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Announcement:

Moody's affirms PICC P&C's A1 rating with a stable outlook

08 Oct 2010

Hong Kong, October 08, 2010 -- Moody's Investors Service has affirmed the A1 insurance financial strength ("IFS") rating of PICC Property & Casualty Co Ltd ("PICC P&C") with a stable outlook.

This rating action follows Moody's decision to place the Chinese government's A1 foreign currency and local currency on review for possible upgrade on October 8, 2010.

"PICC P&C, given its 69% effective ownership by the Ministry of Finance, is considered a government-related issuer (GRI)," says Sally Yim, a Moody's VP/Senior Analyst.

"As an important GRI, PICC P&C's rating benefits from Moody's assumption of possible government support, in case of need," says Yim.

PICC P&C's A1 IFS rating factors in a medium degree of support and dependence from the Chinese government, given PICC P&C's strategic importance as the flagship company of the P&C industry and its majority ownership by the government. However, the credit profiles of the company and government are only moderately linked.

"The stable rating outlook of PICC P&C reflects Moody's view that the negative factors that continue to affect PICC P&C's current stand alone credit profile offsets to some extent the benefits from the potential positive change of the Chinese government's ratings," adds Yim.

Despite a stable outlook on the current A1 IFS rating, Moody's remains concerned over the high level of underwriting leverage and financial leverage of PICC P&C. Because of the substantial premium growth and only moderate profitability, as of 30 June 2010, PICC P&C's local solvency ratio was 117%, which was above the 100% regulatory minimum but below the 150% level preferred by the China Insurance Regulatory Commission. So far, PICC P&C has been relying on the issuance of subordinated debt and its profitability to support its capital needs, which in turn also raised its adjusted financial leverage to over 40% by June 2010.

Moody's notes that People's Insurance Company (Group) of China ("PICC Group"), the parent of PICC P&C, plans to initiate its IPO in 2011 and is planning to sell shares to one or more strategic investors before the end of 2010. At this stage, the credit implications for PICC P&C are uncertain because it depends on a few factors.

Moody's believes that whether these moves would lead to the injection of new capital into PICC P&C is uncertain. If no significant amounts of new capital were injected into PICC P&C from these events, Moody's may take a negative rating action on PICC P&C to reflect our concerns over the low level of capital adequacy and high financial leverage compared to global peers.

In addition, following these events, the extent of government's effective stake in PICC P&C may be diluted to the point that the amount of assumed government support would decrease. However, given that potential investors at the group level could also be state-owned enterprises, the effective government ownership may not change significantly.

Moody's notes that there are still many factors that could impact the final ownership structure of PICC Group and PICC P&C. Moody's will monitor the situation as it develops and evaluate the resultant impact on the rating.

The last rating action with regard to PICC P&C occurred on November 9, 2009, when Moody's changed the outlook of the company from negative to stable.

The principal methodology used in rating PICC P&C was "Moody's Global Rating Methodology for Property & Casualty Insurers", published in May 2010, and "Government-Related Issuers: Methodology Update", published in July 2010 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this company can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Beijing, PICC Property & Casualty Co Ltd is the largest property & casualty insurance company in China, offering motor vehicle insurance, commercial property insurance, cargo insurance, etc. For the first half of 2010, gross written premium was RMB 81.6 billion. As of June 30, 2010, total assets and shareholders' equity were RMB 186.3 billion and RMB 22.3 billion, respectively.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to repay senior policyholder claims and obligations. For more information, visit our website at www.moodys.com/insurance.

Hong Kong
Sally Yim
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Hong Kong
Stephen Long
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's Investors Service Hong Kong Ltd.
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China (Hong Kong S.A.R.)

Moody's affirms PICC P&C's A1 rating with a stable outlook
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