Chinese life insurers’ resilient profitability and capitalisation, along with rebounding premium growth, support the stable outlook for the industry in 2021, Moody’s Investors Service says in a new report released yesterday.
“Life insurers’ profitability will be supported by stable spread margins, as they should be able to maintain investment yields of around 5%, given the recent rebound in long-term yields, as well as continued efforts to cap their cost of liability,” said Ms Qian Zhu, a Moody’s vice president and senior credit officer.
“Solvency ratios, a measure of insurers’ capitalisation, should also remain strong, which will continue to be supported by stable earnings generation and stronger capital management. The new China Risk Oriented Solvency System (C-ROSS) Phase II will likely widen solvency margin levels among insurers and prompt some to improve their capital cushion by issuing capital securities,” added Ms Qian.
Large recurring premiums, which reflect the industry’s earlier efforts to shift its product focus to long-term regular premium policies, will also improve overall income stability, while strong demand for health insurance because of the coronavirus outbreak will support business growth.
Insurers could, however, face investment income volatilities arising from higher equity investments as they take advantage of easing restrictions and improving stock market sentiment. Still, the net impact of this is mitigated by the reduced allocation to alternative investments and the recent rebound in long-term yields, which will prompt insurers to divert some of their allocations back to bonds.