China-unit of Tokio Marine to stay afloat with TMNF support: Moody’s

Lower investment returns amidst a low-interest rate environment pose a challenge to its profitability.

Tokio Marine China is forecasted to maintain its stable outlook, driven by its underwriting profitability and robust capitalisation over the next 12-18 months, Moody’s reported.

Tokio Marine China will also benefit from strong integration with Tokio Marine & Nichido Fire Insurance (TMNF).

Being a wholly-owned TMNF subsidiary, Tokio Marine China is closely aligned with TMNF's global insurance strategy, centralised reinsurance program, underwriting, investment, and risk management. 

The assessment is also supported by the insurer's secure liquid investment portfolio, low asset risk, solid capitalisation, favourable underwriting profit, modest market position, and well-defined geographic and clientele focus.

In 2022, the company experienced a slight dip in total premium income, primarily due to reduced inward reinsurance in motor insurance linked to weak new car sales. An anticipated decline in motor inward reinsurance due to tightened regulatory measures and the company's reliance on its Japanese corporate clients in China is projected to keep premium growth constrained in 2023. 

Adjustments in underwriting standards for high-insured amount businesses will improve underwriting profit stability and capital strength but will also limit premium expansion.

Tokio Marine China has maintained underwriting profitability for three consecutive years. 

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Although its combined ratio increased from 88% in 2021 to 93% in 2022, driven by factors like motor pricing reforms and higher losses in non-motor lines due to various loss events, the insurer continued to record net profit.

However, the increased reserves for significant loss events in 2022 led to a decrease in net profit from RMB101.4m in 2021 to RMB85.8m in 2022. 

Furthermore, lower investment returns in a persistently low-interest rate environment pose a challenge to its profitability.

Operating primarily in China's coastal regions, Tokio Marine China faces heightened catastrophe risks that contribute to profitability fluctuations. Yet, the insurer has established robust reinsurance arrangements to mitigate these risks.

The insurer's capitalisation has remained robust and stable, with comprehensive and core solvency ratios standing at 319.7% and 310.8% respectively as of March 2023.