Capital strain looms for Guoren P&C amidst delayed shareholder injections

It could impact the company's ability to withstand fluctuations in its equity base amidst a volatile capital market. 

Guoren P&C may face a weakening in its risk-based capitalisation if capital injections from shareholders are further delayed, Fitch Ratings said. 

This could hinder its ability to withstand fluctuations in its equity base amidst a volatile capital market. 

“An increased exposure to risky assets and weak organic growth in capital have weighed on the insurer's capital strength,” the report stated.

Meanwhile, financial leverage is expected to remain high in 2024, with the ratio reaching 68% by the end of 2023, up from 66% in 2022, primarily due to a diminished equity base despite senior debt maturing in June 2023.

The risky-asset ratio is also anticipated to stay elevated in the next 12 months, reaching 255% of shareholders' equity by the end of 2023, compared to 205% in 2022. 

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Despite these challenges, Guoren P&C exhibited a ‘strong' underwriting performance, with the combined ratio improving to 97% in 2023 from 99% in 2022, driven by a lower loss ratio resulting from enhanced claims management. 

The return on equity also increased to 6.1% in 2023 from 2.5% in 2022, primarily due to improved underwriting performance despite lower investment income.

However, Fitch said the stability of Guoren P&C's underwriting profitability may be tested as it expands into loan-financing credit and guarantee insurance, which are sensitive to macroeconomic conditions.