[ET Net News Agency, 14 September 2018] Moody's Investors Service said that the 1H 2018
results of Hong Kong-listed life and property & casualty (P&C) insurers are solid, despite
that both sectors face various challenges.
"The six listed Chinese life insurers reported lower new business in their first half
results, but their credit standing was supported by healthy growth in their in-force books
and strong capitalization," said Edwin Liu, a Moody's Associate Analyst.
"Meanwhile, the five listed traditional Chinese P&C insurers reported weaker
profitability, which testifies to continued challenges in their predominant motor
business," said Liu.
Moody's conclusions are contained in its just-released reports, "Hong Kong-listed
Chinese Life Insurers: New business down in first half 2018 on tight regulations, but
credit fundamentals remain intact" and "Hong Kong-listed Chinese P&C Insurers: First-half
2018 results show wide divergence between motor and non-motor lines".
For the listed life insurers, aggregate first-year premiums fell by 24% from the same
period last year mainly because of regulatory restrictions on sales of short-term saving
products and increased competition from other wealth-management products.
Meanwhile, the insurers also reported an average 9% growth (not annualized) in their
embedded value (EV) compared with year-end 2017, despite a sharp decrease in the value of
new business (VNB) mainly driven by volume decrease.
Looking ahead, Moody's expects a recovery in new policy sales to reflect falling yields
on wealth-management products and greater efforts by insurers to market protection-type
products. Total premium will grow on renewal premiums from their in-force book. Renewal
premiums now account for over 60% of total premiums for most insurers, and are a more
stable source of cash inflow than single premiums.
On the P&C side, the listed Chinese insurers reported total premium growth of 15% in the
first six months of 2018 from a year ago, powered by a 38% surge in non-motor premiums,
which more than offset weak growth of only 6% in motor premiums.
Moody's expects this divergence to continue because insurers remain focused on
developing non-motor insurance, in particular liability and agriculture insurance, which
enjoy better underwriting profitability than motor insurance.
The weakness in motor premiums also reflects lackluster new vehicle sales and
competitive pressure from further pricing liberalization.
The listed P&C insurers reported an average combined ratio of 98% in the first half of
2018, a deterioration from 97.5% a year ago, mainly driven by an increased loss ratio
because of lower premium adequacy amid intensified motor insurance pricing reform.
Improvement in profitability for motor insurance will be limited until there is
significant industry consolidation. Motor insurance products are increasingly becoming a
commodity business, so Moody's expects smaller insurers to be further disadvantaged and
marginalized as price takers in the industry. (KL)