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
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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.
Yat Man Sally Yim
Senior Vice President
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
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China (Hong Kong S.A.R.)
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