China life insurers faced narrowing margins in 2023

Under C-ROSS phase 2 insurers are expected to exercise caution with investments.

Despite resilient underlying profitability amongst China’s life insurers, many saw flat or narrowing new business value margins in 2023, Fitch Ratings said.

This is partly due to a shift towards higher sales of low-margin single-pay savings products through bancassurance, in response to market demand, even as insurers optimized their agency sales force.

Financial performance remains challenging, with investment returns under pressure from volatile equity markets and low interest rates. 

However, these life insurers in China have maintained strong balance-sheet capital, as assessed by Fitch Ratings’ Prism Global Model and regulatory solvency ratios under the China Risk-Oriented Solvency System (C-ROSS) Phase 2. 

Also, these insurers face significant investment risks due to high exposure to volatile assets such as stocks, long-term equities, equity-type investment funds, and property. 

Risky-asset ratios exceed guidelines for their IFS Ratings for many insurers, driven by low interest rates that have encouraged increased equity investments and longer asset durations through long-dated bonds. 

Under C-ROSS phase 2, insurers are expected to exercise caution with their investments due to stricter capital requirements for risky assets and the need for effective asset-liability management. 

Fitch has reclassified some fixed-income bonds, funds, and non-standard assets as below investment grade for calculating risky-asset ratios.