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Chinese Life Insurers: Reliance on Low-Margin Bancassurance is reducing

30.06.2015 – Sham_StandardpoorsSector Review von Terry Sham, Standard & Poor’s. China’s insurers continue to seesaw between opportunities and pain points. The industry remains the fastest-growing among emerging markets and it still has room to expand, thanks to such firm fundamentals as low penetration and a large population.

Our study of the top 25 insurers in China shows that capitalization remains a key constraint on credit profiles. The largest insurance groups tend to have the strongest credit profiles, given their well-established franchises, extensive distribution networks, and diversified business mixes.

In addition, the Chinese government is encouraging deeper insurance penetration over the coming few years, while the regulator is pushing for more sophisticated risk and capital management. But key obstacles to further development persist. In particular, we believe the current capitalization levels of many insurers may not be a comfortable buffer against their risk exposures, which will constrain their credit profiles.

China: Life Insurance

(Click to Enlarge) Top 9 Life Insurers in China 2014 (Source: S&P)

And smaller insurers may struggle to survive amid the increasing competitive advantages of a few major players. Conditions are stabilizing in the life insurance segment. Earnings of life insurers have improved and their reliance on low-margin bancassurance products is reducing. Bigger players tend to have the strongest stand-alone credit profiles, partly due to their well-established franchises, extensive distribution networks, and diversified business mixes.

Other benefits include better economies of scale, technical know-how, and compliance functions. A handful of insurance groups have the strongest financial and business risk profiles, which offers some protection against industry downturns.

S&P revised the credit outlook on the life insurance sector to stable from negative because we are increasingly confident about its growth prospects and strategies. We maintain our stable outlook on the non-life sector, partly because underwriting performances are still satisfactory.

Insurers’ risk exposure will increase over the next few years, in our view, mainly as they expand their asset bases amid business growth. In many cases, capitalization is already stretched and could be further strained. Earnings may become more volatile for those insurers chasing investment yields. Increasingly aggressive investment appetites will add to the strain on capitalization.

Hintergrund: Die Vertiefung einer strategischen Partnerschaft stand gestern beim EU-China Gipfeltreffen auf der Agenda. Ministerpräsident Li Keqiang hat das Parlament in Brüssel Besuch und mit Parlamentspräsident Martin Schulz Sicherheit, Klimaschutz, Handel, Investitionen und die Eurozone.

Bild: Terry Sham, CFA, FRM, Standard & Poor’s Hong Kong. (Quelle: S&P)

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