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Announcement:

Moody's maintains negative outlook on Chinese life insurance industry

26 Jun 2017

Hong Kong, June 26, 2017 -- Moody's Investors Service says that its outlook on the life insurance industry in China (A1 stable) remains negative, reflecting Moody's assessment that the overall creditworthiness of companies in the sector will deteriorate over the next 12-18 months.

"Chinese life insurers continue to face multiple operating challenges, including moderating economic growth, a further build-up in economy-wide leverage, and rising regulatory pressure," says Qian Zhu, a Moody's Vice President and Senior Credit Officer.

"In fact, we expect their profitability and capitalization to weaken against the backdrop of weaker macroeconomic and credit conditions, as potential growth slows — despite growing support from fiscal policy — while interest rates rebound from their 2016 lows on policies to manage the accumulation of economy-wide leverage," adds Zhu.

Moody's analysis is contained in its just-released report titled "Life Insurance — China: Growth and Regulatory Challenges Underpin Negative Outlook," and is authored by Zhu.

Moody's points out that the industry regulator, the China Insurance Regulatory Commission (CIRC) has announced multiple directives over the past six months that suggest its priority has shifted from promoting growth to containing and managing the accumulation of risk. Moody's report says that, whilst the increasing regulatory tightening is a long-term positive for the profile of the industry, it will put negative short-term pressure on some insurers' credit profiles, notably those that rely on raising funds via large sales of short-term savings products, and those that make aggressive investments to seek high yields.

Moody's adds that many insurers lack the resources to transition to a more sustainable model of long-term regular premium and protection products, and some may see liquidity pressures from a sharp fall in the renewal or rollover of existing policies. Key financial pressure will also come from lower premium growth as a result of a moderating economy and low underwriting profitability, driven by high liability costs, and rising costs from investments in compliance and agency forces.

A sustained rise in asset risks from an increasingly volatile financial environment and insurers' rising exposure to high-risk assets such as alternative investments will also act to increase negative pressure on their credit profiles.

Moody's added that insurers' credit profiles will diverge amid tightening regulations. Companies that have adopted aggressive sales strategies (usually smaller firms) will face larger challenges. In the meantime, more diversified and established insurers will see their advantages strengthened because of the CIRC's tightening regulations. This advantage is reflected in the improving value of new business reported by stronger, more diversified companies.

Moreover, we expect the implementation of China's Risk-Oriented Solvency System (C-ROSS) will further widen fractures in the industry, given that C-ROSS favors long-term protection-type products.

Moody's has maintained a negative outlook on the Chinese life insurance industry since March 2016.

Subscribers can access the report at:

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1076937

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:

• Fintech — China: Surging E-Payments Lift Consumption and New Services, Pose Limited Threat to Banks

• P&C Insurance — China : Further liberalization of motor premium pricing is credit negative

• Repackaged notes — China: US dollar repackaged notes open new door to China interbank bond market securities

• China, Government of

• Banks — China: Wealth Management Product Issuance Moderates Amid Regulatory Scrutiny

• China's Guidelines for Land Revenue Bonds Are Credit Positive for Local Governments

• Auto ABS — China: Delinquencies will remain low following good performance in Q1 2017

• China's Sovereign Rating: Drivers of the Rating Change to A1 Stable From Aa3 Negative and How the Change Affects Other Issuers

• Structured Finance — China: Chinese Structured Finance Ratings Can Be Above Sovereign Level

• China Credit: Sovereign Downgrade to A1 Has Limited Implications for Rated Portfolio

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
Senior Vice President
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

No Related Data.
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