Stricter solvency rules for Chinese insurers result in a surge of almost 300%

Insurance companies in China have significantly increased their fundraising activities in response to more stringent solvency requirements imposed by regulatory authorities with the total capital raised in 2023 resulting in a substantial increase, reaching approximately 290%.

According to calculations by Yicai, using data from the National Administration of Financial Regulation (NAFR), Chinese insurers collectively secured CNY211 billion (US$29.7 billion) in 2023. This figure contrasts with the CNY54 billion (US$7.6 billion) raised in the preceding year.

The regulatory body sanctioned 44 financing initiatives encompassing bonds and shares. Of these, bond sales accounted for CNY171 billion through 21 transactions, while equity offerings contributed CNY40 billion.

Notably, some insurance firms, such as China Pacific Property Insurance, utilised both bonds and equity to enhance their financial standing. The Shanghai-based insurer raised CNY10 billion via bond sales and augmented its equity by CNY478 million (US$67.1 million).

This surge in capital raising initiatives traces back to the end of 2021, when the NAFR, formerly known as the China Banking and Insurance Regulatory Commission, revised its solvency regulations. These amendments introduced more rigorous criteria for the recognition of insurers’ capital. Implemented in 2022, these rules included a three-year transitional phase.

With the conclusion of this transitional period approaching in 2024, industry experts, including those from Guotai Junan Securities, anticipate a continued trend of bond issuance by insurers to alleviate capital constraints.

The impact of the new solvency regulations is evident in declining solvency indicators among Chinese insurance firms. Data from the NAFR reveals a decrease in the average core solvency adequacy ratio to 126% and the comprehensive solvency adequacy ratio to 194% as of September 30, down from 220% and 232%, respectively, at 2021’s end.

Elsewhere in the nation, the NAFR recently told its banks and insurers to thoroughly review cyber and data security across all their businesses, underscoring the government’s increased focus on national security and data integrity.

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