S&P details capital needs at mainland insurers

PUBLISHED : Thursday, 28 July, 2011, 12:00am
UPDATED : Thursday, 28 July, 2011, 12:00am


Mainland insurers are expected to need an extra 114 billion yuan (HK$137.9 billion) to fund growth over the next three years, according to ratings agency Standard & Poor's.

To achieve an annual 15 per cent growth in premiums over three years, mainland life insurers will need 32 billion yuan and non-life insurers will need 82 billion yuan of capital injection, S&P said in a report yesterday.

The need for capital, after premiums expanded at an annual average of 25 per cent in the past five years, could further pressure capital markets. This is more so because mainland banks have an estimated funding gap of more than 500 billion yuan following a lending spree in the past few years.

S&P based its projection on the assumption that life insurers have a 5 per cent ratio of shareholders' funds to total assets while non-life insurers have 40 per cent to net premium income, acceptable levels at global peers.

'The insurers will need continued external funding to support rapid growth,' said Connie Wong, an S&P credit analyst and co-author of the report. 'This is particularly true for non-life insurers, given their relatively low capitalisation.'

Fast growth in recent years has eroded insurers' capital adequacy levels. Big insurers including China Life Insurance, PICC Property and Casualty and Ping An Insurance (Group) have raised more than 167 billion yuan from the equity market since listing in the past decade. They have also relied on capital generation through earnings and issuance of subordinated debt for funding.

'These companies face moderately high industry risk due to their low-to-modest capitalisation, unsophisticated risk management and limited choices for asset and liabilities management,' Wong said.

However, the agency expects the operating performance of insurers to 'remain favourable' over the next one to two years, as the companies are likely to benefit from healthy economic growth and an underpenetrated insurance market, she said.

In a March report, ratings agency Moody's said the outlook for mainland life insurers for the next 12 to 18 months was 'stable', adding high premium growth would counterbalance any pressure on their capitalisation.