How are insurers affected by China’s real estate market decline?

Regional carriers have about 8% of their portfolios in global commercial real estate.

The decline in China’s real estate market presents varied impacts for insurers. With diversified portfolios, the overall effect is expected to be manageable compared to other investments. 

Gallagher Research Centre has collaborated with Professor Ricardo Reis of the London School of Economics to analyse global macroeconomic risks and opportunities for (re)insurers. In their latest blog, Professor Reis examines the effects of China’s real estate downturn on the (re)insurance sector.

China’s real estate market has significantly declined since the COVID-19 pandemic, with reduced construction and real estate activities slowing economic growth. Although manageable household debt and government interventions mitigate immediate recession risks, rising non-performing loans present challenges for Chinese banks. 

This situation could transfer fiscal burdens to the public, despite efforts to maintain credit flow. China’s substantial fiscal capacity and national savings, however, offer crucial buffers against economic crises.

For the (re)insurance market, the impact of China's real estate decline will vary by company and investment portfolio. 

Regional carriers have about 8% of their portfolios in the global commercial real estate market. Direct impacts from Chinese real estate assets are expected to be limited for well-diversified portfolios. 

Local life insurers in China may experience more significant effects due to investments in commercial mortgages, Commercial Mortgage-Backed Securities (CMBS), direct real estate, and Real Estate Investment Trusts (REITs). 

However, with proper diversification, the impact on insurers from China’s real estate market is anticipated to be minor compared to other investments like sovereign bonds and equities.