Rising stock market prices are boosting mainland insurers’ investment income and they also stand to benefit from higher sales agent productivity.
But at the same time they are facing higher risks on their bond investments and policies’ guaranteed returns.
“We believe that the risk profile of Chinese insurers has increased over the past few years, especially since 2010, and will continue to do so,” Credit Suisse analyst Arjan van Veen said in a report.
“Despite a reduction in equity market exposure, we have seen a significant increase in asset risks, with a material rise in corporate bonds and more recently debt schemes, trust investments and wealth management products, as insurers chase higher yields while investment asset class restrictions are lifted.”
Van Veen said insurers were facing higher liability risks because they had offered higher guarantees and higher-return products in life insurance policies sold to customers after Beijing gradually relaxed its regulations and gave insurers more freedom to set policies’ guaranteed returns.
“We expect total deregulation of the maximum guarantee rate within the next year or two [given a State Council directive to deregulate],” he said. “Whilst the insurers reacted to the traditional product maximum guarantee increase [from 2.5 per cent to 3.5 per cent], we have of late seen higher guarantees become mainstream. We expect this to continue on full liberalisation.”
Van Veen examined the key risk profiles of listed mainland insurers and said PICC P&C and China Pacific had the lowest risk profiles, followed by China Life.