China's ZYIC's underwriting profit still thin despite gains from crop insurance

ZYIC has reported net profits consistently over the past five years.

Whilst crop insurance has given China’s Zhongyuan Agricultural Insurance (ZYIC) stable profits since its operation, its overall underwriting profit remains thin especially in 2019 and 2020 when premium receivable impairment losses pulled down performance, according to an AM Best report.

ZYIC has reported net profits consistently over the past five years, with an adjusted average return on capital and surplus (C&S) of 2.5% from 2016 to 2020. The insurer grew its capital through the full retention of profits over the same period and capital injection in 2019. 

Investments remain highly liquid, with a major chunk invested in cash and fixed-income securities. It has also arranged quota share and excess of loss reinsurance programmes that are placed with high-quality counterparties, the report said. 

Though per risk net probable maximum loss is kept low, its modeled net retained catastrophe losses on an annual aggregate basis account for a significant portion of its C&S.

Risks to ZYIC’s credit ratings include its concentrated net exposure to natural catastrophe risk in Henan which is material relative to the company’s C&S and may trigger a capital event if a severe catastrophe loss occurs. 

On the other hand, positive ratings may arise if ZYIC’s balance sheet strength improves significantly so that it shows resilience against the catastrophe exposure, the report said.