How catastrophe losses will threaten China's non-life earnings

Flood season hit Q3 2025 insured damage at $0.5b Aon estimate.

China’s non-life insurers will gradually improve operating margins and maintain strong capital positions to support premium growth, Fitch Ratings' APAC Insurance Outlook 2026 said.

The agency said underwriting volatility in some non-motor lines should ease as regulators push ahead with “rate-policy alignment” rules, which aim to control acquisition costs and curb excessive competition. 

From 1 November 2025, insurers are required to ensure that the policy terms and rates they apply match those filed with regulators.

Fitch expects premium growth to remain moderate over the next year, citing ongoing tariff and trade tensions and the extension of commission controls to non-motor business. 

Capital adequacy is expected to stay sound, supported by measures such as equity injections, issuance of capital supplementary bonds and the use of reinsurance. 

Major insurers reported year-on-year improvement in operating earnings in the first nine months of 2025.

The rating agency said tighter commission rules should help stabilise margins by encouraging more disciplined pricing, better risk selection and improved efficiency. 

Smaller insurers are likely to move away from commission-driven growth towards risk-based pricing and product development, whilst larger players, supported by scale and resources, are better placed to upgrade pricing models and refile products under the new framework.

Despite moderate growth, Fitch expects the sector to maintain solid solvency to support underwriting and absorb asset volatility. 

The industry’s comprehensive solvency ratio stood at 240% at end-September 2025, even with a higher allocation to equities. 

Non-life insurers are expected to continue favouring short-maturity fixed-income investments due to short liability durations and liquidity needs, and are unlikely to raise equity exposure significantly despite lower equity capital charges.

Catastrophe losses remain a key risk. Aon estimated that seasonal flooding in the third quarter of 2025 led to about $0.5b in insured losses, whilst China’s Ministry of Emergency Management said direct economic losses from natural disasters exceeded $31.17b (CNY217b) in the first nine months of 2025. 

Fitch said insurers will continue to rely on reinsurance and improve catastrophe modelling to manage earnings volatility.