China’s Zking Property & Casualty Insurance Co., Ltd. (ZKI) has continued to reduce its exposure to riskier guarantee insurance business, easing pressures from natural catastrophe-related claims, which are exacerbated by domestic economic conditions, Fitch Ratings says.
This development is expected to stabilise the company’s loss ratio as it navigates increasing climate-related risks.
Fitch affirmed ZKI’s Insurer Financial Strength (IFS) Rating at ‘A-‘ with a Stable Outlook, with the ratings agency cited strong capitalisation, improving underwriting performance, and manageable investment risk as key drivers of the rating.
The decision to reduce riskier guarantee insurance business aligns with ZKI’s broader risk management strategy. The firm’s combined ratio improved to 100% in the third quarter of 2024, down from 105% in 2023. Over the past three years, the insurer has averaged a combined ratio of 101%, reflecting steady progress in managing underwriting results. While losses in certain non-motor insurance lines persist, a lower expense ratio has contributed to overall performance improvement.
ZKI’s balance sheet strength remains a critical factor in Fitch’s assessment. The insurer’s regulatory comprehensive solvency ratio rose to 361% by the end of September 2024, up from 348% at the close of 2023. Fitch described the risk-based capital metrics as “extremely strong,” adding that they reflect “stronger available capital to support higher market and credit risks alongside reduced exposure to credit and guarantee insurance risk, which is subject to a higher capital charge in the solvency calculation.” The issuance of a CNY2.5 billion capital supplementary bond in late 2023 further bolstered its financial resilience, resulting in a financial leverage ratio of 21%.
On the investment side, ZKI has seen an increase in risky asset exposure, including equity-type assets and non-investment-grade fixed-income investments. These assets accounted for 73% of shareholders’ equity as of September 2024, compared to 54% at the end of 2022. While this shift aims to secure more stable long-term returns, Fitch cautioned that “higher exposure to equity investments leaves earnings and capital vulnerable to a volatile equity market.”
Fitch’s assessment of ZKI’s company profile remains ‘Moderate’, influenced by its mid-tier operating scale and competitive positioning. The insurer is the fifth-largest player in Jiangsu province, holding a 4.4% market share and contributing nearly half of its total premiums. Fitch noted, “ZKI has a consistent business focus to shift to health, agricultural and liability insurance, from motor and credit and guarantee lines. It had a 0.76% share of China’s non-life sector by direct premiums in 9M24.”
Fitch also emphasised ZKI’s ownership ties to the Jiangsu provincial government, which enhance its overall credit profile. The government’s control, exercised through entities like Jiangsu Guoxin Investment Group Limited, is expected to ensure continued operational and financial support if needed.
