A.M. Best: Volatility of China Stock Market Not Expected to Hit Insurer Ratings

July 14, 2015

The recent volatility of China’s stock market is not expected to affect the ratings of domestic insurers, according to a new briefing issued by A.M. Best*.

Putting the volatility into context, A.M. Best noted that the Shanghai Composite Index fell sharply, dropping by 30 percent in three weeks, when it lost over USD$3 trillion in value. This followed a period of growth, which started at the beginning of 2015, when the market climbed steadily from 3,500 and reached a peak of over 5,300 in mid June.

The decline was even more significant in the small- and mid-cap Shenzhen Index as it has lost more than 75 percent of returns in 2015, the ratings agency said.

In A.M. Best’s opinion, however, the overall Chinese insurance industry’s exposure to equities is within an acceptable level.

The Best’s briefing states that regulation limits insurance companies’ proportion of listed equities and equity mutual funds’ investments to total invested assets at 30 percent, while insurance companies typically maintain an even lower level of equity type investments in their books.

A.M. Best rated insurers in China on average allocated less than 10 percent to listed equities out of their total investments. However, A.M. Best is concerned that the decline in equities could pressure other asset classes such as fixed income and adversely affect consumer sentiment and investor risk appetite.

A.M. Best said it will continue to monitor the ongoing equity volatility and any potential contagion to other asset classes and the larger economy.

* The A.M. Best briefing is titled “Volatility of China’s Stock Market Not Expected to Impact Ratings.”

Source: A.M. Best

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