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Fitch: Motor Premium Reform to Weaken China Insurers' Margins
November 21, 2017 / 1:05 AM / 22 days ago

Fitch: Motor Premium Reform to Weaken China Insurers' Margins

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Fitch 2018 Outlook: China Non-Life Insurance here HONG KONG, November 20 (Fitch) Fitch Ratings has maintained its 2018 rating and sector outlooks for China's non-life insurers at stable on the expectation that the sector is likely to sustain healthy capital adequacy. We expect further liberalisation of motor insurance pricing to undermine the insurers' ability to boost their underwriting margins. However, the expansion in non-motor policies is likely to offset the slower growth from motor insurance. Fitch also believes new business expansion will put a strain on smaller insurers' capital adequacy although the solvency positon of the non-life sector as a whole remains sound. The growth prospects for China's non-life sector are likely to remain favourable in the coming year. Steady economic expansion and regulatory initiatives will boost demand for non-motor insurance such as accident and health policies. Motor premium growth is likely to slow as insurers cut their rates after the government's further liberalisation of commercial motor insurance in June 2017 to increase competition. Motor insurance volumes could be further affected if the withdrawal of tax benefits for the purchase of small-engine vehicles in 2018 moderates new auto sales. We believe fresh capital infusions by shareholders or the issuance of subordinated capital bonds will be inevitable for insurers that are expanding quickly or have weaker operating margins. Most major insurers have strengthened their capitalisation in terms of net premium leverage through surplus growth and equity infusion. Fitch does not expect non-life insurers to dramatically change their debt-to-equity structures as underwriting volatility will constrain their ability to increase the use of subordinated debt to fund their growth. Fitch believes the insurers will manage and control their catastrophe exposure through proper reinsurance. Revisions of rating and sector outlooks to negative could take place if claims from catastrophe events severely damage the insurers' solvency position on a market-wide basis. Fitch does not expect the insurers to materially increase their exposure to listed assets because of relatively high capital charges and potential market volatility. Fitch would revise the rating and sector outlooks to negative if significant asset impairment related to extreme equity-market volatility or bond defaults occurs. The report, "2018 Outlook: China Non-Life Insurance", is available at www.fitchratings.com or by clicking on the link in this media release. Contact: Terrence Wong Director +852 2263 9920 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Joyce Huang Director +852 2263 9595 Jeffrey Liew Senior Director +852 2263 9939 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. 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