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Announcement:

Moody's changes outlook on China life insurance industry to stable from negative

 The document has been translated in other languages

05 Jun 2018

Hong Kong, June 05, 2018 -- Moody's Investors Service has changed the outlook on the life insurance industry in China (A1 stable) to stable from negative.

"The change reflects our expectation that the current moderate economywide build up in leverage, a shift to a more sustainable product mix, and a slowdown in investment allocation to high-risk assets will prevent further deterioration in the creditworthiness of Chinese life insurers over the next 12-18 months," says Qian Zhu, a Moody's Vice President and Senior Credit Officer.

Moody's analysis is contained in its just-released report titled "Life Insurance — China: Improving product mix and stabilizing asset risks drive change to stable outlook," and is authored by Zhu.

Moody's report says that the government's economic policies will remain focused on containing leverage, and improving the quality and strength of growth.

"For life insurers, premium growth will be lower in 2018, but insurance demand will be supported by steady economic growth, low insurance penetration and initiatives to promote long-term products," adds Zhu.

Moody's also points out that risks are subsiding for the life insurers' product and investment portfolios. Specifically, the industry — led by the major insurers — will quicken their product shift to long-term savings and protection-type products. Renewal premium is forming a larger proportion of total premiums, providing more stable future cash inflows.

And, the significant decline in premium growth of universal life policies — commonly structured as a short-term savings product in China — also improves the industry's longer-term liquidity profile.

Life insurers have also slowed their use of high-risk assets, including alternative investments, in their investment allocation; reflecting tighter regulations and higher interest rates.

Moody's says that over the next 12-18 months, life insurers should report stable profitability and solid solvency metrics. Profitability will be balanced by lower investment yields and improving underwriting profit. A continued product shift toward more profitable protection-type products will provide capital relief and strengthen underwriting profit.

Moreover, the industry's solvency ratios will stay solid, supported by lower reserve recognition, resulting from rising liability valuation rates.

As for the latest update to China's Risk Oriented Solvency System (C-ROSS) — which is the insurance regulatory capital regime — this update will improve key aspects in the industry's capital and financial management.

Notwithstanding Moody's stable outlook on the industry, insurers that are later adopters of their business transformation, usually smaller ones, will continue to face heightened challenges to their profitability and capitalization.

Subscribers can access the report at:

http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1122362

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:

• Integrated Oil & Gas - China: Reform of natural gas pricing mechanism is credit positive for suppliers

• Property -- China: Sales growth to slow through 2018 as regulatory tightening continues

• Rated oil-field services companies — China: Increased E&P demand will drive strong earnings growth and leverage reduction

• Cross-Sector — US and China: China is focused on developing its tech sectors despite risk of US restrictions

• Leasing: China's unification of the supervisory structure for leasing companies is credit positive

• Property — China: Latest regulatory measures are manageable for Chinese property developers

• Quarterly China Shadow Banking Monitor

• Rated non-financial companies — China: Domestic focus and low reliance on US tech reduce exposure to US-China trade dispute

• Evolving trade patterns — Asia Exports still drive growth, as intra-regional links increasingly define how Asia trades

• Government of China: Demands in US-China trade and technology negotiations unlikely to be met; uncertainty to weigh on investment

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

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.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Yat Man Sally Yim
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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
Client Service: 852 3551 3077

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