Mood'y Investors Service said yesterday the outlook for China's life insurance industry is stable in view of their strong balance sheets, capitalizations and the small impact of subprime-related holdings.

"While several economic issues may affect the industry's near-term development, they would not have a material negative impact on the sector, given improved insurer credit profiles," said Sally Yim, a Moody's analyst, in a report yesterday.

In the short term, Moody's expects lower investment yields for the life insurers, due to lower deposit income and a decline in their value of fixed-income portfolios, Yim said.

China's stock market has lost about two-thirds from its peak in October 2007, leaving insurers to face shrinking returns from equities investment. The People's Bank of China has also cut deposit rates twice over the past two months, also trimming insurers' incomes.

As the market remains volatile, customers are more likely to stay away from investment-linked or variable-type products, the Moody's report said. Traditional life insurance and participating products have been promoted heavily in recent years in China, as in many other markets.

"But over the longer term, Moody's expects to see continuing improvements in asset-liability management practices with the relaxation of restrictions on investment types, risk-management practices, and increasing diversification and sophistication in distribution channels and products," she said.

Insurers could find potential in new types of products, including investment-linked products, corporate pensions and health insurance, as customers become more sophisticated and comfortable with long-term investments for retirement and asset protection, the report says.

China's life insurance industry is the third-largest market by premiums in Asia Pacific, excluding Australia. The market makes up about 9.4 percent of the region's life premiums, even though its population was 33 percent of the region's total in 2007.

(Shanghai Daily November 18, 2008)