[ET Net News Agency, 5 June 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," said 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," added Zhu.
Moody's also pointed 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 said 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. (KL)