Best’s Market Segment Report: AM Best Maintains Negative Outlook on China’s Non-Life Insurance Industry

HONG KONG--(BUSINESS WIRE)--AM Best is maintaining a negative market segment outlook on China’s non-life insurance industry, as insurers continue to face operational and investment headwinds amid tightening regulatory supervision.

The Best’s Market Segment Report, titled, “Market Segment Outlook, China Non-Life Insurance,” states that factors for the continued negative outlook include:

• Industry portfolio rebalancing that may exacerbate pressure on underwriting;
• Increasing strategic and operational challenges from tightening regulatory supervision; and
• Potential economic weakening due to the country’s current property liquidity crisis, which could dampen insurance demand.

In 2020, direct premiums written in China’s non-life insurance market grew by approximately 4%, a sharp reduction with the market’s track record over the past decade. Motor insurance, which accounted for 63% of non-life direct premiums in 2019, decreased significantly to 54% as of September 2021. With the combined impact of the economic fallout from the COVID-19 pandemic during the first half of 2020, and the implementation of the motor comprehensive reform in September 2020, the motor segment recorded an increase of just 0.7% in 2020. Taking the full impact of the motor comprehensive reform into consideration, motor insurance premiums shrunk by 9.4% over the first nine months of 2021.

The negative market segment outlook is underpinned by AM Best’s expectation that non-life insurers’ profit margins will remain subdued over the short term as the market rebalances its portfolio. Non-life insurers will need time to adjust their channel and expense strategies to achieve an adequately lower expense ratio. Additionally, small to medium size companies without diversified distribution channels and the capability to increase their online acquisitions could be unable to adequately lower expense ratios, and therefore suffer near-term deterioration in their combined ratios.

Notwithstanding the macroeconomic challenges and a fast evolving regulatory environment, the capital adequacy of China’s non-life insurance segment remains solid, as evidenced by a non-life industry average C-ROSS comprehensive solvency ratio and core solvency ratio of 286.8% and 258.0%, respectively, as of the second quarter of 2021. This translated to an approximately 10-percentage point improvement year over year in terms of the comprehensive solvency ratio.

Factors that may lead to AM Best revising its market segment outlook to stable from negative in the future include the industry successfully navigating the headwinds of the motor comprehensive reform and returning to technical profitability, as well as a lower dependence on investment returns.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=315408.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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