Standard & Poor's Ratings Services said Wednesday it has revised its outlook on China's insurance sector to positive from developing, expecting medium-term improvement in the operating performance and financial strength of the overall industry.

 

In the newly published "China Insurance Outlook 2006-2007", Standard & Poor's says improving operational fundamentals, strong potential growth and regulatory commitment to policyholder interests are likely to contribute to the improvement.

 

"We found the outlook for the industry encouraging and expect premium growth to remain strong," said Standard & Poor's analyst Connie Wong.

 

At the same time, the level of risk in China's insurance industry is high, says the China Insurance Outlook.

 

The report says such challenges as tough competition, lack of talent, weak capitalization, immature operation and management, and poor corporate governance may bring pain to some smaller or financially weak companies.

 

Insurers will need to strike a better balance between profit and growth, said Wong. She warned that 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 are overly aggressive at the outset.

 

According to the report, an analysis of China's 20 biggest insurers' statistics shows increased growth in the life insurance sector in 2005. Profitability is likely to improve over the medium term if life insurers continue to restructure their business mix by introducing more profitable products and improving their investment returns.

 

Motor insurance still dominates the non-life sector. With non-life insurers able to underwrite compulsory third party liabilities as of July this year, the sector's motor insurance premiums are likely to grow over the medium term, but its underwriting performance is expected to remain under pressure, says the report.

 

Statistics from the China Insurance Regulatory Commission show that the country's insurers totaled 100 in June this year, with premiums in the first half of the year reaching 308 billion yuan, an increase of 13.69% on the same period last year.

 

(Xinhua News Agency July 27, 2006)