Zhonglu Insurance holds strong solvency, faces growth risks

Whilst net earnings improved to $1.7m, sustainability is uncertain amidst non-motor expansion.

Zhonglu Insurance maintains a strong capital position, reflected in a regulatory comprehensive solvency ratio of 282% at the end of 2023, decreasing slightly to 278% by end-1Q24. This decline is due to rising market and credit risks and a delayed capital injection, assessed Fitch Ratings.

The insurer has no financial debt and is expected to maintain adequate capital metrics despite rising asset risks from its investment portfolio and growth strategy.

Its combined ratio fell below 100% in 2023, indicating lower losses. 

Whilst profitability has improved, with a net result of $1.69m (CNY12.27m) in 2023 translating to a 1.3% return on equity, sustainability is uncertain amidst expansion in the non-motor business. The average combined ratio from 2021-2023 was 102%.

Zhonglu Insurance's exposure to risky assets, including equity funds and non-investment-grade fixed-income investments, increased to 59% of total equity at end-2023 from 53% at end-2022. 

This higher equity investment exposure makes earnings and capital vulnerable to market volatility.

Despite efforts to expand into non-motor insurance sectors like accident, health, and liability insurance, the insurer remains concentrated in the highly competitive motor insurance market.

($1.00 = CNY12.28)