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Announcement:

Moody's: China's life insurers' outlook stable despite stock market volatility

 The document has been translated in other languages

21 Sep 2015

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.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at [email protected] or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com 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
SUBSCRIBERS: (852) 3551-3077

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
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
SUBSCRIBERS: (852) 3551-3077

Moody's: China's life insurers' outlook stable despite stock market volatility
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