Hong Kong, September 21, 2015 -- Moody's Investors Service says that China's (Aa3 stable) life
insurance sector faces a deteriorating investment environment in the coming
12-18 months, mitigated by improving underwriting profitability
and multiple regulatory safeguards.
"Our outlook for the sector takes into account the likely scenario
that the equity market will remain highly volatile for a significant part
of the next 12-18 months, on the back of lingering economic
uncertainty, low liquidity and reduced margin financing activity,"
says Sally Yim, a Moody's Vice President and Senior Credit
Officer.
"This scenario would imply immediate negative impact on life insurers,
as their financials are highly dependent on stock market performance,"
adds Yim. "Should the recent market correction stabilize
at current levels or extend further, insurers will see a reversal
in the improving trend in their earnings and capitalization of the past
year."
Moody's conclusions were contained in its just-released report,
entitled "Industry Outlook - Chinese Life Insurance:
Stable Outlook, but Negative Headwinds Prevalent".
The industry outlook indicates Moody's forward-looking assessment
of fundamental credit conditions that will affect the creditworthiness
of the life insurance industry over the next 12-18 months.
Moody's report highlights that the heightened uncertainty and volatility
in the investment environment reflects not only the current downside risks
in China's economy, but also the administrative measures Chinese
authorities have put in place in an attempt to stabilize market sentiment.
Some of these measures have encouraged insurers to increase their stock
purchases, further increasing their exposure to potential further
stock market volatility.
However, Moody's assessment also takes into account several
positive developments that will help the industry weather the current
headwinds and maintain its credit standing.
Specifically, demand for insurance products is supported by an increasingly
risk-averse public that is moving away from the equity market,
and by the current low interest rate environment.
The industry should also reap the benefits of a strengthening agency force,
following increased investment in training and compensation structures.
This should help diversify insurers' product mix towards more stable
and lucrative protection-type products.
Moody's expects life premium growth of around 15%-20%
over the outlook period, similar to the 18.4% recorded
in 2014, mainly from stronger sales on long-term savings
and protection-type products.
Further, while the industry's solvency margin will likely
retreat from a high average of 275.4% for major life insurers
in mid-2015, owing to the stock market correction,
it will remain above the 150% "Adequate II" level stipulated
by the China Insurance Regulatory Commission (CIRC).
Moody's also views the parallel implementation of China's
Risk-Oriented Solvency System (C-ROSS) since February 2015
as a positive development that will incentivize insurers to manage their
capital according to risk.
Nevertheless, the recent sharp correction in equity prices has shifted
the government's policy priority towards the promotion of market
stability. This, in Moody's view, has added uncertainty
to the timeline for full C-ROSS implementation.
Subscribers can access the report here: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1007381
Moody's offers complimentary access to its new topic page,
China -- Reform and Rebalancing, a centralized source for Moody's
research related to key credit issues in China as the country's
rebalancing story unfolds. This report is part of Moody's ongoing
coverage on this theme. Register today at www.moodys.com/chinarebalancing
for access to all research on this page.
Recent Moody's publications relating to China Reform and Rebalancing include:
• China Water Sector: Regulatory Reform Will Drive Infrastructure
Investment and Industry Consolidation
• Reinsurance Market in China -- Underlying Demand to Support
Growth Despite Slowing Economy
• China Securitization: Revolving Structure Sets Precedent
for SME Securitization by Chinese Banks
• Chinese Banks: 1H 2015 Results Show Rising Pressure on Operations
• Chinese Regional and Local Government Debt Update Shows Credit-Negative
Rise in Leverage
• China Broadens Provincial Pension Fund Investment Options,
a Credit Positive
• Chinese Securities Firms: Lower Stock Prices Prompt Drop
in Margin Financing Activity but Weigh on Firms' Credit Profiles
• China Property Focus -- August 2015
• Chinese Banks: China's Latest Rate Cuts Will Alleviate
Liquidity Pressure in the Banking System
• Property -- China: Rated Developers Have Headroom to
Withstand Modest RMB Depreciation
These reports are available at http://www.moodys.com/chinarebalancing.
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This publication does not announce a credit rating action. For
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for the most updated credit rating action information and rating history.
Sally Yim
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
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Stephen Long
MD - Financial Institutions
Financial Institutions Group
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Releasing Office:
Moody's Investors Service Hong Kong Ltd.
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Moody's: China's life insurers' outlook stable despite stock market volatility