Yong An Insurance maintains stable outlook, strong capitalization – Moody's

Despite government support and brand awareness in Shaanxi, the insurer faces challenges in expanding its market share in the medium to long term.

Yong An Insurance is predicted to have strong capitalisation, with profitability and market position not deteriorating significantly over the next 12-18 months, according to Moody’s Investors Service.

Moody's Investors Service also described the insurer as having a stable outlook, which considers the insurer's robust risk-based capitalisation, a product mix focused on short-tail insurance with low reserving risk, and minimal exposure to catastrophes. 

However, these strengths are counterbalanced by the insurer's modest market share, moderate profitability, and a relatively high allocation to alternative investments compared to domestic peers.

Yong An Insurance is expected to maintain a strong capital buffer over the next 12-18 months, supported by its large issued capital and anticipated modest premium growth. 

The comprehensive solvency ratio stands well above the regulatory minimum at 232% as of September 2023. The insurer's shareholders, primarily Shaanxi government-owned entities, demonstrate a commitment to inject additional capital when needed.

The insurer's product mix, primarily motor insurance, entails low reserving risk, and its exposure to catastrophe-prone lines is limited. 

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The focus on non-motor business growth, particularly liability and agricultural insurance, introduces mispricing risks, but the decision to control financing credit and guarantee insurance helps mitigate overall product risks.

Despite government support and brand awareness in Shaanxi, the insurer faces challenges in expanding its market share over the next 12-18 months.

Premiums declined, reflecting tightened risk selection to enhance underwriting performance. Profitability is moderate and reliant on investment returns due to persistent underwriting losses, with the low-interest rate environment posing a potential challenge.

The insurer's efforts in portfolio pruning and cost-cutting measures have maintained a stable combined ratio. 

However, a further meaningful decline in the ratio is viewed as challenging due to ongoing strains in motor profitability and competitive pricing in key non-motor lines. The insurer's high allocation to unlisted alternative investments presents liquidity and credit risks, but Moody's expects a reduction in this allocation over the next 12-18 months.

Under Moody's environmental, social, and governance (ESG) framework, governance is considered a key rating driver. While Yong An Insurance faces moderate governance risks, its ownership by the Shaanxi government and a prudent financial strategy, coupled with oversight from experienced senior management, help temper these risks.