Moody’s raises view on China life insurers as regulatory tightening cuts risk

A government crackdown on the practice of issuing short-term policies for financial gain is improving the industry’s creditworthiness, the agency says

PUBLISHED : Tuesday, 05 June, 2018, 1:29pm
UPDATED : Tuesday, 05 June, 2018, 10:59pm

Moody's Investors Service has raised its outlook on the life insurance industry in China, citing a lowering of risk due to Beijing’s tightening regulation over the sector as well as steady economic growth that is fuelling demand for policies.

The credit rating agency said in a statement on Tuesday that it had lifted its outlook to “stable” from “negative”. It said that over the next 12 to 18 months, life insurers should report stable profitability and solid solvency metrics.

“The change reflects our expectation that the current moderate economy-wide build up in leverage, a shift to a more sustainable product mix and a slowdown in investment allocation to high-risk assets will prevent further deterioration in the creditworthiness of Chinese life insurers over the next 12-18 months,” said Zhu Qian, a Moody's vice-president and senior credit officer.

“For life insurers, premium growth will be lower in 2018, but insurance demand will be supported by steady economic growth, low insurance penetration and initiatives to promote long-term products,” she said.

Chinese insurers emerge stronger after tougher regulations, improved investment returns

China has taken a hard line against insurance companies over the past year, concerned that their issuance of short-term life policies, which were often used to fund acquisitions and asset-buying sprees, could increase risk and instability in the financial system.

The government wanted to refocus the industry on offering long-term protection to policyholders, rather than seeking quick profit.

Last week the industry regulator, the China Banking and Insurance Regulatory Commission, said that life insurers saw income from premiums fall in the first four months of 2018, but that the decline was bottoming out as insurers returned their focus to long-term protection.

China’s life insurers see fall in income as regulator crackdown bites

Zhu said the decline in the issuance of short-term policies would improve the industry's longer-term liquidity profile and the shift to more traditional policies would provide more stable future cash inflows.

Shares in Chinese insurers listed in Hong Kong were among the biggest gainers on Tuesday. New China Life Insurance gained 0.95 per cent, China Life Insurance rose 0.89 per cent , Ping An Insurance added 1 per cent and China Pacific Insurance was up 0.72 per cent. This is compared with Hang Seng Index rose 0.31 per cent.

Zhu also said that China’s policy of cutting leverage in the economy would support its economic growth in a more steady manner.

However she noted that smaller insurers would continue to face heightened challenges to their profitability and capitalisation.