Slower economic activity as a result of the coronavirus pandemic is expected to constrain the growth dynamics of the Chinese non-life insurance sector in 2020 – according to a commentary from Fitch Ratings.
The agency notes that the premium growth from the motor class is likely to remain weak if the sales of new automobiles continue to be sluggish. It also remains uncertain whether the launch of numerous regulatory initiatives to stimulate the sales of new vehicles could boost demand for motor insurance policies dramatically.
In view of such developments, the agency anticipates that insurers will accelerate their expansion in non-motor insurance in 2H20 as the government has eased restrictions on travel and allowed factories and stores to re-open amid a decline in COVID-19 cases since March.
Underwriting results from the motor line are also likely to improve mildly due to fewer traffic accidents following restrictions on travel to contain the spread of the virus. This will offset potentially higher losses from guarantee and credit insurance.
Motor insurers, depending on their risk appetite, could incur higher acquisition costs to compete for motor business to achieve their planned target if the demand for motor policies remains subdued in 2H20.
As the pandemic is still developing globally, the agency therefore expects capital-market volatility and the fall in recurrent yield from fixed-income instruments to undermine the investment return of insurers.
A slowdown in business growth will reduce insurers’ burden for additional capital infusion.
Meanwhile, insurers might be subject to higher capital requirements if they increase their allocation to riskier assets such as long-term equities or equity-type non-standard assets in an attempt to seek a better investment yield.