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02328 PICC P&C
RTNominal up6.460 +0.070 (+1.095%)
Research Report

19/10/2020 16:37

China insurers face rapid growth but volatile earnings - S&P

[ET Net News Agency, 19 October 2020] S&P Global Ratings said today that growth in
China's insurance sector will continue to be strong over the next 12 months. However,
profits are likely to be volatile amid capital market swings and low-interest rates.
The credit rating agency views the credit trend for the country's life and
property/casualty (P/C) sectors as negative.
S&P thinks the government's efforts to limit economic and fiscal risks through ongoing
reforms are well-aligned to support the development of the insurance sectors. In addition,
the China Banking and Insurance Regulatory Commission (CBIRC) has been tightening
regulatory frameworks, particularly in governance aspects, to encourage disciplined market
growth.
S&P's insurance industry and country risk assessment (IICRA) for both the life and P/C
insurance sectors in China is intermediate.
For Chinese life insurers, asset-liability mismatch remains the key risk that limits
their profitability. This is due to the limited availability of long-duration assets to
match liabilities. Lower-for-longer interest rates will likely translate to reduced
reinvestment returns, increases in reserve provisions, and slower value generation.
The agency estimated the industry's return on equity will be about 10% and return on
assets will be about 0.8% in 2020 and 2021.
S&P believes the COVID-19 pandemic will likely usher in a new chapter in the development
of China's life insurance sector, supported by the wider population's rising insurance
awareness and uptake in seeking protection.
The agency expects a dent in China P/C sector's profitability in 2020 amid heightened
competition and slow economic growth. P/C insurers' diversification toward non-motor lines
and China's long-term positive growth prospects should support the sector's business
development, despite subdued growth from motor insurance.
However, the loss-making non-motor segment and implementation of comprehensive auto
insurance reform will weigh on overall underwriting profits. Insurers' still-limited
underwriting expertise and technical pricing constrain their ability to underwrite
non-motor coverages profitably, particularly around commercial business lines.
P/C insurers with large credit guarantee insurance books could face greater challenges,
in light of rising delinquencies amid a slower economic outlook. The sector's exposure
toward high-risk assets will likely remain high, in light of the need to boost investment
income to counter underwriting margin challenges. (KL)

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