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
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.
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researchdocumentcontentpage.aspx?docid=PBC_79004
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China (Hong Kong S.A.R.)
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MD-Financial Institutions
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