Moody's Says Outlook for Chinese P&C Insurance Industry stable

The outlook for the Chinese property and casualty (P&C) insurance industry is stable, but challenges remain from growing price competition, declining capitalization and significant catastrophe risk amidst the weak economy, says a new report issued in Hong Kong Wednesday by Moody's Investors Service.

These challenges highlight the need for insurers to prudently manage their underwriting and investment strategies, says the report entitled "Industry Outlook: Chinese Property and Casualty Insurance",

"Moody's stable outlook on the Chinese P&C industry reflects our expectation that improving underwriting profitability (excluding catastrophes) and strong growth prospects are capable of offsetting most of the negative factors related to the weakening economic and operating environment," said Sally Yim, a Moody's assistant vice president and author of the report.

"After a year of poor underwriting performances in 2008 -- caused by several catastrophes and poor investment income -- P&C insurers are beginning to realize the importance and the need for tighter underwriting discipline," said Yim.

While Moody's is cautious over insurers' ability to raise premium rates significantly, given intense competition and a difficult economic environment, pressure on profitability from lower investment income and close monitoring from regulators should buffer against irrational pricing behavior.

The report also notes that Moody's remains cautious over the capital adequacy of some P&C insurers. This is due to insurers' depressed capitalization in 2008 coupled with a difficult financial market which is stalling capital raising activities.

In Moody's view, the capital strength of Chinese P&C insurers in the near term very much depends on their ability to achieve good profitability, which will only be attained if insurers' underwriting and investment management strategies are prudent.

As a result, profitability will be one of the key drivers for the credit fundamentals of Chinese P&C insurers over the next 12- 18 months, says the report.

Moody's anticipates continued growth in the Chinese P&C industry.

"While growth in 2009 may be slower than 2008 as a result of a gloomy global and domestic macroeconomic outlook, the industry could see relatively good growth opportunities," says the report.

Moody's attributes the opportunities mainly to the still low penetration rate, economic development supported by domestic consumption and public sector investments as encouraged by government incentives, improving wealth and living standards, greater awareness of insurance products following several catastrophes and potential from untapped agricultural insurance and rural markets.

Source:Xinhua