Fitch Ratings has assigned Zhongyuan Agricultural Insurance Co. (ZYIC) an Insurer Financial Strength (IFS) Rating of 'A-' (Strong), with a stable outlook. ZYIC, which specializes in agricultural insurance, received the rating due to its strong capitalization and profitable operating margin, although its company profile and exposure to catastrophe risk were assessed as moderate.
Fitch expects the Henan provincial government to continue supporting ZYIC's strategic plans, financial needs, and business expansion.
ZYIC's capital score, measured by the Fitch Prism Model, stood at 'Strong' by end-2022. Its comprehensive solvency ratio under the China Risk-Oriented Solvency System (C-ROSS) phase 2 was 276% by end-2022. However, the stability of its capital strength could be challenged by rapid business growth and the catastrophe risk from mainly underwriting agricultural insurance.
ZYIC has a moderate operating scale with a 0.3% share of the domestic non-life insurance market by direct premiums in 2022, while agricultural insurance accounted for 77% of gross premiums written in 2022. Fitch expects the insurer to expand its accident, health, motor, and property insurance to support the agriculture industry.
ZYIC's combined ratio decreased to 90% in 2022 from 104% in 2021, largely due to better cost control. The company's underwriting performance has been volatile due to its exposure to the catastrophe risk in China. ZYIC has been enhancing its reinsurance arrangements to mitigate the negative impact of the risk on its capitalization and underwriting performance.
Factors that could lead to positive rating action include the Fitch Prism Model score consistently well into the 'Strong' level or above, the ability to maintain profitability with a combined ratio below 97%, and sustained improvement in the company profile. Conversely, the inability to maintain the Fitch Prism Model score at the 'Strong' level, significant change in the ownership structure, and deterioration in financial performance could lead to negative rating action.
ZYIC's rating is one notch above its standalone credit quality as it benefits from linkage with the Henan government. The province's state-owned Assets Supervision and Administration Commission and Department of Finance have strong control over entities that collectively own 68.23% of ZYIC.
