Best’s Special Report: Chinese Insurers’ Investment Trends Remain Conservative

HONG KONG--(BUSINESS WIRE)--Declining interest rates in China have led to narrowing spreads and increased reinvestment risk for domestic insurance companies, according to a new AM Best report, placing a greater onus on insurers’ asset-liability management.

The Best’s Special Report, “Chinese Insurers’ Investment Trends Remain Conservative,” states that with yields of 10-year government bonds remaining below 3% over the past two years, they no longer meet the assumed rate-of-return requirements for some long-term protection products. Furthermore, the proportion of participating policies by gross premium revenue declined in recent years, shrinking insurers’ buffer to absorb investment risk in the current in-force portfolios.

“To address the risk of negative spread, insurers have extended the duration of their assets, but high-quality, long-duration domestic investment instruments remain relatively scarce, leading to reinvestment risk,” said James Chan, director, analytics, AM Best. “On the liability front, insurers aim to enhance their resilience by lowering assumed rates, and since August, most products with a 3.5% rate have been taken off the shelves and replaced by newer products yielding 3.0% or less.”

Overall, the investable portfolio of China’s insurance industry grew by 10% year over year, with a stable asset mix according to China’s financial regulator. The proportion of bonds has increased gradually since the start of 2022 and remains the largest asset class, accounting for 43%. Life insurance companies account for approximately 90% of the Chinese insurance industry’s overall investments.

Insurers also made alternative investments, seeking stable returns that are often higher than returns on traditional fixed-income securities such as government bonds, though many have more complex and opaque structures. Despite recent regulatory initiatives, AM Best expects insurers to maintain a cautious approach toward increasing their equity exposures.

The report states that participating products should see stronger growth momentum as policyholders find potential upside in profit-sharing more appealing and competitive than traditional products with lower rates. AM Best expects the segment to enhance its value proposition by strengthening product coverage and service quality tailored to changing customer needs, rather than competing over return rates as benefits.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=336575.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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