China: Solvency improves for life insurers, declines for P&C and reinsurers
Source: Asia Insurance Review | Nov 2017
The average solvency ratio for Chinese life insurers increased in the first half of 2017, ending a decline in 2016, according to S&P’s analysis of the June 2017 solvency summary report under the China Risk-Oriented Solvency System (C-ROSS). At the same time, solvency ratios for property and casualty (P&C) insurers and reinsurers continued to decline.
The international rating agency expects the future trend of solvency ratios to be driven by various regulations, including the clampdown on short-term savings-type life insurance products and non-mandatory motor insurance deregulation.
Life insurers’ solvency ratios stabilised in 2Q17, contributed by higher equity prices and recovery of earnings which led to higher available capital. In addition, slower premium growth from low-margin products lowered the increase in required capital. S&P expects continued product mix improvement and a slower decline in the reserving rate, following a rebound in interest rates in recent months, will ease capital pressure for the next 12-18 months.
Divergence in solvency between large and small P&C insurers
P&C insurers’ solvency are still declining, reflecting decreasing profitability because of motor insurance deregulation and dividend distributions by some major insurers. Divergence in solvency between the large and small insurers has become more acute in this increasingly competitive sector, a trend that S&P expects would continue.
Reinsurers’ solvency has also fallen, despite a rebound by industry leader China Life Reinsurance in the second quarter of 2017. S&P expects reinsurers to maintain solvency ratios above 200% under the C-ROSS regime to attract cedants. A