ZhongAn’s investment income reliance puts earnings on shaky ground

Its net profit is “volatile” with net profit in 2023 and net loss in 2022.

ZhongAn P&C Insurance’s earnings reportedly stand on shaky ground over the next 12 to 18 months due to its over reliance on investment income and with several lines of businesses still loss-making.

The Chinese online insurance company is expected to maintain a “largely stable” underwriting performance through late 2025, said Moody’s Ratings in a report, where it changed ZhongAn’s outlook from positive to stable. 

ZhongAn has made underwriting profits since 2021 by focusing on profitable product lines. However, its net profit has trended “volatile” over the past few years, with a net profit in 2023 preceding a net loss in 2022.

”Although Zhongan has made underwriting profits for three consecutive years, its overall profitability still heavily relies on investment income,” Moody’s Ratings said in a report affirming ZhongAn’s Baa1 insurance  strength rating (IFSR) and Baa2 senior unsecured debt rating.

Together with its unhedged foreign exchange position, Moody's said that it expects the insurer's earnings to remain susceptible to high capital market volatility and foreign exchange risk until 2025.

Its different lines of businesses have logged varying profit performances. ZhongAn’s insurance segment generated profits in 2023, reversing losses in 2022. However, its technology, banking and other business segments remained loss-making.

Moody’s expects ZhongAn’s non-insurance businesses will struggle to achieve break-even through 2025. 

On a positive note, ZhongAn has reportedly maintained solid capitalization, despite its declining solvency ratios. 

Moody’s also expects ZhongAn to maintain its market position with solid premium growth, further generate underwriting profit and work towards reducing its net losses on its technology, banking and other business segments.