China Pacific Property Insurance Co Ltd — Moody’s affirms CPPIC’s A1 IFSR; outlook remains stable

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Rating Action:

Moody’s affirms CPPIC’s A1 IFSR; outlook remains stable

21 December 2021

Hong Kong, December 21, 2021 — Moody’s Investors Service has affirmed the A1 insurance

financial strength rating (IFSR) of China Pacific Property Insurance Co Ltd (CPPIC).
Moody’s has also maintained CPPIC’s a2 Baseline Credit Assessment (BCA).
The outlook on CPPIC remains stable.
RATINGS RATIONALE
The affirmation of the A1 IFSR considers CPPIC’s a2 BCA and that the insurer will continue to

receive a moderate level of support from the Shanghai municipal government and the Government

of China (A1 stable). The rating also considers a moderate level of dependence with the

Government of China.
The a2 BCA reflects CPPIC’s strong franchise, diversified product mix and its strong capitalization.

These strengths are offset by negative pressure on underwriting profitability from motor pricing

reform and growing exposure to catastrophe risks brought by strong non-motor business growth.
CPPIC is the third-largest property and casualty (P&C) insurer by premium and has a strong brand

recognition. Moody’s expects the insurer’s premium growth to be more resilient following motor

pricing reform because of its established franchise and strong presence in the non-motor segment.
Supported by the strong non-motor premium growth, CPPIC has a more diversified product mix than

its domestic peers. Most of its business lines are short tail, and therefore, entail low reserving risks.
CPPIC’s capitalization will remain strong to support its premium growth and absorb risks, thanks to

its solid earnings. The insurer’s comprehensive solvency ratio was high at 278% as of the end of

September 2021, and Moody’s expects the ratio to remain above 200% over the next 12 months,

even after China Risk Oriented Solvency System (C-ROSS) Phase II. In addition, the insurer has

good financial flexibility because of low financial leverage and the ample financial resources of its

parent, China Pacific Insurance (Group) Co., Ltd. (CPIC Group).
However, it remains challenging for CPPIC to improve its underwriting profitability because of a new

motor pricing regime with reduced pricing and wider coverage. Its combined ratio was 99.3% for

H1 2021, which is slightly higher than those of its top peers. In addition, the intense competition

in accident and health insurance, and intrinsic volatility of its growing agricultural line will also test

CPPIC’s ability to persistently generate underwriting profit from its non-motor business.
CPPIC’s exposure to catastrophe risk, namely agricultural and commercial property lines, will

also increase, as it grows its premiums in China, including regions with increasing risks to natural

disasters. The insurer’s rising exposure to natural hazards and potential loss increase brought by

climate change could increase earnings volatility. That said, its reinsurance arrangements effectively

reduce net losses to a manageable level relative to its earnings and capital base.
CPPIC’s A1 IFSR incorporates a one-notch uplift from its BCA of a2 to reflect a moderate level of

support from the Shanghai municipal government and the Government of China in the event of

stress considering CPPIC’s 40% ownership by state-owned entities through CPIC Group, given

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the insurer’s strategic importance as the flagship insurance company in Shanghai. In addition, the

rating reflects a moderate level of dependence, reflecting CPPIC’s exposure to the local economic

environment of Shanghai.
The outlook is stable, reflecting Moody’s expectation that the insurer will maintain its strong franchise

and strong capitalization over the next 12-18 months. Furthermore, Moody’s expects the insurer to

maintain underwriting profit while diversifying its product mix to non-motor businesses. In addition,

Moody’s expect its linkage with the Shanghai municipal government and the Government of China

would not change significantly.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
CPPIC’s rating is already at the same level as that of the senior unsecured debt rating of the

Government of China, and given CPPIC’s business is predominantly in China, an upgrade is

unlikely. However, CPPIC’s BCA could be raised if (1) the insurer meaningfully improves its market

position without undermining its underwriting profitability; or (2) its underwriting profitability improves

significantly and consistently, such that its combined ratio falls below 97%; or (3) the insurer’s

capitalization strengthens, with its gross underwriting leverage (GUL) remaining below 4x.
Moody’s could downgrade CPPIC’s rating if the senior unsecured debt rating of the Government

of China is downgraded and there are signs of weakening support from the Shanghai municipal

government. In addition, the BCA could be lowered if (1) the insurer’s profitability weakens

significantly with its return on capital below 6% or combined ratio consistently stays above 102%;

or (2) the insurer’s capital strength deteriorates to the extent that its comprehensive solvency

ratio declines below 180% on a sustained basis; and/or (3) the insurer reports adverse reserve

developments consistently, which could stem from underwriting mis-steps on its non-motor business.
PRINCIPAL METHODOLOGY
The methodologies used in these ratings were Property and Casualty Insurers

Methodology published in September 2021 and available at

https://www.moodys.com/

researchdocumentcontentpage.aspx?docid=PBC_1254163

, and Government-Related

Issuers Methodology published in February 2020 and available at

https://www.moodys.com/

researchdocumentcontentpage.aspx?docid=PBC_1186207

. Alternatively, please see the Rating

Methodologies page on www.moodys.com for a copy of these methodologies.
China Pacific Property Insurance Co Ltd is a 98.5%-owned P&C subsidiary of the CPIC Group. The

insurer provides mainly motor, accident and health, agricultural and liability insurance. As of the end

of 2020, the insurer’s consolidated assets and shareholders’ equity stood at RMB188 billion and

RMB46 billion, respectively.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see

the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure

form. Moody’s Rating Symbols and Definitions can be found at:

https://www.moodys.com/

researchdocumentcontentpage.aspx?docid=PBC_79004

.

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For ratings issued on a support provider, this announcement provides certain regulatory disclosures

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The first name below is the lead rating analyst for this Credit Rating and the last name below is the

person primarily responsible for approving this Credit Rating.
Kelvin Kwok, CFA

Analyst

Financial Institutions Group

Moody’s Investors Service Hong Kong Ltd.

24/F One Pacific Place

88 Queensway

Hong Kong

China (Hong Kong S.A.R.)

JOURNALISTS: 852 3758 1350

Client Service: 852 3551 3077
Sally Yim, CFA

MD-Financial Institutions

Financial Institutions Group

JOURNALISTS: 852 3758 1350

Client Service: 852 3551 3077
Releasing Office:

Moody’s Investors Service Hong Kong Ltd.

24/F One Pacific Place

88 Queensway

Hong Kong

China (Hong Kong S.A.R.)

JOURNALISTS: 852 3758 1350

Client Service: 852 3551 3077

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