Slower growth seen for insurance in­dus­try

China Daily (Hong Kong) - - BUSINESS INTERNATIONAL - By HU YUANYUAN huyuanyuan@chi­nadaily.com.cn

China’s insurance in­dus­try is likely to grow at a slower pace and face lower profit mar­gins next year be­cause fierce com­pe­ti­tion, in­dus­try ob­servers have said. “In­sur­ers are no longer just fo­cus­ing on pure growth. Many play­ers are be­com­ing more profit ori­ented, with a higher aware­ness of risk man­age­ment and will­ing­ness to di­ver­sify into new prod­uct ar­eas,” said Stan­dard & Poor’s credit an­a­lyst Con­nie Wong. “And that should mean more sus­tain­able growth in the longer term.”

Fitch Rat­ings’ an­a­lysts also be­lieve that the life in­sur­ers’ in­creas­ing prod­uct diver­sity and greater em­pha­sis on mar­gin im­prove­ment, in­stead of mar­ket share, will sup­port qual­ity growth in the sec­tor in 2014.

How­ever, S&P ex­pects a con­tin­ued neg­a­tive bias in credit trends for life in­sur­ers over the next 12 months be­cause of the slower growth, volatile op­er­at­ing per­for­mances and the mod­est cap­i­tal­iza­tion of many com­pla­nies.

The in­dus­try may need ad­di­tional cap­i­tal to sup­port the con­tin­ued growth of as­sets and cover the level of un­der­writ­ing ex­po­sure, li­a­bil­i­ties, and other op­er­a­tional risks, S&P added.

“We es­ti­mate that the insurance in­dus­try could face a short­fall of 200 bil­lion yuan ($32.88 bil­lion) to 270 bil­lion yuan over the next two years to sup­port growth based on our as­sump­tions and bench­mark cal­cu­la­tion for a BBB cap­i­tal ad­e­quacy con­fi­dence level,” said Wong. “The short­fall could be even higher if the po­ten­tial funds from the cap­i­tal mar­kets dry up or are much lower than we an­tic­i­pate.”

On the non-life insurance sec­tor, the coun­try’s con­tin­ued ur­ban­iza­tion drive and ris­ing house­hold wealth will sus­tain the growth dy­nam­ics, but in­tense rivalry will fur­ther weaken the sec­tor’s un­der­writ­ing mar­gins in 2014, Fitch said in a re­port on Fri­day.

In light of the fall­ing un­der­writ­ing mar­gins, Fitch be­lieves small insurance com­pa­nies with lim­ited op­er­at­ing scale and less diver­si­fied insurance books will post weaker op­er­at­ing re­sults in the com­ing year.

Ma­jor listed Chi­nese non­life in­sur­ers will still main­tain pos­i­tive growth in un­der­writ­ing sur­plus, al­beit at a slower pace, be­cause of di­verse rev­enue streams and bet­ter spread of risk.

“On­go­ing busi­ness ex­pan­sion cou­pled with slower sur­plus growth will con­tinue to pose a strain on in­sur­ers’ cap­i­tal ad­e­quacy, al­though many in­sur­ers im­proved their sol­vency ad­e­quacy through fresh eq­uity in­jec­tion or sub­or­di­nated debt is­suance over the past year,” said Ter­rence Wong, di­rec­tor of insurance at Fitch.

Non- life play­ers are likely to see pre­mium growth of 15 per­cent to 20 per­cent over the next 12 to 24 months, S&P said.

But the seg­ment’s per­for­mance can be volatile and sub­ject to un­ex­pected nat­u­ral dis­as­ters. In­ad­e­quate pric­ing, or un­der­es­ti­mated risk pro­files, of com­mer­cial prop­erty and ma­rine lines in China are likely to con­tinue be­cause of stiff com­pe­ti­tion.

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