Hong Kong, April 20, 2018 -- Moody's Investors Service says that the 2017 results of Hong Kong-listed
Chinese property and casualty (P&C) insurers show that their non-motor
lines sustained overall business growth and underwriting profitability,
despite increased competition in their motor business.
"The non-motor business of P&C insurers will remain a
crucial driver of premium growth," says Kelvin Kwok,
a Moody's Associate Analyst. "And their motor business
will stay vulnerable to a further liberalization of the sector."
On the other hand, for the six listed life insurers, product
structure continues to shift to regular premium products, which
is credit positive because it will lead to more stable future cash inflows
for insurers. The share of single-premium products dropped
to 16% of total premiums in 2017, down from 22% in
2016 and 25% in 2015.
"The improved financial results of the Hong Kong-listed Chinese
life insurers in 2017 reflect their focus on growing high-value
products rather than total business scale," says Edwin Liu,
a Moody's Associate Analyst.
Moody's analysis is contained in two just-released reports
titled "Hong Kong-listed Chinese P&C Insurers: Non-motor
lines sustain overall business growth and underwriting profitability"
and "Hong Kong-listed Chinese Life Insurers: Credit
profiles improve as business transformation continues".
The P&C insurers reported robust non-motor premium growth of
33% on average in 2017, outpacing the 16% growth in
their total premium.
Moody's says that the economic expansion in China — as seen
by the country's strong GDP growth forecast — will continue
to spur demand for the P&C insurers' non-motor business.
In contrast, the insurers' motor business will remain vulnerable
to further rate liberalization in the sector.
The five listed Chinese P&C insurers reported an average combined
ratio of 98.3% in 2017, a small drop from 98.6%
in 2016. The improvement in underwriting profitability was driven
by stronger performance in non-motor business thanks to lower natural
catastrophe occurrence.
Over the next 12-18 months, Moody's says that the P&C
industry will remain subject to tight regulatory oversight on its underwriting
discipline and competitive behavior. Such a situation will support
the P&C insurers' overall underwriting profitability,
against the backdrop of intensifying competition due to further motor
pricing reforms.
Moody's points out that the listed P&C insurers' capital
positions are solid, underpinned by asset-weighted comprehensive
solvency ratios of 256% at the end of 2017; which was well
in excess of the regulatory minimum of 100%. The insurers'
solvency ratios will likely stay above 200% in 2018, taking
into account their good profit generation and overall premium growth of
10%-20%.
During 2017, the listed life insurers reported a 20% growth
in the embedded value (EV), despite weak headline premium growth.
The growth in EV was largely driven by a 28% jump in value in-force.
The growth in value of new business moderated to 31% in 2017 from
an exceptional 45% in 2016 — amid a regulatory clampdown
on savings products — which reduced volume growth.
The life insurers' asset allocation to higher-risk investments
including property and equity rose in 2017. Higher-risk
investments comprised 19% of total investment portfolios at the
end of 2017, up from 17% a year earlier. Overall,
however, the life insurers' risk appetites stayed moderate,
with most of their investments in fixed income. This situation
is likely persist, given the heightened regulatory oversight on
asset-liability management.
Moody's says that the life insurers' net incomes in the coming years
will be supported by stable insurance profit from in-force books.
In addition, the reserve valuation rate — which is based on
a 750-day moving average of spot government bond yields,
and is used as the denominator for the calculation of reserves —
has started to bottom out. This situation will help earnings by
allowing the companies to release their reserves.
The life insurers are well capitalized, with solvency ratios sufficiently
above the regulatory minimum ratio of 100%. Moreover,
the insurers' strategic shift toward value creation instead of business
scale should sustain profitability in new business and therefore support
capitalization in coming years.
Subscribers can access the reports at:
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120028
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1117940
The report may also be found through Moody's topic page "China's trade-off:
Deleveraging 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 trade-off include:
• Securities Companies — China: Operating risk remains
high in stock pledged lending business, despite more regulations
• Structured finance — China: Securitization is growing
as a funding source for the economy
• Trade — China: Tech most exposed to US tariffs;
supply chains to amplify effect on other sectors
• Automotive — China: Lower import tariffs and foreign
ownership relaxation to have mixed impact
• Trade — US and China: Rising uncertainty will magnify
credit effects of weaker trade relations
• China Property Focus: Regulation to remain tight in 2018
• Markets -- China: Inclusion of Chinese bonds in Bloomberg
index is positive for onshore bond market
• Regional & Local Governments — China: Higher borrowing
limit in 2018 is positive, but significant funding gap remains
• Banks: China prepares to boost banks' capitalization,
a credit positive
• Banks — China: New reserving guidance will improve
problem loan reporting and capitalization
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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
Associate Managing Director
Financial Institutions Group
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Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
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China (Hong Kong S.A.R.)
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Client Service: 852 3551 3077