News Non-Life06 Jun 2024

China:Online non-life insurer stays consistent in producing profits

| 06 Jun 2024

Online P&C insurer, Tk.cn Insurance, has reported three consecutive years of positive net operating profits, although its underwriting margin narrowed in 2023, says Fitch in a commentary.

The insurer's combined ratio increased to 96.6% in 2023 from 92.3% in 2022, partially due to an escalation in claims from liability insurance. The insurer's expense ratio improved in the past two years as a result of ongoing expansion of its operational scale.

Stable yield from investments continued to contribute favourably to the company's overall profitability. While Tk.cn's underwriting results are likely to remain marginal in the near term, Fitch believes return from assets will persistently enhance the insurer’s operating stability.

Ratings affirmed

Fitch Ratings has affirmed Tk.cn’s Insurer Financial Strength (IFS) Rating at 'A-' with a ‘Stable’ outlook.

The affirmation reflects Tk.cn's sound capital adequacy, consistently profitable performance, and 'Moderate' company profile associated with its niche business distribution approach through online sales, says Fitch. The rating also factors in Tk.cn's 'Very Important' strategic status within Taikang Insurance Group.

Aside from financial performance, major drivers of TK.cn’s ratings include:

Rating Uplift: Tk.cn's IFS Rating benefits from a three-notch uplift from its standalone credit quality because Fitch recognises the insurer as a 'Very Important' operating subsidiary within Taikang Insurance Group, according to Fitch’s group rating methodology. Taikang Insurance Group owns 99.82% of Tk.cn, with the remainder controlled by Taikang Asset Management Co (TAM), the group's asset-management arm. Tk.cn uses the same brand as its parent in marketing its products.

Sound Solvency Strength: Ongoing business growth moderated Tk.cn's capitalisation in 2023. The company's comprehensive solvency ratio under the China Risk-Oriented Solvency System (C-ROSS) Phase II declined to 273% by end-1Q2024 from 322% at end-2022, although the solvency position was well above the 100% regulatory minimum.

Fitch believes Tk.cn will maintain adequate capital buffer to support its planned premium expansion in the coming one to two years. The capital score at end-2023, measured by the Fitch Prism capital model, declined to the 'Adequate' category from 'Strong' category at end-2022. Nonetheless, Fitch believes that Taikang Insurance Group will render capital support to Tk.cn if it achieves faster-than-expected business growth.

Focus on Online Distribution: Fitch assesses Tk.cn's company profile as 'Moderate' in consideration of its 'Moderate' business profile and 'Moderate/Favourable' corporate governance profile compared with that of all other Chinese life insurers. The assessment reflects the company's 'Moderate' operating scale, sound brand franchise as well as its niche focus on its online platform to disseminate insurance products. The insurer captured about 0.7% of the Chinese non-life insurance market, by direct premiums, in 2023, with a focus on accident and health insurance.

Solid Liquidity: With the current investment approach, Fitch believes Tk.cn will maintain strong liquidity to support potential insurance claims from its short-tailed insurance liabilities. Most of the company's incurred claims are settled within one year. Liquid assets, which are mainly cash, bank deposits and bonds, amounted to about 274% of the company's net loss reserves at end-2023, well above the guideline for non-life insurers with 'A' IFS Ratings.

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