PING AN LIFE
The affirmation of Ping An Life's A2 IFSR reflects its prominent market position in China, strong agency force with high productivity, solid capitalization and strong profitability.
Moody's raised Ping An Life's standalone credit profile to a1 from a2 primarily reflecting Ping An Life's improved market position, a consistent high-value product focus and strong profitability, while maintaining solid capitalization.
However, Ping An Life's final A2 IFSR incorporates a one-notch explicit downward adjustment from its standalone credit profile of a1, reflecting Ping An Life's exposure to the contagion risk from other affiliates owned by its parent Ping An Insurance (Group) Company of China, Ltd. (Ping An Group), notably Ping An Bank Co., Ltd (deposit rating Baa2 stable, Baseline Credit Assessment [BCA] ba2). Potential risks at Ping An Bank could indirectly affect the group's insurance operations through contagion, as well as more directly, if the group's insurance companies were called upon to support the recapitalization of the bank in times of stress.
The insurer is able to sustain strong premium growth even during market slow-downs, supported by a high proportion of renewal premiums in its premium mix and its strong distribution capacities. As the second-largest life insurer in China by original premium income, Ping An Life's market share reached 17.0% in 2018 — versus 14% in 2017 — closing the gap with the country's largest life insurer, China Life Insurance Co Ltd (insurance financial strength A1 stable)'s 20.4%.
Ping An Life has strong brand recognition and benefits from 1) an integrated financial products platform, which promotes cross-selling, and 2) the group's financial flexibility, given its ownership by Ping An Group, a large financial conglomerate.
The insurer has been focusing on selling long-term protection products through the agency channel, which supports in turn the strong growth of the company's residual margin. Ping An Life reported RMB73.3 billion in net income during 2018, a 111% increase from 2017.
Because of its high-value product mix and strong profitability, Ping An Life has strong internal capital generation capacity. Its comprehensive solvency ratio stood at 224% at the end of March 2019, well above the minimum level of 100% as prescribed by the regulator.
These strengths are offset by Ping An Life's significant exposure to equity and alternative investments relative to its capital, which could translate into volatility in earnings and capital. The insurer is also exposed to high single-name concentration risk in its equity portfolio. Nonetheless, some of the risks could be shared with its policyholders through its participating products.
The outlook is stable, reflecting Moody's expectation that the insurer will continue to maintain its good performance in terms of market position, agency productivity, profitability, as well as solid capital adequacy.
The senior unsecured debt rating and senior unsecured MTN program rating of Ping An Life are at A3 and (P)A3, respectively, levels which are one notch below its A2 IFSR. Given that the senior unsecured obligations of the debt and the MTN program are junior to the liabilities of the insurance policyholders, the one-notch spread reflects the subordination of senior debt holders to Ping An Life's policyholders.
Ping An Life's credit profile is exposed to potential risks at Ping An Bank via contagion or recapitalization support. Therefore, an upgrade of Ping An Life's rating is unlikely unless the credit profile of Ping An Bank improves significantly. However, the insurer's standalone credit profile could be raised if: (1) the insurer achieves a consistent and significant improvement in its capitalization, with adjusted capital/assets consistently above 7%; or (2) the company demonstrates a significant reduction in its exposure to high-risk assets and its single-name concentration, with high-risk assets/shareholders' equity consistently below 250%.
Moody's could downgrade the insurer's ratings if (1) its capitalization continues weakening, with adjusted capital/assets consistently below 4% or comprehensive solvency ratio below 150%; (2) its standalone financial leverage rises consistently above 40% or earnings coverage drops consistently below 5x; (3) there is a sharp deterioration in profitability, with return on capital consistently below 8%; or (4) potential recapitalization burdens related to Ping An Bank or other affiliate companies arise.
PING AN P&C
The affirmation of Ping An P&C's A2 IFSR reflects its consistently strong franchise and product reach, and its strong underwriting profitability compared with rated peers.
