Fitch: Product Diversity, Margin Focus to Support Chinese Life Insurers

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: Chinese Life Insurance here HONG KONG/SINGAPORE, December 11 (Fitch) Fitch Ratings says Chinese life insurers' increasing product diversity and greater emphasis on margin improvement instead of market share will support quality growth in the sector in 2014. Chinese authorities' removal of the interest rate cap on some guaranteed life products in August 2013 and announcement of more reforms in November 2013 are aimed at encouraging insurers to provide more types of insurance policies to strengthen social security. Fitch sees the agency channel as increasingly important for Chinese life insurers to pursue a sustainable and profitable growth, particularly as they innovate to offer more complex products with risk protection elements. Larger insurers with established agency bases have the advantage in developing more professional and productive agency forces. In addition, greater product diversity could ease competition and help the insurers offer products that are more differentiated from those offered by banks, which will help avoid direct competition with banks. Boosting more profitable regular-premium policies and products with risk-protection features have helped sustain the sector's premium growth and the growth in the value of in-force business. Gross written premiums in the sector grew 8.5% in the nine months ended September 2013, compared with the full-year growth of 4.2% in 2012. Fitch is maintaining its Rating and Sector Outlooks at Stable for the Chinese life insurance sector as it believes that the rated insurers' resilient market positions, and adequate capitalisation and external funding capabilities will continue to support their steady credit profiles. Continued earnings volatility and fierce competition among homogenous products are key rating constraints. Chinese life insurers' profitability and capitalisation remain vulnerable to potentially unfavourable movements in stock markets and deterioration in the quality of fixed-income securities in an economic slowdown in China. A decision by the Chinese government in early 2013 to allow insurance holding companies in China to issue subordinated debt, subject to a cap of 50% of net assets, could weaken their capital base if insurers use capacity at the holding company level to issue subordinated debt to fund operating entities' business growth. Significantly weakened capitalisation on a sustained basis could lead to negative rating action. China remains an under-penetrated market, particularly in risk protection, retirement and healthcare products in light of its ageing population. Increasing insurance penetration, which leads to higher underwriting profits, and less reliance on volatile investment income, could result in positive rating action. The report, '2014 Outlook: Chinese Life Insurance', is available at or by clicking on the link above. Contacts: Joyce Huang Director +852 2263 9595 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Terrence Wong Director +852 2263 9920 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.