Fraught capital markets put Chinese life insurers on edge

Credit exposure has become more vulnerable to rising defaults.

The outlook appears grim for Chinese life insurers due to increasing pressure to capital market volatilities, leading to higher asset impairment, according to a Fitch Ratings report.

Credit exposure has become more vulnerable to rising defaults, but solvency has maintained its strength against the pandemic.

The sector saw a 6.9% premium growth last year notwithstanding a difficult operating environment, with premiums hiking up in H2 due to loosening movement restrictions and recovering market sentiment. Insurers have invested in more equity-type investments to boost returns and duration mismatch.

On the other hand, a smooth-sailing economy, stronger demand for health and long-term saving insurance policies will bolster business growth, the report said.

Health will still be the fastest-growing segment, which posted 13.4% YoY growth in 2020 against 5.4% in traditional life insurance.

The ability to re-emphasise sustainable value-driven growth will set apart the more robust insurers from others under even more competitive market conditions. A strategic product approach and distribution capabilities drive long-term profitability, instead of merely boosting premium volume at the expense of margin enhancement.