AM BEST MAINTAINS NEGATIVE OUTLOOK ON CHINA'S NON-LIFE INSURANCE INDUSTRY

KUALA LUMPUR, Dec 9 -- Global credit rating agency, AM Best is maintaining a negative market segment outlook on China’s non-life insurance industry, as insurers continue to face operational and investment headwinds amid tightening regulatory supervision.

The Best’s Market Segment Report, titled ‘Market Segment Outlook, China Non-Life Insurance’, states factors for the continued negative outlook include industry portfolio rebalancing that may exacerbate pressure on underwriting; increasing strategic and operational challenges from tightening regulatory supervision; and potential economic weakening due to the country’s current property liquidity crisis, which could dampen insurance demand.

In 2020, direct premiums written in China’s non-life insurance market grew by approximately four per cent, a sharp reduction with the market’s track record over the past decade. Motor insurance, which accounted for 63 per cent of non-life direct premiums in 2019, decreased significantly to 54 per cent as of September 2021.

With the combined impact of the economic fallout from the COVID-19 pandemic during the first half of 2020, and the implementation of the motor comprehensive reform in September 2020, the motor segment recorded an increase of just 0.7 per cent in 2020.

Taking the full impact of the motor comprehensive reform into consideration, motor insurance premiums shrunk by 9.4 per cent over the first nine months of 2021, according to a statement.

The negative market segment outlook is underpinned by AM Best’s expectation that non-life insurers’ profit margins will remain subdued over the short term as the market rebalances its portfolio.

Non-life insurers will need time to adjust their channel and expense strategies to achieve an adequately lower expense ratio. Additionally, small to medium size companies without diversified distribution channels and the capability to increase their online acquisitions could be unable to adequately lower expense ratios, and therefore suffer near-term deterioration in their combined ratios.

Notwithstanding the macroeconomic challenges and a fast evolving regulatory environment, the capital adequacy of China’s non-life insurance segment remains solid, as evidenced by a non-life industry average C-ROSS comprehensive solvency ratio and core solvency ratio of 286.8 per cent and 258.0 per cent, respectively, as of the second quarter of 2021.

Factors that may lead to AM Best revising its market segment outlook to stable from negative in the future include the industry successfully navigating the headwinds of the motor comprehensive reform and returning to technical profitability, as well as a lower dependence on investment returns.

For more information, visit www.ambest.com.

-- BERNAMA