, China
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Narrow capital buffer limits Allianz Jingdong's expansion

Fitch anticipates increased synergy and integration between the parent company and its Chinese subsidiary.

Allianz Jingdong General Insurance is expected to witness a gradual improvement in its financial performance over the coming years, particularly as it focuses on underwriting risk selection and slows its business growth in 2024, Fitch Ratings said in a report.

Despite a positive turn in unaudited financial results since 2022 and a return on equity reaching 2.4% in 2023, challenges such as an accelerated expense ratio driven by high commission costs have persisted, resulting in a combined ratio of 104%.

Fitch recognizes the significant role that Allianz Jingdong plays in expanding Allianz SE's presence in China. 

With Allianz SE increasing its stake to 53.33% in the second quarter of 2023 and becoming the controlling shareholder, Fitch anticipates increased synergy and integration between the parent company and its Chinese subsidiary in the long term.

Allianz Jingdong faces challenges related to its capital buffer, which remains narrow due to business expansion and rising investment risk outpacing capital growth.

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Whilst the insurer's financial leverage is minimal, its risk-based capital strength, as measured by the Fitch Prism Model, remains adequate but with a thin buffer as of the end of the third quarter of 2023.

Fitch also considers the insurer's exposure to risky assets, including equity-type and Fitch-adjusted non-investment-grade fixed-income investments, to be tolerable. 

However, the increased allocation to fixed-income-type non-standard assets exposes Allianz Jingdong to higher counterparty risk, albeit providing better yields than traditional bonds.

Allianz Jingdong's company profile is assessed as moderate compared to other non-life insurers in China. 

Whilst the insurer demonstrates a moderate operating scale and diversification, its competitive position remains limited, accounting for only 0.3% of direct premiums in the local non-life market in 2023.

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