Research conducted by Swiss Re has shown an improvement in mortality resilience across China's provinces, marking a significant shift after several years of decline.
Using the Swiss Re Institute Resilience Index methodology, the study assessed mortality and natural catastrophe resilience in 31 provinces, alongside the development of an insurance resilience index.
In 2023, China's mortality protection gap narrowed by 6% compared to the previous year, while the resilience index saw a 2.3 percentage point increase, reaching 38.3%. This marks a positive change following a period of declining resilience and an expanding protection gap, according to Swiss Re.
The improvement in mortality resilience was largely attributed to economic trends observed last year. Swiss Re views this as the beginning of a long-term trend rather than a temporary shift, although it notes that China's mortality resilience remains below pre-pandemic levels.
The country's economic recovery has been gradual, with income growth at half the pace observed before the pandemic. Structural challenges in the property market and concerns over future financial stability have led to a reduction in outstanding mortgages, which in turn has resulted in slower growth in protection needs and improved resilience.
Life insurance has played a key role in this environment, with Swiss Re estimating that increased life insurance coverage contributed 1.2 percentage points to the overall improvement in mortality resilience in 2023.
The life insurance sector in China rebounded last year, driven by a rise in customer demand ahead of regulatory changes, with nominal premiums increasing by 12.8% from 4% in 2022.
Despite this progress, Swiss Re said that the mortality protection gap has more than doubled over the past decade, reaching $73.6 billion (CNY 521 billion) in 2023. This increase is primarily due to rising household incomes and debt levels.
Household debt in China has surged more than sevenfold since 2010, reaching CNY 78.3 trillion ($11 trillion), which has driven the household leverage ratio to 62%, surpassing both the euro area and emerging markets averages.
Swiss Re's analysis also reveals significant regional disparities in mortality resilience across China. In 2023, all 31 provinces showed improvement in mortality resilience, driven by growth in the life insurance sector.
For example, life insurance premiums in Beijing and Shanghai grew by 21% and 25% respectively, leading to a 5 and 4 percentage point increase in resilience in those regions.
However, there remains a wide range of resilience levels across the provinces, with indices ranging from below 15% to over 50%. Swiss Re notes that 21 provinces, representing 68% of China, have resilience indices below the national average.
Disparities in life insurance development are a significant factor contributing to these differences. For instance, Southeast China, despite having the highest GDP per capita nationwide, has a resilience index 4 percentage points lower than North China, where life insurance penetration is higher.
Similarly, Northeast China, which includes Heilongjiang, Liaoning, and Jilin provinces, has lower per capita GDP but higher insurance penetration. Swiss Re attributes this to government initiatives promoting private insurance solutions, such as small-amount life insurance, which has become an effective tool for addressing mortality risk in less economically developed areas.
Swiss Re's analysis aligns with the global insurance "S-curve," which suggests that life insurance premiums tend to grow faster than economic growth in regions where GDP per capita falls between $5,000 and $35,000. All of China's provinces currently fall within this range.
Swiss Re expects life insurance penetration to outpace GDP growth in Southwest and Northwest China, while growth in more developed regions like Beijing and Shanghai is expected to stabilize.
Over the long term, Swiss Re anticipates that mortality resilience will continue to improve across most regions in China, with regional disparities likely to narrow. The analysis suggests that a 1% increase in life insurance penetration could result in a 6 percentage point increase in the mortality resilience index, assuming other factors remain constant.
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