Bloomberg News

Chinese Insurers to Face More Capital Pressure, Fitch Says

December 07, 2011

Dec. 7 (Bloomberg) -- Chinese life insurers’ capital strength may weaken further as stock-market declines amid an economic slowdown crimp profitability and liabilities increase with expansion plans, according to Fitch Ratings.

The credit-rating company doesn’t foresee any major rating action over the next 12 to 24 months, though significantly weakened capitalization on a sustained basis could lead to negative changes, Fitch said in an e-mailed report today. The outlook on non-life insurers is stable for up to two years.

China Life Insurance Co., the nation’s biggest insurer, reported a 46 percent drop in third-quarter net income as a slowing economy and lending curbs led to the benchmark Shanghai Composite Index’s worst quarterly loss in more than a year, reducing insurers’ investment returns. The company won approval in October to sell as much as 30 billion yuan ($4.7 billion) of subordinated bonds to boost its ability to settle claims.

Major insurers’ profitability would be “significantly weaker than the reported numbers” if unrealized investment losses were included, Fitch said in the report. Further declines in the stock market will most likely impair profitability further, leading to “heightened solvency pressure,” it said.

The underwriting margin of non-life insurers in the commercial motor insurance market will not decline dramatically even after a planned pricing deregulation, and losses from compulsory third-party liability insurance will be kept at a manageable level, supporting a stable outlook for those companies, Fitch said in a separate report today.

--Editors: Linus Chua, Tomoko Yamazaki

To contact the Bloomberg News staff on this story: Dingmin Zhang in Beijing at dzhang14@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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