China Pacific Insurance’s conservative pivot strengthens earnings: S&P

It has reduced its high-risk asset holdings from 48% to 24% of its investment portfolio.

China Pacific Insurance’s (CPIC HK) capital buffer is expected to meet risk-based capital requirements at a 99.99% confidence level through 2026, allowing it to smoothly transition to Hong Kong's new risk-based capital framework, effective 1 July., according to S&P Global Ratings.

However, the Hong Kong-based property and casualty insurer’s relatively small capital base, standing at $46m as of the end of 2023, could pose a vulnerability to significant events, tempering the insurer’s resilience. 

Past performance indicates this fragility, with asset impairment losses due to exposure to high-risk investments.

Over recent months, CPIC HK has reduced its high-risk asset holdings from 48% to 24% of its investment portfolio, and its ongoing pivot to a conservative investment approach is expected to gradually strengthen earnings and reduce volatility.

Despite strategic support from the CPPIC Group, S&P forecasts moderated growth for CPIC HK in the next two years, as it maintains a limited footprint within the competitive Hong Kong insurance market. 

Expansion efforts, particularly in property lines and overseas markets, are anticipated to add underwriting risk given CPIC HK’s still-developing expertise and the challenges of increased natural catastrophes. 

Consequently, S&P projects CPIC HK’s combined ratio will trend between 85% and 95% over the next two years, rising from 82.4% in 2023 under IFRS 17.

The stable outlook hinges on sustained parental support and capital adequacy, along with cautious risk selection practices that align with CPIC Group's strategy to optimise insurance margins as it seeks market expansion outside of mainland China.