Related Market Sector:
Fitch Ratings-Taipei/Hong Kong-10 March 2010: Fitch Ratings has said today, in a just published Special Report, that the rising awareness of non-life insurance and the growing economy will support continued robust growth in China's non-life insurance market. However, the growth in the number of new entrants in the sector will continue to pressure non-life insurers' profitability and capitalisation.
"The increasing number of new entrants, coupled with the commoditised nature of business, leads to fierce price competition and poor underwriting performance," says Joyce Huang, Associate Director in Fitch's Asia Pacific Insurance Ratings team. "In particular, the agency observed that large companies have been losing market share to younger and smaller domestic competitors, since the latter have been pricing aggressively to gain market share," adds Ms. Huang.
The market share of foreign companies remains very small mainly due to regulatory restrictions on selling compulsory products and constraints on branch applications. Although the recent increase in regulatory focus on the rationality of competition and insurers' solvency is positive in terms of improving market discipline, Fitch remains cautious on its effectiveness in enhancing underwriting margins, and it expects the sector to rely on investment profits to support the bottom line.
In view of improved economic conditions, Fitch expects China's interest rates to rise in H210. This should increase non-life insurers' investment returns incrementally through higher deposit rates and bond yields. However, it might be difficult for insurers to improve equity investment returns since the stock market is expected to be more volatile in 2010, following the strong rebound in 2009, which may partly offset the positive impact of rising interest rates.
"Reaching reasonable and sustainable profitability will take time and will depend on an improvement in underwriting practices and asset-liability management," says Huang. "Capitalisation still needs to be cautiously managed despite the capital replenishment in 2009, since the ongoing strong growth in low-margin businesses could consume capital quickly," adds Huang.
Fitch expects large companies to maintain relatively steady credit profiles, underpinned by stabilised underwriting margins in the absence of severe catastrophes and good financial flexibility. However, the agency takes a more cautious view on small local companies as the potential capital strain from new business expansion may pose significant challenges to them given their weaker ability to tap external funding. Foreign companies' credit strength, meanwhile, should remain intact due to their prudent risk control and strong solvency margins.
The full special report, entitled "Chinese Non-Life Insurers: Market Competition Limits Upside," is available at www.fitchratings.com.
Contacts: Joyce Huang, Taipei, +886 2 8175 7602/
joyce.huang@fitchratings.com; Stanley Tsai, Hong Kong, +852 2263 9920/
stanley.tsai@fitchratings.com; Jeffrey Liew, Hong Kong, +852 2263 9939/
jeffrey.liew@fitchratings.com.
Media Relations: Karen Cho, Hong Kong, Tel: +852 2263 9935,
Email:
karen.cho@fitchratings.com.
Additional information is available at www.fitchratings.com.
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