A possible downside to profitability for China's insurance sector may come from an unexpected place, as any competition for household savings takes away potential premium income from the sector.

"The growth of the credit market in China will also pose a risk to the industry," she said.

China Life recently said its total premiums of 111.4 billion yuan in the first half represented growth of 22 pct year-on-year, while PICC P&C reported a first-half premium income of 39.07 bln yuan versus 24.94 bln a year earlier.

The ratings agency also released its China Insurance Outlook 2006-2007 today. S&P said it based its 'positive' forecast for the China insurance sector on the growth rates in more mature markets and the domestic market's low penetration rate.

If the penetration rate in China can be raised to 3.5 pct within five years from the current 2.7 pct, which S&P said is a possibility, industry premiums will grow by an average 15 pct a year.

That projection assumes an average 8 pct annual growth rate for the Chinese economy.

Ping An, AIG unit American International Assurance, and China Pacific Insurance Group Co also fared well in S&P's Outlook.

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