Taishan Property & Casualty Insurance Co (Taishan P&C), in which Germany's ERGO Group has a 24.9% stake, is expected to report better operating results in 2024-2025 on an improvement in underwriting results and a stable investment yield, said Fitch Ratings.
A recovery in investment income narrowed the company's net loss to CNY47.6m ($6.6m) in 2023 from CNY355m in 2022.
The company's combined ratio remained at about 110% in 2023, despite a lower loss ratio and consistent profitable results from agricultural insurance. The underwriting margin of its non-motor insurance, excluding agriculture, is likely to remain volatile given a high expense ratio due to limited operating scale. However, Fitch believes ongoing initiatives in tightening its underwriting risk selection could lead to a better combined ratio for Taishan P&C.
Ratings affirmed
Fitch has affirmed Taishan P&C’s Insurer Financial Strength (IFS) Rating at 'BBB+' (Good). The outlook is ‘Stable’.
The rating affirmation reflects Taishan P&C's solid capital buffer, improving operating results, and 'Moderate' company profile. The rating also considers the company's ownership linkage with its ultimate parent, the Shandong province's State-owned Assets Supervision and Administration Commission (SASAC).
Taishan P&C was incorporated in 2011 in Jinan, the capital of Shandong province.
Apart from financial performance, other key drivers of Taishan P&C’s ratings include:
Ownership Support: Taishan P&C is rated one notch above its standalone credit quality in consideration of the ownership linkage with the Shandong SASAC. The IFS Rating is not equalised with Fitch's internal assessment of the creditworthiness of the Shandong province.
The Shandong SASAC ultimately controls Taishan P&C through its ownership of Shandong Hi-Speed Group Co and ultimate controlling stakes in a portfolio of holding entities. ERGO Group, an insurance group based in Germany, has a 24.9% stake in Taishan P&C. Fitch believes the insurer's shareholders will continue to provide capital support to facilitate its expansion if there is a need.
Strong Capitalisation: Fitch believes Taishan P&C is able to sustain solid capital to support its premium growth and earnings volatility in the near term. Stable premium growth, low net leverage, and manageable exposure to equity-related investments enabled the company to maintain its capital score, as measured by the Fitch Prism Global model, in the 'Extremely Strong' category at end-2023. Its comprehensive solvency ratio was 302% at end-1Q24 (end-2023: 299%), well in excess of the 100% regulatory minimum.
'Moderate' Company Profile: Fitch ranks Taishan P&C's company profile as 'Moderate' given its solid foothold in Shandong, moderate operating scale, expanding geographical presence, and 'Neutral' corporate governance profile compared with that of all other Chinese non-life insurers. Its market share by direct premiums accounted for only about 0.2% of China's non-life insurance market in 2023, but it has 14 branches in northern and eastern China. Motor insurance remains the key business line but other non-motor insurance lines such as agriculture and cargo transportation have expanded steadily.
Focus on Fixed-Income Instruments: Fixed-income instruments, including conventional bonds, fixed-income-type investment funds, and non-standard fixed-income-type assets, remain the core component of Taishan P&C's investment portfolio. However, an increase in investment allocation to asset management products reduced the company's liquidity to support insurance liabilities in 2023.
The company's investments in risky assets, which are mainly equity- or hybrid-type mutual funds and equity-type investment plans, are still manageable. The risky-asset ratio was about 59% at end-2023, which is well below the guideline for 'BBB' rated non-life insurers.