Net earnings rise to $1.7m, but sustainability remains uncertain amid non-motor business growth.
Zhonglu Insurance continues to demonstrate a robust capital position, marked by a regulatory comprehensive solvency ratio of 282% at the end of 2023, which saw a slight decrease to 278% by the end of the first quarter of 2024. This decrease is attributed to increasing market and credit risks, as well as a delayed capital injection, according to an assessment by Fitch Ratings.
The insurer remains free of financial debt and is projected to uphold adequate capital metrics despite the rising asset risks associated with its investment portfolio and growth strategy.
The company’s combined ratio dipped below 100% in 2023, signaling reduced losses.
Profitability has shown improvement, with net earnings reaching $1.69 million (CNY12.27 million) in 2023, translating to a return on equity of 1.3%. However, the sustainability of this profitability is uncertain as Zhonglu Insurance expands into the non-motor insurance sector. The average combined ratio from 2021 to 2023 was 102%.
Zhonglu Insurance’s exposure to risky assets, including equity funds and non-investment-grade fixed-income investments, increased to 59% of total equity at the end of 2023, up from 53% at the end of 2022.
This higher equity investment exposure heightens the vulnerability of the company’s earnings and capital to market volatility.
Despite efforts to diversify into non-motor insurance sectors such as accident, health, and liability insurance, Zhonglu Insurance remains heavily concentrated in the highly competitive motor insurance market.
($1.00 = CNY12.28)
