Aviva-COFCO retains stable outlook, A-rating

Aviva-COFCO retains stable outlook, A-rating

Aviva-COFCO retains stable outlook, A-rating | Insurance Business Asia

Life & Health

Aviva-COFCO retains stable outlook, A-rating

Asset risk for the company also rose

Life & Health

By
Kenneth Araullo

Fitch Ratings has affirmed the Insurer Financial Strength (IFS) rating of Aviva-COFCO Life Insurance Company at A-, with a stable outlook.

The affirmation is based on the company’s robust capitalization and financial performance, along with a moderate company profile. However, Fitch also noted an increase in asset risk due to a rise in equity-type investments.

As of the end of the first half of 2023, the company’s risk-based capitalization, measured using the Fitch Prism Model, remained strong. However, the capital buffer narrowed due to increased exposure to equity-type investments, offsetting the improvement in shareholder equity attributed to higher other comprehensive income.

The comprehensive solvency ratio declined from 254% at the end of 2022 to 241% at the end of 1H23. Conversely, the financial leverage ratio improved from 24.3% to 22.5% due to an enlarged capital base.

What’s behind Aviva-COFCO’s ratings?

Aviva-COFCO has strategically increased its investments in government bonds to reduce its duration gap. Simultaneously, it has expanded its equity-type investments, primarily in stocks, aiming to boost investment returns amid market volatility.

Risky assets, adjusted for loss sharing of the participating life business, accounted for 150% of shareholder equity at the end of 1H23, up from 141% at the end of 2022, surpassing the guideline for ‘A’ IFS rated life insurers. It is anticipated that the exposure to risky assets will not significantly decrease in the near term.

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The insurer’s strategic focus on long-term regular-paid products has bolstered its underwriting profitability. The surge in market demand for saving-type life products, driven by the expectation of lower pricing rates, led to a 104% increase in new business value in 1H23 compared to 1H22. Additionally, Aviva-COFCO effectively capitalized on investment returns amid a volatile capital market, supporting an average return on equity of 11.9% during 2020-2022 (2022: 11.9%).

Aviva-COFCO’s company profile is also assessed as moderate in comparison to other life insurers in China, considering a moderate business profile and a moderate/favourable corporate governance framework. The company operates at a moderate scale, with a 0.38% market share in gross premiums during 1H23. The report said that it offers diversified life insurance products through a well-balanced distribution channel mix, comprising agents, brokers, bancassurance, and digital markets. This diversification is anticipated to sustain sales amid fluctuating market conditions.

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