‘Two-speed’ Chinese economy presents Asia Pac insurance opportunities

With its slowest economic expansion rate for 25 years, China could present some big possibilities for insurers according to a new report

Insurance News

By Jordan Lynn

With its slowest economic expansion rate for 25 years, China’s ‘two speed’ economy could present some big opportunities for insurers in the region according to a new report from international credit insurer Coface.

In the report, entitled China’s Two-Speed Economy: Sector Winners and Losers, the international insurer outlines sector-wide winners and losers in China based on their growth potential in the medium and longer-term.

With growth of 6.9% in 2015, the slowest expansion pace of the Chinese economy in 25 years, and with pace expected to continue to slow in 2016 and 2016, Jackit Wong Asia-Pacific economist of Coface told Insurance Business that the slow-down could benefit the industry.

“The China’s economy contributed to about 32% of the world economic growth and about 70% of the growth of the emerging Asia,” Wong said.

“With the continued slowdown in China, risks to other economies in the Asia Pacific region, especially for those export-oriented, open economies with high exposure to China, such as Hong Kong, Singapore, South Korea, and Taiwan, tilted towards the downside.

“A slowdown in economic growth is likely to weigh on the already increasing companies’ credit risks in those economies. Against such backdrop, corporates should consider enhancing their credit management tools, thereby providing some good opportunities to the insurance market in the Asia Pacific region.”

The report found several winners and losers with the ICT segment warranting a specific note.

“In general, sector winners likely to enjoy brighter longer term growth outlooks, such as pharmaceuticals and retail, have been assigned with low or medium risk assessments. The information communication technologies (ICT) segment is an exception to this, being a sector winner assigned with a high risk rating,” Wong explained.

“This would indicate that the credit risks of Chinese corporates in the ICT sector are probably high due to keener regional competition, despite the market’s strong longer-term growth potential.

“Sector losers that are likely to face longer term growth challenges, such as chemicals and metals, are assigned with either high, or very high risk ratings.

“This indicates that the high to very high short-term credit risks for Chinese corporates in these sectors will probably continue, with challenging business conditions persisting in the longer term.”

Wong noted that finding insurance coverage could be a challenge for some in the riskier sectors but that would be decided on a case-by-case basis.

“It might be somewhat more difficult for some corporates in high risk industries and sectors to find insurance cover in China,” Wong continued.

“That said, it also depends on the financial conditions and credit history of individual corporate in those industries and sectors, in addition to the portfolio and risk appetite of insurance counterparts.”

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