AM Best has revised its market segment outlook on the China non-life insurance industry to stable from negative due to the segment’s improved underwriting performance and better growth prospects as China eases its zero-tolerance COVID-19 policy.
The rating agency notes that non-life companies’ net profit increased by 20% year over year as of the third quarter of 2022.
As the non-life segment in aggregate has a relatively high net premium leverage, the improvement in underwriting performance was magnified in the overall net profit, which analysts report was more than sufficient to offset the recent less favourable investment returns.
AM Best attributes the improvements in the segment’s underwriting performance to benign catastrophe activity for the year to date, and a slowdown in economic activity given COVID-19 lockdowns, and therefore, a lower accident rate.
Most importantly, with the negative impact of the 2019 motor comprehensive reform and financing-type credit insurance fully reflected in recent years’ performance, AM Best notes that this allows the non-life segment to begin 2023 anew in terms of underwriting performance.
“The large insurance companies typically have more favourable operating outlooks given their strong capabilities to source profitable business and manage down acquisition costs amid market reform,” said Christie Lee, senior director, AM Best.
“Traditional mid-sized and smaller insurance companies have thus sought to expand into non-motor lines of business or find their own competitive edge to navigate the motor comprehensive reform while pursuing profitability.”
To support the economic growth impacted by pandemic-related lockdowns, China’s central bank set a relatively loose monetary policy that is divergent from the rest of the world.
As a result, government bond yields and bank deposit rates have been trending downward, while, at the same time, both investment returns from equities and fixed income instruments have recorded worse than historical levels.
Given that China’s non-life segment is marked by relatively high net premium leverage, AM Best maintains that a sustainable and profitable underwriting performance in a post-pandemic environment is a key factor to keeping a stable outlook going forward.
