Moody's projects stability for Guoyuan Agricultural Insurance

Despite exposure to high catastrophe risks, the insurer’s stable outlook is backed by its robust market presence and risk-based capitalisation.

Guoyuan Agricultural Insurance maintained a stable outlook, reflecting the insurer's robust franchise in Anhui's agricultural insurance market and solid risk-based capitalization, despite certain challenges, according to Moody’s Ratings.

The stable outlook reflects Moody's expectation that Guoyuan Agricultural Insurance will sustain stable business growth and solid risk-based capitalisation over the next 12-18 months, with continued support from Guoyuan Financial Holding.

The affirmation of Guoyuan Agricultural Insurance's Baa2 IFSR is underpinned by its strong market presence in Anhui province, supported by its indirect ownership by the Anhui provincial government and close relationship with the Anhui government through its effective controlling shareholder, Anhui Guoyuan Financial Holding Group.

The insurer's profitability track record, with a five-year average return on capital at 4.1% for 2018-2022, also contributes to the rating affirmation.

However, Moody's notes the insurer's exposure to high catastrophe risks due to its concentration in agricultural insurance and geographic concentration in Anhui province. 

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Whilst the insurer's reinsurance arrangements and special agricultural reserve for catastrophic risks mitigate the impact on its capitalization, climate change presents challenges in predicting future losses accurately.

Additionally, Guoyuan Agricultural Insurance maintains a high investment allocation to bonds issued by local government funding vehicles (LGFVs), comprising around 60% of its total investments as of the end of 2023. 

Moody's highlights the rising asset risk due to the credit stress faced by LGFVs, despite guarantee arrangements by state-owned provincial-level financial guarantee companies.

Moody's outlines factors that could lead to an upgrade, including diversification of investment portfolio, business expansion outside Anhui province, and improvement in profitability metrics. 

Conversely, potential downgrade triggers include a significant weakening of capitalisation, deteriorating underwriting profitability, or reduced business support from Guoyuan Financial Holding.