Look for an improving operating environment for the insurance industry in China, said a recently released Standard & Poor's report.
In a new publication titled "China Insurance Outlook 2006-2007″, the rating agency said factors such as improving operational fundamentals, strong potential growth, and regulatory commitment to policyholder interests are likely to offset challenges such as tough competition, a lack of talent, and weak capitalization.
"We found the outlook for the industry encouraging and expect premium growth to remain strong," said Standard & Poor's analyst Connie Wong.
Ms. Wong warned, however, that rapid expansion goes hand in hand with challenges and that weak capitalization or poor reserving practices could trigger instances of corporate failure, despite improvements across the wider industry.
"To create a financially sound industry, insurers will need to strike a better balance between profit and growth," the report said.
A greater focus on profit, the report asserted, would require more thorough underwriting, better market discipline, stronger distribution channels and more stringent reserving.
"A greater focus on growth may boost competitive advantages through increased market share, but could weaken profitability over the long term if insurers adopt growth strategies that overly aggressive at the outset," the report said.
Ms. Wong noted the Chinese insurance industry looks set to become the world's leading insurance system terms of premiums within a decade, judging purely from the different rates of growth in more mature markets and the low penetration of the domestic market.
The Chinese government's recent strong interest in all aspects of insurance regulatory reform bodes well for the industry's long-term development and growth, she said.
Auto insurance accounts for about 69 percent of the nonlife sector. "However, the operating performance of the motor insurance business is expected to deteriorate in the year ahead due to highly competitive pricing," the report stated.
Compulsory third party auto liability is now a part of the nonlife landscape, and will boost the sector's motor insurance premiums over the medium term, "despite continuing uncertainties about products and pricing," the report said.
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