NU Online News Service, Feb. 21, 12:00 p.m.EST
|China agreeing to open up its mandatory third-party liabilitymotor vehicle insurance market to foreign insurance companies iscredit positive for those insurers, says Moody's.
|The rating agency's weekly credit outlook says the decision“will remove a key constraint on their [foreign insurers']business” and the ability of offer the coverage “is crucial becauseit is usually sold as part of a larger motor insurance package thatincludes the more lucrative voluntary property coverage.”
|The good overcomes the potential bad implications, says Moody's,as mandatory third-party (MTP) is generally loss-making on its own,and domestic insurers will likely face increased competition thatputs pressure on premiums.
|Currently foreign insurers' market share has been below 1.2percent after a decade of doing business in China, which now barsforeign insurers from offering MTP, Moody's says.
|Moody's adds that domestic insurers “will still maintain theirmarket share lead over the next three to five years because oftheir competitive advantage in scale, brand recognition anddistribution.”
|While necessary policies and regulations needed to implement theagreement are being worked on, insurance trade associations havesupported the move.
|Opening up the market will “promote more efficient risk-pricingwithin the industry, paving the way for further reform includingtariff liberalization that would benefit all market participants,”Moody's concludes.
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