Ping An P&C is the second largest P&C insurer in China, with a market share of 21.1% by direct premiums written in 2018. Despite intense motor pricing competition, the insurer has managed to grow its market share, because of its diversified and extensive distribution channels. The insurer also stands out in developing technology services to enhance customer experience and retain profitable customers.
Ping An P&C's consistently strong underwriting profitability demonstrates the insurer's stringent and granular risk selection at its motor segment. The insurer's non-motor business also reports good underwriting margins, due to adequate rates. The insurer's combined ratio at around 96% in both 2017 and 2018 was lower than its major peers.
Together with good investment earnings, the insurer's average return on capital was strong at 14.4% in 2018. This strong internal capital generation supports Ping An P&C's strong capitalization, while helping to grow its business. The insurer's comprehensive solvency ratio stood at 233% at the end of March 2019.
Offsetting the above strength is the default risk associated with Ping An P&C's rapidly growing but unseasoned guarantee insurance exposure. Potential spikes in default losses amid the slowdown in economic growth could weaken Ping An P&C's profitability. To contain the default risk, Ping An P&C has gradually shifted its guarantee exposure towards the secured loan segment, where borrowers have stronger repaying capabilities.
Ping An P&C's high exposure to alternative investments, including trust plans and debt schemes, also exposes the insurer's capitalization to potential impairment losses. These investments have higher credit risk and lower liquidity than market-traded bonds. Nonetheless, the level of credit risk remains manageable, because the underlying counterparties are mainly large state-owned enterprises and local governments of first-tier cities.
Ping An P&C's A2 IFSR incorporates a one-notch downward adjustment from its standalone credit profile of a1. This adjustment reflects Ping An P&C's exposure to the contagion risk from other Ping An Group companies, notably Ping An Bank. Potential risks at Ping An Bank could indirectly affect the group's insurance operations through contagion, as well as more directly, if the group's insurance companies were called upon to support the recapitalization of the bank in times of stress.
Ping An P&C's credit profile is exposed to potential risks at Ping An Bank via contagion or recapitalization support. Therefore, an upgrade of Ping An P&C's rating is unlikely unless the credit profile of Ping An Bank improves significantly. However, the insurer's standalone credit profile could be raised if: (1) its profitability substantially improves, such that its combined ratio falls below 94% consistently; (2) its capitalization enhances, with its gross underwriting leverage staying consistently below 3x; and/or (3) it achieves further business mix diversification while maintaining its profitability and reserve adequacy.
Moody's could downgrade the insurer's rating if: (1) its underwriting profitability deteriorates materially, such that its combined ratio consistently rises above 100%; (2) its capital adequacy deteriorates to the extent that its comprehensive solvency ratio consistently falls below 150%; (3) its high-risk asset leverage increases significantly to above 100%; and/or (4) the insurer faces a potential recapitalization burden related to Ping An Bank or other affiliate companies.
The principal methodology used in rating Ping An Life Insurance Company of China, Ltd. was Life Insurers published in May 2018. The principal methodology used in rating Ping An P&C Insurance Company of China, Ltd. was Property and Casualty Insurers published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
The local market analyst for Ping An Life Insurance Company of China, Ltd.'s ratings is Qian Zhu, +86 (21) 2057-4098.
Ping An Life Insurance Company of China, Ltd., the life arm of Ping An Group, is the second-largest life insurer in China by original premium income. It is 99.51% owned by Ping An Group.
Ping An Life offers traditional life, participating insurance, and accident and health products in mainland China. At 31 December 2018, Ping An Life reported total assets of RMB2,576.8 billion and shareholders' equity of RMB174.6 billion.
Ping An P&C Insurance Company of China, Ltd. is the second largest non-life insurer in China by direct premiums written. The company is 99.51% owned by Ping An Group. The insurer provides various insurance products, including motor, property, liability, guarantee, and accident & health insurance.
At 31 December 2018, Ping An P&C reported total assets of RMB372.4 billion and shareholders' equity of RMB77.2 billion.