Chinese insurers eye $126b reallocation after rule changes

The government raised equity investment limits to 30% to 50%.

Chinese insurers are expected to cautiously increase their equity allocations following new regulatory measures that lift investment caps and reduce capital charges, though solvency pressures and market volatility may limit the pace of reallocation, according to a UOBKayHian report.

The National Financial Regulatory Administration (NFRA) raised equity investment limits to 30% to 50%, depending on an insurer’s solvency ratio.

As of March, the average comprehensive solvency ratio stood at 197%, translating to a new industry-wide equity cap of 30%, up from 21% currently.

This opens up about nine percentage points of headroom for increased equity exposure.

UOB Kay Hian estimates that up to $126b (RMB900b) could be reallocated into equities, assuming full take-up.

However, rising interest rate risk capital charges from falling long-term bond yields are expected to pressure solvency margins.

A 1 percentage point shift from bonds to equities may reduce solvency ratios by 4–12 points, limiting aggressive portfolio shifts.

Under IFRS 9, equity investments marked as fair value through profit or loss (FVTPL) expose insurers to earnings swings.

A 10% equity market drop could reduce profit before tax by 12% to 70% amongst major players.

Ping An and PICC P&C are less exposed to such volatility, whilst China Life and CPIC could face greater pressure due to higher FVTPL exposure.

Analysts expect insurers to remain selective, favouring high-dividend stocks booked under FVOCI to better match long-term liabilities.

UOB Kay Hian forecasts a gradual annual increase in equity allocations, with $56b (RMB400b) to $70b (RMB500b) in inflows into A-shares expected in 2025.

Despite regulatory easing, insurers are likely to proceed conservatively due to solvency headwinds and valuation risks.