Moody’s shifts outlook on China captives and insurers
Ratings agency Moody’s has changed the outlooks on nine Chinese insurers, including CNPC Captive Insurance Company and China Railway Captive Insurance, to negative from stable, a move it said was driven by the change in outlook to negative from stable on China’s government credit ratings.
“The change to a negative outlook reflects rising evidence that financial support will be provided by the Chinese government and wider public sector to financially-stressed regional and local governments (RLGs) and State-Owned Enterprises (SOEs), posing broad downside risks to China’s fiscal, economic and institutional strength,” Moody’s analysts stated.
“The outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector. These trends underscore the increasing risks related to policy effectiveness, including the challenge to design and implement policies that support economic rebalancing while preventing moral hazard and containing the impact on the sovereign’s balance sheet.
“As such, Moody’s expects support provided to financially-stressed entities to be more selective, contributing to protracted risks of further strains for SOEs and RLGs.”
The rating agency affirmed the A3 IFSR of China Railway Captive Insurance and changed its outlook to negative from stable.
Moody’s said: “The negative outlook on the insurer reflects the agency’s expectation of a weaker credit profile at its state-owned parent, China State Railway Group Co., Ltd. (CSRGC) because of its strong linkages with the Chinese government, given the final rating of China Railway Captive incorporates an uplift and support from CSRGC.”
CNPC Captive Insurance Company’s IFSR of A2 was affirmed with Moody’s changing its outlook from stable to negative. This followed the outlook change to negative from stable on its parent, China National Petroleum Corporation (CNPC, A1 negative). The negative outlook on CNPC Captive reflects a potentially weaker parental support given its final rating incorporates an uplift and support from CNPC.
Moody’s highlighted that for the insurers and its subsidiaries, any upgrade of their IFSRs is unlikely given the negative outlooks. Moody’s could return the outlooks to stable if the outlook on China – or their parent company in the case of subsidiaries – returns to stable, and if we assess that support for the insurers remains a priority and unlikely to change.