China Pacific Anxin Agriculture Insurance Co (Anxin) has a strong capitalization and low-risk investment portfolio, as well as strong support from its parent company, China Pacific Property Insurance (CPPIC), notes Moody’s Investors Service.
Anxin maintains strong capitalization through significant earnings retention. The completion of a capital injection of 1 billion yuan ($158 million) in December 2021, mainly from CPPIC, will further strengthen its capitalization for its expansion outside of Shanghai.
Moody’s expects CPPIC to continue to support Anxin’s capital needs as needed. Anxin’s core solvency ratio was high at 246% at the end of September 2021. The credit rating agency expects the insurer’s solvency ratio to remain well above the regulatory minimum, even under China’s Risk-Based Solvency System (C-ROSS) Phase II.
Anxin maintains a low-risk investment portfolio, as evidenced by its high-risk asset ratio below 30% at the end of 2020. Moody’s expects the insurer to maintain its equity exposure relative to its baseline. capital at a low level compared to its national peers. About half of the insurer’s investments are in liquid assets with good credit quality, namely local government bonds and deposits, to meet its liquidity needs.
Moody’s affirmed Anxin’s A3 insurance financial strength rating (IFSR). The outlook remains “stable”. Anxin’s rating benefits from a two-notch improvement from its standalone credit profile of baa2, reflecting the potential support the insurer would receive from CPPIC in times of crisis.
Moody’s adds that Anxin’s strengths are offset by the insurer’s high product risk due to its concentration in agricultural insurance and Shanghai, and large gross catastrophe risks.
Anxin is exposed to mispricing risk in its agricultural insurance business, particularly with respect to new types of agricultural insurance such as price-based or weather-based insurance.
Most of Anxin’s businesses are vulnerable to disasters such as windstorms and floods. This increases the volatility of its earnings and capitalization. The insurer’s earnings declined significantly in 2021, with a high combined ratio of around 106%, as severe typhoons and floods led to significant crop losses in the third quarter of 2021. That said, the reinsurance agreement of ‘Anxin reduced the net impact to a moderate level relative to its capitalization.
Anxin is gradually expanding its agricultural insurance business outside of Shanghai by partnering with CPPIC, focusing on new types of products. This increases Anxin’s execution risk as it will expose the insurer to a wider range of loss events for which they have less underwriting expertise and claims data.
Moody’s also notes the important role of Anxin in supporting China Pacific Insurance (Group)’s strategy to grow its agricultural insurance business, and the close integration between Anxin and CPPIC in terms of product design, distribution , underwriting, investments and capital management.