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Resilient profits underpin stable Chinese life outlook: Moody’s

21st December 2020 - Author: Matt Sheehan

Moody’s Investors Service has assigned a stable outlook to the Chinese life insurance industry for 2021, citing resilient profitability and capitalisation.

ChinaLarge recurring premiums, which reflects the industry’s earlier efforts to shift its product focus to long-term regular premium policies, will also improve overall income stability, Moody’s said.

And business growth could be further supported by strong demand for health insurance due to the coronavirus outbreak.

“Life insurers’ profitability will be supported by stable spread margins, as they should be able to maintain investment yields of around 5%, given the recent rebound in long-term yields, as well as continued efforts to cap their cost of liability,” said Qian Zhu, a Moody’s Vice President and Senior Credit Officer.

“Solvency ratios, a measure of insurers’ capitalization, should also remain strong, which will continue to be supported by stable earnings generation and stronger capital management,” Qian continued.

“The new China Risk Oriented Solvency System (C-ROSS) Phase II will likely widen solvency margin levels among insurers and prompt some to improve their capital cushion by issuing capital securities.”

Chinese life insurers could, however, face investment income volatilities arising from higher equity investments as they take advantage of easing restrictions and improving stock market sentiment, Moody’s warned.

Still, the net impact of this is mitigated by the reduced allocation to alternative investments and the recent rebound in long-term yields, which will prompt insurers to divert some of their allocation back to bonds.

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