segment is set to recover, thanks to strong growth of China’s economy and supportive government policies. Gross written premiums reached RMB1 trillion (US$160 billion) in 2017, up 13.8% from 2016. This was helped by China’s gross domestic product growth rate of 6.9%, despite regulatory actions to deleverage corporate debt and reduce excess industrial capacity.
In the medium term, economic growth is predicted to remain at similar levels, but according to A.M. Best, these prospects could be hampered by increased economic uncertainty from international tensions between China and its trade partners.
