Moody’s Investors Service has changed to negative from stable the outlooks on nine Chinese insurers and a related overseas subsidiary.
The credit rating agency has also maintained stable outlooks on three of the insurers, and affirmed all the ratings and assessments of the affected thirteen insurers.
According to Moody’s these rating actions are primarily driven by the change in outlook to negative from stable on China’s government credit ratings.
“The change to a negative outlook reflects rising evidence that financial support will be provided by the Chinese government and wider public sector to financially-stressed regional and local governments (RLGs) and State-Owned Enterprises (SOEs), posing broad downside risks to China’s fiscal, economic and institutional strength,” Moody’s analysts stated.
Adding: “The outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector. These trends underscore the increasing risks related to policy effectiveness, including the challenge to design and implement policies that support economic rebalancing while preventing moral hazard and containing the impact on the sovereign’s balance sheet.
“As such, Moody’s expects support provided to financially-stressed entities to be more selective, contributing to protracted risks of further strains for SOEs and RLGs.”
In the case of China Life Insurance Co Ltd and PICC Property and Casualty Company Limited, the rating agency affirmed their A1 IFSRs and a1 Baseline Credit Assessments (BCAs).
“The insurers’ final ratings do not incorporate any uplift for extraordinary support from the Chinese government due to their strong BCA and standalone credit strength. Their IFSRs and BCAs are at the same level of the sovereign rating as the majority of their businesses and/or invested assets are in China and they have strong linkages with the Chinese government. A downgrade of the sovereign rating will therefore lead to a downgrade of the insurers’ ratings,” Moody’s explained.
Moody’s also affirmed the A1 IFSRs and respective BCAs for China Export & Credit Insurance Corporation, China Life Insurance (Overseas) Company Ltd., China Life P&C Insurance Company Limited, China Pacific Life Insurance Co., Ltd. and China Pacific Property Insurance Co Ltd.
The BCAs of these five insurers, which are government-related issuers (GRI), are one or two notches below China’s sovereign rating, the rating agency noted. These ratings have to date incorporated a degree of government support and uplift.
“Under Moody’s joint default analysis approach for GRIs, the rating or credit quality of a government that provides support to a GRI is a key input for that GRI’s ratings. For this group of GRIs and their subsidiaries, their ratings are sensitive to a potential decline in the rating or credit quality of their owner government and ultimately of the central government,” analysts noted.
For ICBC-AXA Assurance Co., Ltd.: Moody’s has affirmed its A2 IFSR and changed its outlook to negative from stable following the outlook change to negative from stable on its parent bank, Industrial and Commercial Bank of China Limited (ICBC, deposits A1 negative, BCA baa1).
According to Moody’s the negative outlook assigned to ICBC-AXA reflects a potentially weaker parental support given its final rating incorporates an uplift and support from ICBC.
The rating agency affirmed the A3 IFSR of China Railway Captive Insurance Co., and changed its outlook to negative from stable.
Moody’s highlighted: “The negative outlook on the insurer reflects the agency’s expectation of a weaker credit profile at its state-owned parent, China State Railway Group Co., Ltd. (CSRGC) because of its strong linkages with the Chinese government, given the final rating of China Railway Captive incorporates an uplift and support from CSRGC.”
CNPC Captive Insurance Company Limited’s IFSR of A2 was affirmed with Moody’s changin it outlook from stable to negative. This followed the outlook change to negative from stable on its parent, China National Petroleum Corporation (CNPC, A1 negative). The negative outlook on CNPC Captive reflects a potentially weaker parental support given its final rating incorporates an uplift and support from CNPC.
Finally, Moody’s affirmed the A2 IFSR and the baa1 BCA of PICC Life Insurance Company Limited, the A3 IFSR and the baa2 BCA of PICC Reinsurance Company Limited, and the A2 IFSR of New China Life Insurance Company Ltd with a stable outlook.
“The stable outlooks on these three insurers reflect the likelihood that, even in the event of a one-notch downgrade of China’s sovereign rating, the existing assumption of affiliate and/or government support for these insurers would remain valid. These three insurers’ BCAs or the standalone credit profiles remain solid considering their adequate capitalization and limited exposure to LGFVs and the property sector,” according to analysts.
Moody’s highlighted that for the insurers and its subsidiaries, any upgrade of their IFSRs is unlikely given the negative outlooks. Moody’s could return the outlooks to stable if the outlook on China – or their parent company in the case of subsidiaries – returns to stable, and if we assess that support for the insurers remains a priority and unlikely to change.
