2011-07-28 11:10

BEIJING - Chinese insurers will need more than 110 billion yuan ($17 billion) of external funding to fuel their rapid development in the next three years, insurance analysts from Standard & Poor's said on Wednesday.

"This is particularly true for non-life insurers, given their relatively low capitalization," Standard & Poor's credit analyst Connie Wong said.

Based on 2010 financial figures, at least eight Chinese non-life insurers had an indicative ratio of less than 30 percent, which is low compared with international peers. And capital injections of 82 billion yuan would mean a more respectable 40 percent ratio with an assumed premium growth of 15 percent over three years, according to Standard & Poor's.

The People's Insurance Company of China Ltd, the country's biggest non-life insurer, is one of the eight, said Wong.

In the life insurance sector, at least seven companies had an indicative ratio of less than 4 percent, which Standard & Poor's considers to be less favorable. A capital infusion of about 32 billion yuan would boost the ratio (of shareholders' funds to total assets) to 5 percent and meet an assumed premium growth of 15 percent over three years.

The key players in the life insurance market, such as China Life Insurance Co Ltd, China Pacific Life Insurance Co and Taikang Life Insurance Co Ltd, according to Wong, are not on the list for external funding in the following three years. And most joint life insurers so far also have enough capital to fuel their fast growth in the medium term.

Though foreign insurers' market share remains below 10 percent in China's insurance sector, they saw a gradual increase, said Wong.

The Beijing branch of CITIC-Prudential Life Insurance Co Ltd, the biggest joint venture in the capital in terms of premium income, for instance, saw a more than 20 percent year-on-year increase in the new-policy market share via insurance brokerages, a key marketing channel for most life insurers.

Standard & Poor's expects the operating performance of Chinese insurers to remain favorable over the next one to two years. But they face moderately high industry risks due to their low-to-modest capitalization, unsophisticated risk management and limited choices for asset and liability management.

"Though the credit profiles of the Chinese life insurers are expected to be stable and non-life insurers positive, rating upgrades are unlikely over the next one or two years," Wong said.

US private equity firm Carlyle Group is selling 250 million shares, nearly a third of its holdings, in China Pacific Insurance Group Co Ltd for up to $1 billion, International Financing Review reported on Tuesday.

When completed, Carlyle would have raised about $3.6 billion from three sell-downs in China Pacific Insurance since December, after spending about $800 million between 2005 and 2008 for a 17 percent stake.