Zking Property & Casualty Insurance Co (ZKI) continued to reduce riskier guarantee insurance business that is susceptible to domestic economic conditions, says Fitch Ratings.
The action may ease pressure from the deterioration in the loss ratio arising from more frequent and significant weather-related catastrophe claims, adds Fitch in a rating commentary.
The global credit rating agency says that ZKI’s management expects the insurer’s return on equity (ROE) to improve to about 5% by end-2024, from 2.6% in 9M2024 (2023: 2.5%).
The combined ratio was 100% in 3Q2024 (2023: 105%), averaging at 101% during 2021-2023. However, higher loss ratios in some non-motor lines partially offset a reduction in the expense ratio.
Rating affirmed
Fitch has affirmed ZKI’s Insurer Financial Strength (IFS) Rating at 'A-' (Strong). The outlook is ‘Stable’.
The affirmation reflects 'Strong' capitalisation, resilient underwriting performance and rising, but manageable, investment risk. The rating also considers the 'Moderate' company profile, with ownership linkage to the Jiangsu provincial government in China.
Aside from financial performance, other major drivers of ZKI’s ratings are:
Robust Risk-Based Capital Buffer: ZKI's Fitch Prism Global model score was 'Extremely Strong' at end-September 2024 and its regulatory comprehensive solvency ratio stood at 361% (end-2023: 348%). The risk-adjusted capitalisation metrics reflect stronger available capital to support higher market and credit risks alongside reduced exposure to credit and guarantee insurance risk, which is subject to a higher capital charge in the solvency calculation. The financial leverage ratio was 21% at end-September 2024, after the issuer issued a capital supplementary bond of CNY2.5bn ($345m) in December 2023.
Higher Equity Investments: ZKI's risky-asset exposure has been increasing, but remains commensurate with the rating. Risky assets, which include equity-type assets, Fitch-adjusted non-investment-grade fixed-income investments and investment properties, were equivalent to 71% of shareholders' capital at end-2023, compared with 54% at end-2022. The ratio edged up to 73% by end-September 2024 on new long-term equity investments in 2024 for more stable returns. Higher exposure to equity investments leaves earnings and capital vulnerable to a volatile equity market.
Rating Uplift on Ownership: The insurer is rated one notch above its standalone credit quality, as a result of ownership linkage with the Jiangsu provincial government. Fitch expects the government to continue to provide operational and financial support to ZKI, should the need arise. Jiangsu State-owned Assets Supervision and Administration Commission and the province's Department of Finance have strong control over the entities that collectively own 42.08% of ZKI, including its largest shareholder, Jiangsu Guoxin Investment Group, which has a 21.5% stake.
Sound Competitiveness in Jiangsu: Fitch assesses the company profile as 'Moderate', reflecting its moderate operating scale and competitive advantage and 'Neutral' corporate governance, compared with that of other non-life insurers in China. ZKI has a consistent business focus to shift to health, agricultural, and liability insurance, from motor and credit and guarantee lines. It had a 0.76% share of China's non-life sector by direct premiums in 9M2024. It is the fifth-largest insurer in Jiangsu province, with a 4.4% market share, which contributed nearly half of its total premiums.