China Reinsurance (Group) and its subsidiaries are poised to bolster their presence in agricultural and catastrophe reinsurance sectors while continuing to broaden their international footprint, according to S&P Global Ratings.
Despite a recent contraction in savings-type policies due to anticipated regulatory changes in Hong Kong, China Re Group is expected to maintain its robust performance in the life reinsurance market over the next two years. The group’s capital and earnings remain stable, supported by an enhanced capital buffer and improved recognition of diversification benefits. This follows adjustments made under S&P Global Ratings’ updated capital model criteria, which now exclude previous value-in-force haircuts.
However, the group faces heightened challenges from increased differentiation in interest-rate risk, non-life premium, and reserve risk capital requirements, as well as recalibrated risk charges at elevated confidence levels. Despite these challenges, the stable outlook reflects strong government support and China Re Group’s prominent position in the domestic market, coupled with its expanding international presence.
China Re Group’s bolstered capital buffer is expected to aid in managing the impacts of capital market volatility and extreme weather conditions. Nonetheless, the group’s growth and accumulation of high-risk assets may strain its capital reserves. S&P forecasts that China Re Group will maintain capital levels surpassing the 99.50% confidence threshold in its risk-based capital model through 2024-2026.
The group’s earnings have faced volatility due to fluctuating underwriting results and reliance on investment returns amid low interest rates in China. This has been compounded by asset valuation losses and impairments, including a 6.5% equity stake in China Great Wall Asset Management.
Looking ahead, China Re Group’s combined ratio is projected to be between 99% and 101% over the next two years, an improvement from its five-year average of 102.1%. Despite recent substantial losses from incidents such as the Baltimore bridge collapse and earthquakes in Taiwan and Japan, the impact on China Re Group has been contained.
In 2023, the group’s domestic and international property and casualty (P&C) reinsurance operations reported improved combined ratios of 99.5% and 85.7%, respectively, compared to 99.8% and 94.0% in 2022. The domestic primary P&C insurance sector also saw an improvement, with its combined ratio decreasing to 100.8% from 103.1% the previous year.
However, China Re Group’s domestic P&C reinsurance segment experienced a 7% year-on-year decline in premiums during the first quarter, largely due to retrocession from China Agriculture Reinsurance. This decline may contribute to topline volatility in the coming period.
