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Announcement:

Moody's: Listed Chinese life and P&C insurers see profits drop, with mixed premium growth

 The document has been translated in other languages

20 Apr 2017

Hong Kong, April 20, 2017 -- Moody's Investors Service says that the Hong-Kong listed Chinese life insurers and property and casualty (P&C) insurers saw a deterioration in profits in 2016, although the life insurers also recorded higher premium growth and an improving product mix.

"The listed Chinese life insurers had average total written premium growth of 19% in 2016, driven primarily by 28% growth in the individual agent channel," says Edwin Liu, a Moody's Associate Analyst.

While the listed life insurers at the same time saw an average drop of 33% in their net profits, their value of new business (VNB) -- an economic measure of future profits from new policies -- jumped 45% on average in 2016, supported by the insurers' shift to selling more protection and long-term savings products which are with higher margin.

On the other hand, listed P&C insurers saw profits drop 14% on average amid slower premium growth.

"We do not expect a meaningful improvement in underwriting profitability for P&C insurers in the next 12-18 months, given persistent competitive pressure in both motor and non-motor insurance," says Edwin Liu, a Moody's Associate Analyst.

Moody's conclusions are contained in two reports: "Chinese Listed Life Insurers -- 2016 Results: Top-line Growth Reflects Improving Product Mix; Increase in Risky Assets Remains a Concern" and "Chinese Listed P&C Insurers -- 2016 Results: Deterioration in Profitability Amid Slower Premium Growth".

Moody's notes that for life insurers, premium growth was accompanied by a marked shift in sales from single premium products to regular premium products.

Nevertheless, the listed life insurers saw their market share drop to 53.2% in 2016 from 60.7% in 2015 in terms of direct premium income, as mid-tier life insurers continued to aggressively grow their predominantly single premium savings products.

The listed life insurers' asset allocation to higher risk investments -- including investment properties, equities and alternative investments -- also continued to increase in 2016, but at a slower pace than in 2015. Moody's expects their appetite for higher-yielding risky assets will remain, supported by still-low interest rates and increasing defaults in the corporate bond market.

In the P&C insurance market, Moody's notes the most significant regulatory development in 2016 was the pricing deregulation of non-mandatory (i.e. commercial) motor insurance, which was fully implemented from July 2016.

This reform resulted in lower average loss ratios due to fewer small claims, which was driven by a wider range of no-claim discounts. However, this was offset by an increased average expense ratio, due to intensified competition and consequent higher policy acquisition costs, as well as higher human costs and technology investments to improve distribution capabilities.

Several natural catastrophes in the second half of 2016 also contributed to the deterioration in underwriting profitability for some P&C insurers.

Finally, Moody's notes both the listed life insurers and P&C insurers remain well-capitalized.

Although most listed life insurers saw their solvency ratios decrease under China's Risk-Oriented Solvency System (C-ROSS) with the premium-weighted average reducing to 259% at end-2016 from 287% at end-2015, this level remained well above the regulatory minimum of 100%.

For the listed P&C insurers, the ratio increased to a premium-weighted average of 281% at end-2016 from 276% at end-2015, with the ratio expected to remain stable assuming an absence of major catastrophe losses.

Subscribers can access the reports as below:

"Chinese Listed Life Insurers -- 2016 Results: Top-line Growth Reflects Improving Product Mix; Increase in Risky Assets Remains a Concern"

http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1056470

"Chinese Listed P&C Insurers -- 2016 Results: Deterioration in Profitability Amid Slower Premium Growth".

http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1059943

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:

• NPL ABS - China: Diverse Non-Performing Assets Securitized in China as Market Grows

• Property - China: New Supply-Side Measures Will Have Mixed Effect on Residential Developers

• Reinsurance - China: Onshore Market in Focus as New Entrants and Policies Add to Domestic Capacity

• Property -- China: China Property Focus

• China's New Reserve Rates Will Shift Insurers Toward Long-Term Policies, a Credit Positive

• Banks - China: Chinese Banks Exposed to Latent Asset Pressure; Mitigating Factors Will Limit Default and Losses

• Property - China: Economy At Higher Risk From Potential Property Downturn

• Steelmakers - China: Softening Demand, Increased Inventory Will Weigh on Prices and Reduce 2017 Earnings

• Banks - China: City and Rural Commercial Banks Will Remain Active in Capital Raising in 2017

• BOC, CCB and ICBC: FAQ on Moody's Approach to Rating Offshore Branches and Subsidiaries of BOC, CCB and ICBC

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, 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 mediarelations@moodys.com 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.

Yat Man Sally Yim
Senior Vice President
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

Simon Harris
MD-Gbl Ins and Mgd Invests
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

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