China’s insurers get only modest solvency lift

RMB70b in fresh funding gives the groups more room for new business and investment.

China’s Ministry of Finance plans to inject $10.4b (RMB70b) into five state-owned insurance groups to strengthen their capital bases and support future growth and investment.

S&P Global Ratings said the capital injection would give the insurers more capacity to deal with changes in financial markets, regulation and their respective business risks.

"The proactive capital injection will fortify the insurance sector's financial resilience amid rising geopolitical and market uncertainty," said S&P Global Ratings credit analyst WenWen Chen.

"It also allows the government to further leverage insurers' role in supporting the real economy and protecting against emerging risks,” Chen added.

The ministry announced the plan on 6 September. China Life Insurance (Group) Co will receive RMB35b ($5.2b) through a direct capital injection, whilst the People’s Insurance Co of China will receive up to RMB15b ($2.2b) through a private placement of A-shares subscribed by the ministry.

China Export & Credit Insurance Corp will receive RMB10b ($1.5b), China Taiping Insurance Group Co Ltd will get RMB7b ($1.0b) and China Reinsurance (Group) Corp will receive RMB3b ($447.1m).

The funding for China Re will be provided through a private domestic share placement.S&P Global Ratings said the additional 

RMB70b ($10.4b) represented only a modest increase to the groups’ existing solvency positions, but would provide more room for new business and investments.

Life insurers have been dealing with China’s persistently low interest-rate environment, whilst property and casualty insurers and reinsurers face growing demand linked to technology, marine insurance, natural catastrophes and insurance protection for Chinese interests overseas.

The additional capital is also expected to provide a buffer for export credit insurers against geopolitical risks and help them continue providing cover for international trade.

S&P said the insurers would need to develop specialised expertise and strengthen risk management as they expand.

It also said China’s relatively low insurance penetration, large population and economy continued to provide room for longer-term growth.

($1.00 = RMB6.71)