The Chinese insurance sector sees mixed prospects for solvency ratios, with the ratio rising in the first half of 2017 for life insurers, ending the decline seen in 2016, while that for P&C companies continued to fall, says Moody's Investors Service in a report issued yesterday.
"Moody's expects the future trend of solvency ratios for life insurers to be driven by various regulations, including the clampdown on short-term savings-type life insurance products," said Mr Edwin Liu, a Moody's Associate Analyst. "At the same time, the solvency of P&C insurers is still declining, reflecting decreasing profitability because of motor insurance deregulation and dividend distributions by some major insurers."
Mr Liu added: "Furthermore, the divergence in solvency between the large and small insurers has become more acute in this increasingly competitive sector, a trend that we expect to continue."
Moody's expects that the continued product mix improvement evident among life insurers will bode well for their solvency ratios in the coming 12-18 months, and this shift is evidenced in the increase in the share of traditional life products to more than half of the industry's product mix in the first half of 2017, compared with below 30% in 2015.
The improvement in product structure with higher protection elements is positive for insurers' solvency because these products have lower interest rate risks, given less reliance on spread gains, and therefore have lower capital requirements under the China Risk-Oriented Solvency System (C-ROSS).