Moody's flags equity slump as risk to China insurers

Poorly performing domestic stock markets are beginning to weigh negatively on the credit worthiness of China's insurers, according to credit agency Moody's, which reiterated its "stable outlook" rating for the sector but cautioned on negative headwinds.

Profits for the insurance sector fell 73 per cent in August from a year earlier, while net assets contracted 6 per cent in the three months to August, according to the China Insurance Regulatory Commission.

"Our outlook for the sector takes into account the likely scenario that the equity market will remain highly volatile for a significant part of the next 12 to 18 months, on the back of lingering economic uncertainty, low liquidity and reduced margin financing activity," said Sally Yim, Moody's vice-president and senior credit officer.

"This scenario would imply immediate negative impact on life insurers, as their financials are highly dependent on stock market performance. Should the recent market correction stabilise at current levels or extend further, insurers will see a reversal in the improving trend in their earnings and capitalisation of the past year," Yim said in a report released on Monday.

Moody's said volatile investment markets might affect the creditworthiness of the life insurance industry over the next 12 to 18 months.

Under Beijing's market rescue plan, initiated in July after Shanghai and Shenzhen dropped 30 per cent from June, mainland insurers have been directed to increase their stock buying.

Moody's said the policy had the effect on insurers of "increasing their exposure to potential further stock market volatility".