Fitch: China's Non-Life Insurance Faces Weaker Margin Despite Growth

Wed Dec 11, 2013 8:01pm EST

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(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 2014 Outlook: China Non-Life Insurance here HONG KONG, December 11 (Fitch) China's continued urbanisation and rising household wealth will sustain the growth dynamics of the its non-life insurers, but intense rivalry will further weaken the sector's underwriting margin in 2014, Fitch Ratings says in a new report. The declining margin is unlikely to materially constrain insurers' capability to obtain capital infusion. The Sector Outlook for Chinese non-life insurance remains stable. Increase in acquisition expenses and escalation in claims costs will weaken the underwriting margin of motor insurance business. In view of the tightly regulated pricing system, it is unlikely for China's motor insurers to dramatically reduce their underwriting deficits from compulsory third party liability (CTPL) motor insurance. In light of the falling underwriting margin, Fitch believes small insurance companies with limited operating scale and less diversified insurance book of business will post weaker operating results in the coming year. Major listed Chinese non-life insurers will still maintain positive growth in underwriting surplus, albeit at a slower pace, due to diverse revenue streams and better spread of risk. On-going business expansion coupled with slower surplus growth will continue to pose a strain on insurers' capital adequacy, although many insurers improved their solvency adequacy through fresh equity injection or subordinated debt issuance over the past year. The premium leverage, as measured by net written premium to shareholders' equity, of many Chinese non-life insurers remains high, reflecting the companies' thin capital buffer to absorb unprecedented underwriting shocks. The Stable Sector Outlook reflects Fitch's expectation that the market will experience a manageable downturn in underwriting margin with no major impairment losses in invested assets. The Outlook could be revised to negative if there is a material weakening in the underwriting results of both CTPL motor and commercial motor insurance businesses. Additionally, significant losses from catastrophe events and considerable impairment losses from adverse equity volatility could also lead to a negative adjustment in the Sector Outlook. The report, '2014 Outlook: China Non-Life Insurance', is available at or by clicking on the link above. Contacts: Terrence Wong Director +852 2263 9920 Fitch (Hong Kong) Limited 28th Floor, Tower Two, Lippo Centre 89 Queensway, Hong Kong Joyce Huang Director +852 2263 9595 Jeffrey Liew Senior Director +852 2263 9939 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available at ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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