Economic recovery and solid capital supplementary bond issuance will support Chinese insurers' solvency in 2021, said Moody’s recently.
Solvency ratios of life insurers in China generally rebounded in early 2021 as insurers emerged from business disruptions caused by the coronavirus pandemic, said Kelvin Kwok, a Moody's Analyst.
Their capitalisation likewise picked up in the first quarter of 2021 following three quarters of decline, partly due to their issuance of capital supplementary bonds, he added.
"For the rest of 2021, stronger profitability as sales of higher-margin products resume, favourable capital markets and the continued issuance of capital securities will support life insurers' capitalisation, despite further falls in the reserving rate,” Kwok noted.
But pressure remains on some segments, Moody’s cautioned.
Property and casualty insurers' solvency ratios will be strained by growth in their non-motor businesses, the credit rating agency said.
The recent motor pricing reforms narrow profit margins on mainstream motor lines and accelerate insurers' diversification to non-motor lines, which tend to carry higher capital charges, the firm added.
Reinsurers' solvency ratios will be under pressure in 2021 on stronger reinsurance demand from direct insurers, Moody’s pointed out.
In particular, life and non-life cessions will likely increase because of life insurers' transition toward protection products and non-life insurers' continued development of their non-motor businesses, the firm observed.
Most insurers will report lower solvency ratios under the upcoming China Risk-Oriented Solvency System (C-ROSS) Phase II, which will reduce insurers' available capital and increase their required capital, Moody’s said.
The new regime will set limits on life insurers' ability to recognize future profit as available capital and for P&C insurers, raise risk charges on certain non-motor lines, the firm noted.
That said, most Chinese insurers' solvency and risk-based capitalisation will remain above regulatory thresholds, supported by earnings retention, more disciplined capital management and their issuance of capital supplementary bonds, Moody’s said.