Bangkok--16 Mar--Moody's Investors
Moody's Investors Service says that its outlook for the Chinese life insurance sector is stable, based on its expectations for high premium growth and favorable macroeconomic factors, which will support profitability as well as asset quality.
"However, regulatory risks and pressure on capital adequacy will partially neutralize the impact of these favorable trends," says Sally Yim, a Moody's Vice President and Senior Analyst.
Yim was speaking on the release of Moody's latest industry outlook on Chinese Life Insurance, which she authored.
"The migration of workers to China's coastal and second-tier cities, and the improvement in living standards, are driving demand for insurance,"says Yim.
"In addition, steady economic growth and the lack of comprehensive pension schemes and investment opportunities outside China are prompting more people to purchase life insurance for investment and retirement planning."
Macroeconomic factors also support the credit profiles of Chinese life insurers. For example, increases in interest rates mean higher investment income from deposits. Persistent inflation, hikes in asset prices, and an appreciation in the RMB would have only a limited impact on Chinese life companies because of the relatively simple character of their products and investment portfolios.
Moody's also expects the asset quality of life insurers to improve, in view of the opening of new investment channels, diversification of insurers' investments portfolio, and the strengthening of China's sovereign credit profile.
Negative factors include regulatory risks and pressure on capital adequacy.
"Regulatory changes will continue to strongly influence distribution channels and product design," says Yim.
Moody's also expects that capitalization will be pressured because of rapid premium growth. "A prudent dividend policy will therefore be crucial to preserving adequate levels of capitalization," says Yim.
Investment concentration in the banking sector will continue for some time, and any adverse developments in this sector will pose risks to the capitalization and profitability levels of life insurers.
Moody's notes that foreign firms continue to view China as a market with great potential. Nonetheless, they will still find it challenging to compete, given regulatory hurdles, their weaker presence in bancassurance, and the dominance of the domestic players.
The report, "Chinese Life Insurance," can be found at www.moodys.com.