Mainland insurers seen as safe bet despite jitters

PUBLISHED : Friday, 09 December, 2011, 12:00am
UPDATED : Friday, 09 December, 2011, 12:00am


Mainland insurers are expected to see double-digit growth in premiums next year on the back of a projected 8.8 per cent economic expansion, according to Swiss Reinsurance.

Life insurance premiums are likely to grow by 11 per cent year on year in real terms, after having contracted by an estimated 6 per cent this year as a result of tighter regulations on bancassurance, the reinsurer said in a report released yesterday.

It expects non-life insurance premiums to increase 12 per cent, moderating from this year's estimated 15 per cent growth as the economy slows down.

'China's insurance market will see sustained growth, continuing to take a lead among emerging markets,' said Xing Li, an economist at Swiss Re. 'Chinese policymakers have more leeway to leverage policies to counter economic slowdown, including the use of reserve requirement ratio.'

Joyce Huang, director of Fitch's Asia-Pacific insurance team, also expects premiums of life insurers to grow between 10 per cent and 15 per cent next year.

The ratings agency, however, says mainland life insurers' profitability and capitalisation will remain under pressure because of possible lacklustre investment performance amid a gloomy economic outlook.

'Chinese life insurers have mainly relied on investment income for profits, so their profits are sensitive to stock market fluctuations,' Huang said. 'Substantial marked-to-market losses in equity investments undermined their profitability and capitalisation in 2010 and the first half of 2011.

'Fitch sees possible further weakening of capitalisation due to the pullback in the stock market in the second half of this year and persistent capital needs for business expansion.'

Despite the challenges, Fitch, said it does not foresee significant rating changes over the next 12 to 24 months as the insurers have adequate capital buffers and external funding capabilities.

The agency expects the performance of the mainland's non-life insurance sector to be stable, underpinned by factors such as tight regulatory supervision, improving operating efficiency and sound underwriting margin.

However, commercial motor pricing reform and a worsening underwriting deficit of compulsory third-party liability are risks over the next 12 to 24 months.

The average combined ratio - a measure of profitability in the insurance industry - of the top three major insurers, PICC Property and Casualty Company, Ping An Property and Casualty and China Pacific Property Insurance, fell to about 95 per cent last year from 99.7 per cent in 2009.

Fitch expects the favourable phase of the underwriting cycle to peak in the second half of this year and slower growth of motor sales to moderate the expansion of the non-life sector in 2012.