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Zhonglu Insurance Maintains Strong Solvency Amidst Expansion Challenges

by Celia

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.

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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.

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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.

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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)

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