Standard & Poor's Ratings Services has issued an upbeat view on the Chinese insurance sector and its prospects.

The rating firms said that it had revised its outlook on China's insurance sector to positive from developing to reflect expectations that the financial strength of the overall industry will improve over the medium term.

It release a report entitled "China Insurance Outlook 2006-2007", in which its cites factors such as improving operational fundamentals, strong potential growth, and regulatory commitment to policyholder interests are likely to offset challenges such as tough competition, a lack of talent, and weak capitalization.

"We found the outlook for the industry encouraging and expect premium growth to remain strong," said Standard & Poor's analyst Connie Wong.

She warned that rapid expansion goes hand in hand with challenges and that weak capitalization or poor reserving practices could trigger instances of corporate failure, despite improvements across the wider industry.