Hong Kong, October 10, 2017 -- Moody's Investors Service says the Chinese insurance sector sees
mixed prospects for solvency ratios, with the ratio rising in the
first half of 2017 for life insurers, ending the decline seen in
2016, while that for property and casualty (P&C) companies continued
to fall.
"Moody's expects the future trend of solvency ratios for life
insurers to be driven by various regulations, including the clampdown
on short-term savings-type life insurance products,"
says Edwin Liu, a Moody's Associate Analyst.
"At the same time, the solvency of P&C insurers is still
declining, reflecting decreasing profitability because of motor
insurance deregulation and dividend distributions by some major insurers,"
says Liu.
"Furthermore, the divergence in solvency between the large
and small insurers has become more acute in this increasingly competitive
sector, a trend that we expect to continue," says Liu.
Moody's conclusions are contained in its just-released report
on China's insurance sector, "Solvency decline ends
for life insurers, continues for P&C and reinsurers".
Moody's expects that the continued product mix improvement evident
among life insurers will bode well for their solvency ratios in the coming
12-18 months, and this shift is evidenced in the increase
in the share of traditional life products to more than half of the industry's
product mix in the first half of 2017, compared with below 30%
in 2015.
The improvement in product structure with higher protection elements is
positive for insurers' solvency because these products have lower interest
rate risks, given less reliance on spread gains, and therefore
have lower capital requirements under the China Risk-Oriented Solvency
System (C-ROSS).
Moody's notes that life insurers' solvency ratios stabilized in
2Q17, contributed by higher equity prices and the recovery of earnings
which led to higher available capital. In addition, slower
premium growth from low-margin products lowered the increase in
required capital.
We also expect that continued product mix improvement and a slower decline
in the reserving rate, following a rebound in interest rates in
recent months, will ease capital pressure for the next 12-18
months.
The solvency of reinsurers is also falling in the second quarter of 2017.
We expect reinsurers to maintain solvency ratios above 200% under
the C-ROSS regime to attract cedants.
The average Solvency Aligned Risk Management Requirements and Assessment
(SARMRA) score for the industry is currently around mid-70s,
on a scale of 0-100. This translates into an additional
average capital requirement of 3%.
While SARMRA has had no immediate material impact, insurers will
have the incentive to build comprehensive risk-monitoring systems
with better implementation to improve their SARMRA scores and to reduce
required capital.
Subscribers can read the full report at:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1091177
The report may also be found through Moody's topic page "China's Trilemma:
Growth, Reform and Stability", available at http://www.moodys.com/chinarebalancing.
This page provides a centralized source for Moody's research related to
key credit issues in China as the country's macroeconomic story continues
to unfold.
Recent Moody's publications relating to China's Trilemma include:
• China's Belt and Road Initiative: BRI report card:
Positive factors outweigh negatives for China and recipient countries
• Property — China : Most rated developers have capacity
to manage higher bond refinancing risk in 2018
• Government of China -- A1 Stable: Regular update
• Securitization — China: Sector update — Q2 2017:
Issuance volumes up; auto ABS performing well
• China's Plan to Tighten Regulation of Negotiable Certificates of
Deposit Is Credit Positive for Banks
• Mass Transit Sector — China : Strategic importance
underpins credit profiles; Heavy capex remains
• NPL Securitization — China: Chinese NPL deals show
solid performance, but short history clouds future
• Internet companies — China: Finance operations weaken
credit quality; most companies have mitigants
• Cross-Sector — China: Reduced Credit Intensity
of Growth Key to Achieving Policy Objectives
• Quarterly China Shadow Banking Monitor
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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.
Wing Kei Frank Yuen
Asst Vice President - Analyst
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.)
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Yat Man Sally Yim
Senior Vice President
Financial Institutions Group
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Releasing Office:
Moody's Investors Service Hong Kong Ltd.
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