Moody’s Investors Service has set its outlook for China’s Property & Casualty (P&C) insurance industry to stable; this view is reinforced by regulatory measures protecting the industry against a narrowing in underwriting margins from intensified motor insurance competition.
“Our stable outlook is mainly driven by our expectation that insurers’ underwriting profit and capitalisation will remain stable, supported by measures implemented by the authorities to mitigate aggressive pricing and acquisition expense practices,” explained Moody’s Analyst, Kelvin Kwok.
Moody’s expects the industry’s underwriting profitability to remain stable with a combined ratio below 100% in the coming 12 to 18 months, driven by tightened supervision to prevent unwarranted price competition and runaway growth in acquisition expenses
Alongside a more disciplined operating expense management, this will help offset a higher loss ratio in motor line because of more liberalised pricing.
“The outlook is further based on the receding level of risk from alternative investments and the strong growth in non-motor lines over the next 12 to 18 months,” said Kwok.
Insurers’ stable profit margins and retained earnings will support the industry’s solid capitalisation.
The industry’s weighted average comprehensive solvency ratio under the China Risk Oriented Solvency System (C-ROSS) stood at 263% at the end of 2017, well above the regulatory minimum of 100%.
Moody’s expects P&C industry to experience strong growth in the low-teen percentages over the next 12-18 months.
Stable growth in the economy and policy initiatives will support continued strong growth in non-motor lines, in particular agricultural and liability insurance.
Motor premium growth, however, will slow on subdued car sales and ongoing price liberalisation.
Furthermore, Moody’s points out that technology adoption is picking up in the industry and the transformative impact is becoming more apparent,with limited risk of disruption.
Chinese P&C insurers have been fast to adopt new technologies, when compared with counterparts in more mature insurance markets such as Hong Kong, Japan and Australia, reflecting the rapidly growing numbers of tech-savvy customers in China who are quick to embrace the transition from traditional to digital transactions.
While this trend raises some risk of rising competition from technology companies, Moody’s says the risk of market disruption is limited in the next 12-18 months because of high entry barrier for pure online insurers on motor insurance.
Additionally, these new entrants’ heavy online focus makes head-to-head competition with existing insurers unlikely in the industry’s key non-motor lines of agriculture, commercial property and liability insurance.