Analysts at S&P Global Ratings have warned that investment market volatility will constrain China Reinsurance (Group) Corp.’s earnings, potentially eating into its capital buffer and potentially eclipsing the progress it has made in overhauling its underwriting.
The rating agency notes that China Re is more susceptible to credit and market risks than its international peers due to its greater allocation of high-risk assets, reflecting its large life reinsurance book.
It also reflects China Re’s ongoing efforts to bolster investment income to offset underwriting margin pressure.
China Re’s net profit declined 58.8% year on year to RMB 1.6 billion in the first half of 2022 due to a decline in investment income.
And S&P believes that volatile capital markets, rising counterparty risks, and low interest rates will continue to weigh on Chia Re’s investment returns and pose challenges to the reinsurer’s investment strategy.
Nevertheless, China Re is likely to further tighten investment guidelines and risk control at both the group and subsidiary level, while the group’s initiative to reduce reliance on the savings-type life reinsurance policies should ease some pressure on yield chase.
Analysts anticipate that the reinsurer will benefit from strong growth in the non-motor segment of the primary insurance market, particularly agriculture insurance, underpinned by the growth of domestic property and casualty segments, both reinsurance and primary.
Meanwhile, the group also plays an important role in expanding catastrophe-related coverage in China, while premium-rate hikes in international markets also support China Re’s international expansion.
China Re had a largely stable combined ratio of 99.6% for its domestic P&C reinsurance business at the end of H1, and the reinsurer narrowed underwriting losses for its primary P&C insurance with a combined ratio of 103.0%.
Its overseas P&C segment reported a combined ratio of 96.5% versus 92.3% in the first six months of 2021, due to Russia-Ukraine conflict and natural disaster events.