AM Best revises outlook on China's non-life insurance segment to stable

KUALA LUMPUR, Dec 13 (Bernama) -- AM Best has revised its market segment outlook on China’s non-life insurance industry to stable from negative due to the segment’s improved underwriting performance and better growth prospects as the republic eases its zero-tolerance COVID-19 policy.

In its Best’s Market Segment Report, “Market Segment Outlook: China Non-Life Insurance", AM Best said the net profit of China’s non-life companies’ increased 20 per cent year-over-year as of the third quarter of 2022.

“As the non-life segment, in aggregate, has a relatively high net premium leverage (a measure of net premium written to capital level), the improvement in underwriting performance was magnified in the overall net profit, which was more than sufficient to offset the recent less favourable investment returns,” the credit rating agency said in a statement.

It said that the improvements in the segment’s underwriting performance were attributed to benign catastrophe activity for the year-to-date (YTD) and a slowdown in economic activity given COVID-19 lockdowns, and, therefore, a lower accident rate.

“Most importantly, with the negative impact of the 2019 motor comprehensive reform and financing-type credit insurance fully reflected in recent years’ performance, this allows the non-life segment to begin 2023 anew in terms of underwriting performance.

“The large insurance companies typically have more favourable operating outlooks given their strong capabilities to source profitable business and manage down acquisition costs amid market reform,” said AM Best senior director Christie Lee.

She said traditional mid-sized and smaller insurance companies in China thus sought to expand into non-motor lines of business or find their own competitive edge to navigate the motor comprehensive reform while pursuing profitability.

AM Best said China’s non-life industry generated total direct premiums of 1.25 trillion yuan or a premium growth of 10 per cent as of the first ten months of 2022, while direct paid losses rose by just 4.1 per cent.

“The motor comprehensive reform rolled out in September 2019 has diluted the motor’s contribution to the overall segment from 63 per cent in 2019 to 53 per cent in YTD October 2022,” it said.

The non-life segment’s growth continued to be steered by non-motor lines, where the three largest non-motor lines of business – health, agriculture, and liability – combined recorded remarkable growth of approximately 20 per cent over the first ten months of 2022, compared with the same period last year, on the back of government policy and regulations.

“Given that China’s non-life segment is marked by relatively high net premium leverage, a sustainable and profitable underwriting performance in a post-pandemic environment when economic activities resume is a key factor to maintaining a stable outlook for the non-life insurance segment in the future,” it added.

-- BERNAMA