News Non-Life17 Sep 2018

China:Improvement in motor profitability seen as limited

| 17 Sep 2018

Improvement in profitability for motor insurance in China will be limited until there is significant industry consolidation, says Moody's Investors Service in reports released last week.

Motor insurance products are increasingly becoming a commodity business, so Moody's expects smaller insurers to be further disadvantaged and marginalised as price takers in the industry.

As for large insurers, Mr Edwin Liu, a Moody's associate analyst, said, "The five listed traditional Chinese P&C insurers reported weaker profitability, which testifies to continued challenges in their predominant motor business." 

The listed P&C insurers reported total premium growth of 15% in the first six months of 2018 from a year ago, powered by a 38% surge in non-motor premiums, which more than offset weak growth of only 6% in motor premiums.

Moody's expects this divergence to continue because the insurers remain focused on developing non-motor insurance, in particular liability and agriculture insurance, which enjoy better underwriting profitability than motor insurance.

The weakness in motor premiums also reflects lacklustre new vehicle sales and competitive pressure from further pricing liberalisation.

The listed P&C insurers reported an average combined ratio of 98.0% in the first half of 2018, a deterioration from 97.5% a year ago, mainly driven by an increased loss ratio because of lower premium adequacy amid intensified motor insurance pricing reform.

Life insurers

Commenting on listed life insurers, Mr Liu said, "The six listed Chinese life insurers reported lower new business in their first half results, but their credit standing was supported by healthy growth in their in-force books and strong capitalisation."

For the listed life insurers, aggregate first-year premiums fell by 24% from the same period last year mainly because of regulatory restrictions on sales of short term saving products and increased competition from other wealth management products.

The insurers also reported an average 9% growth (not annualised) in their embedded value (EV) compared with year-end 2017, despite a sharp decrease in the value of new business (VNB) mainly driven by volume decrease.

Looking ahead, Moody's expects a recovery in new policy sales to reflect falling yields on wealth management products and greater efforts by insurers to market protection-type products. Total premium will grow on renewal premiums from their in-force book. Renewal premiums now account for over 60% of total premiums for most insurers, and are a more stable source of cash inflow than single premiums.


| Print | Share

Note that your comment may be edited or removed in the future, and that your comment may appear alongside the original article on websites other than this one.


Recent Comments

There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.

Other News

Follow Asia Insurance Review