A.M. Best Special Report: Sustainable Profitability Is Key for Healthy Capitalization of China’s Non-Life Insurers
HONG KONG--(BUSINESS WIRE)--With the expected adoption of China’s second-generation solvency system, the China Risk-Oriented Solvency System Conceptual Framework (C-ROSS), approaching, a new A.M. Best report states that Chinese non-life insurers should focus on enhancing earnings quality to better prepare to withstand headwinds and adapt to new dynamics brought about by the pending change in the solvency regime.
“The fast-changing operating environment in China and developing regulatory requirements may present unprecedented opportunities and challenges for market participants”
This special report, titled “Sustainable Profitability Is Key for Healthy Capitalization of China’s Non-Life Insurers,” aims to present A.M. Best’s view on the impact of implementing a risk-based solvency regime on the Chinese non-life insurance industry, and to investigate the major drivers for improving the market’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR).
“The fast-changing operating environment in China and developing regulatory requirements may present unprecedented opportunities and challenges for market participants,” said A.M. Best Associate Financial Analyst James Chan. “However, recent BCAR scores, which are derived by dividing adjusted capital by the corresponding net required capital, suggests insurers with larger market shares have weaker risk-adjusted capitalization than their smaller peers, thus creating downward pressure on the capital adequacy of the overall market.”
Although industry statistics suggest that non-life premium revenue growth in China will slow, it is still expected to maintain double-digit growth that is faster than GDP growth in the short to medium term. As insurance demand has grown sharply in recent years, insurers have sought to strengthen their solvency level, typically employing external capital support via capital injection and subordinated debt issuance.
“Apart from external capital support, it is very important for insurers to increase capital organically to support the long-term viability and sustainability of their business growth,” said A.M. Best Senior Financial Analyst Vivian Cheung.
The report also explores the impact of several key performance drivers, namely combined ratio, net investment yield and net premium growth rate, on insurers’ BCAR scores.
To access a complimentary copy of this report, including a Chinese-language version, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=226364.
A.M. Best Asia-Pacific Limited is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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