China???s non-life insurance faces weaker margin despite growth

China's continued urbanisation and rising household wealth will sustain the growth dynamics of the its non-life insurers, but intense rivalry will further weaken the sector's underwriting margin in 2014, according to Fitch Ratings. The declining margin is unlikely to materially constrain insurers' capability to obtain capital infusion. The Sector Outlook for Chinese non-life insurance remains stable. Increase in acquisition expenses and escalation in claims costs will weaken the underwriting margin of motor insurance business.

In light of the falling underwriting margin, Fitch believes small insurance companies with limited operating scale and less diversified insurance book of business will post weaker operating results in the coming year. Major listed Chinese non-life insurers will still maintain positive growth in underwriting surplus, albeit at a slower pace, due to diverse revenue streams and better spread of risk.

On-going business expansion coupled with slower surplus growth will continue to pose a strain on insurers' capital adequacy, although many insurers improved their solvency adequacy through fresh equity injection or subordinated debt issuance over the past year.