Fitch Ratings’ neutral outlook on China’s insurance reflects view that the sector will maintain a sound solvency buffer and steady premium growth, and expectation that insurers’ flexibility to raise capital to support business expansion will remain intact.
Imposition of higher capital requirements on the insurance and asset risk under the revised capital regime, C-ROSS Phase 2, lowered the solvency buffer in 2022.
China Non-Life Insurance Outlook
Insurers will reinforce their capital adequacy consistently through earnings retention, fresh equity injection, or capital supplementary bond issuance despite challenging operating conditions.
A sustained moderate pace of premium expansion in 2023, although pandemic restrictions in some cities could suppress insurance needs temporarily.
Non-motor insurance is likely to remain the growth driver because of regulatory initiatives and low market penetration. Fitch anticipates motor insurance pricing to remain steady, while motor premium growth dynamics will hinge largely on the sales of new automobile vehicles.
Higher overheads will still constrain smaller insurers’ capability to reduce the magnitude of underwriting deficits.
The increased frequency of climate-related catastrophe perils, such as typhoon, flood and drought, continues to threaten underwriting stability. Insurers to rely consistently on reinsurance to shield themselves from extreme catastrophe risks.
The need for reinsurance protection could escalate as insurers’ solvency buffer has dropped after the implementation of C-ROSS Phase 2.
China’s insurance market posted remarkable changes in terms of size and structure in the past decade, according to the country’s top insurance regulator.
The country’s insurance capital rose from 6.27 trillion yuan (about 872 billion U.S. dollars) in 2012 to 24.71 trillion yuan at the end of June 2022, with an average annual growth rate of 15.6%, data from the China Banking and Insurance Regulatory Commission showed.
Insurance capital investment targets had also been diversified, expanding from banking deposits, bonds and stocks to equities, real estate, asset management products and financial derivatives, among others.
By the end of June this year, China had 33 asset management firms taking care of insurance funds, up from 13 in 2012.
Insurance capital that helps finance the real economy in the long and medium term surged from about 4 trillion yuan in 2012 to 21.85 trillion yuan at the end of June, according to the commission.
Premium incomes of China’s insurance companies posted steady growth last year, according to a communique released by the National Bureau of Statistics.
Premiums of insurers nationwide rose to 4.49 trillion yuan (about 712.7 billion U.S. dollars), up 4 percent year on year in comparable terms, said the communique.
In breakdown, life insurance premiums reached 2.36 trillion yuan, and accident and health insurance premiums hit 965.7 billion yuan. Property insurance premiums stood at 1.17 trillion yuan.
All types of insurance compensation totaled 1.56 trillion yuan in 2021, according to the communique.
The China Insurance Market can be segmented by Type into Life Insurance and Non-Life Insurance. Non-Life Insurance can be further segmented into Health Insurance, Accident Insurance, Air Travel Insurance, Dental Insurance, and Other Non-Life Insurance.
- The technology boom has hit China especially fast. The China’s general insurance industry is forecast to grow by 3.8% in 2023, compared to 5.7% registered in 2019. Enabled by the rapid increase in mobile and internet users, tech firms have created large-scale ecosystems serving a community with strong online consumption habits and a heavy reliance on mobile devices. These online ecosystems have come to symbolize the Chinese tech scene and are significant contributors to the economy. The fast increase in the number of tech companies and the rapid growth of online ecosystems are based on strong encouragement of innovation and support for entrepreneurship. The most established tech firms have created online ecosystems that encompass all aspects of life, ranging from e-commerce to lifestyle services to financial services. They have reached scales that are large even by global standards.
- Buying personal insurance online is becoming more popular in China, with premiums increasing by 13.6% year on year. personal insurance premiums coming from online channels totalled $43.5 billion. Health insurance grew the fastest, with premiums increasing by 58.8%. This was most likely due to increased concerns regarding health among the public due to the COVID-19 pandemic.
- The share of online insurance premiums is expected to grow even further in the coming years, as technological innovation and e-commerce continue to develop in China. Insurers will become increasingly active in deploying new digital technologies to reinforce their long-term competitive edge, after the pandemic forced them to re-evaluate their digital capabilities in handling sales, underwriting, risk assessment and claims. China’s insurance regulator is expected to introduce additional measures to oversee the online insurance market in order to rein in risks and protect both insurer’s financial soundness and consumers’ interests.
China Life Insurance Outlook
China Life Insurance Outlook 2023 reflects steady fundamentals compared with 2022’s conditions, despite a challenging economic climate in China due to continued Covid-19 pandemic restrictions.
Fitch expects the life insurance sector to gain top-line growth momentum and recovery of consumer sentiment on a gradual relaxation of Covid restrictions in 2023.
GDP growth expectation for China is below 5% over 2023-2024, compared with 2.8% in 2022.
The bancassurance contribution will rise in response to changing market demand. No significant deterioration in regulatory risk-based capitalisation.
The industry’s solvency position remains solid, although operating under the revised version of the regulatory capital regime – China Risk Oriented Solvency System (C-ROSS) phase 2 – which includes tightened capital requirements and improved risk measurement implemented in 2022.
Investment risk remains key. Insurers may increase allocation to equities for higher returns amid persistently low interest rates and lengthening asset duration.
Insurers will manage their investment risks cautiously under the phase 2 regime. The life sector is undergoing deep business transformation and structural changes.
Difficulties in high-margin protection product sales and financial-market volatility will continue to challenge profitability.
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by Yana Keller
