NU Online News Service, Feb. 21, 12:00 p.m. EST
China agreeing to open up its mandatory third-party liability motor vehicle insurance market to foreign insurance companies is credit positive for those insurers, says Moody's.
The rating agency's weekly credit outlook says the decision “will remove a key constraint on their [foreign insurers'] business” and the ability of offer the coverage “is crucial because it is usually sold as part of a larger motor insurance package that includes the more lucrative voluntary property coverage.”
The good overcomes the potential bad implications, says Moody's, as mandatory third-party (MTP) is generally loss-making on its own, and domestic insurers will likely face increased competition that puts pressure on premiums.
Currently foreign insurers' market share has been below 1.2 percent after a decade of doing business in China, which now bars foreign insurers from offering MTP, Moody's says.
Moody's adds that domestic insurers “will still maintain their market share lead over the next three to five years because of their competitive advantage in scale, brand recognition and distribution.”
While necessary policies and regulations needed to implement the agreement are being worked on, insurance trade associations have supported the move.
Opening up the market will “promote more efficient risk-pricing within the industry, paving the way for further reform including tariff liberalization that would benefit all market participants,” Moody's concludes.
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