Slowing economy and liberalisation challenge China’s motor insurers

The slowdown of the Chinese economy combined with price liberalisation in some provinces will mean the industry will face underwriting challenges in its core book of motor business, Moody’s has said in a report.

“These developments, together with the adoption of China’s new solvency regime, will encourage migration to non-motor lines for the more established players, and raise consolidation pressure for the weaker players,” the rating agency said.

It said slowing motor sales would also mean weaker premium growth. It expects total P&C premium growth to slow from the 16.4 percent pace registered in 2014, driven by slower motor premiums as motor sales fall, and by motor pricing liberalisation in six provinces.

Motor remains the key business line of the Chinese P&C market, accounting for more than 75 percent of total premium income in 2014.

Preliminary reports point to a considerable drop in premium rates in the six provinces/cities that are under the pilot scheme of commercial motor insurance premium rate liberalisation since June 1, 2015. These lower rates will affect the industry’s profitability for the current underwriting year, as the six regions account for approximately 17 percent of nationwide premiums, and also reflect the further impact from a full-scale liberalisation.