Fitch Ratings has said China’s recent move to ease capital requirements for insurers’ equity investments may lead to a modest increase in such holdings, although insurers are expected to remain cautious due to potential market volatility and asset-liability constraints.
The rating agency’s comments follow a May 7 announcement by the State Council Information Office that China will lower the capital charge for equity investments by 10% under the China Risk-Oriented Solvency System (C-ROSS).
The adjustment is part of broader regulatory efforts to promote long-term investment by institutional players and provide support to domestic capital markets.
According to Fitch, this is the second revision to investment risk charges since C-ROSS Phase II was introduced in 2021.
The change is intended to improve solvency ratios and ease capital strain on insurers, particularly as the sector navigates low interest rates and economic uncertainty.
As of year-end 2024, equity investments represented 15.3% of life insurers’ portfolios and 13.5% of non-life insurers’ holdings.
While regulators are encouraging increased allocations, Fitch does not expect non-life insurers to make major changes due to their shorter liability durations and liquidity needs. For life insurers already holding significant equity exposure, additional investment may be constrained despite the regulatory relief.
The relaxed capital rules are expected to support insurers’ solvency metrics and provide headroom for expansion or capital-intensive business lines. Life and non-life insurers ended the fourth quarter of 2024 with solvency ratios of 191% and 239%, respectively, showing slight improvements over the previous quarter.
In a related move, Fitch adjusted its ratings for several Chinese insurers in April, after lowering China’s sovereign credit rating from “A+” to “A.”
The changes included downgrades for five insurers – among them SINOSURE and Taiping Life Insurance – while affirming the rating for China Life Insurance.
These rating actions reflect varying levels of reliance on government support. With the sovereign downgrade, the perceived strength of that support has diminished.
Fitch said China Life’s rating remained stable due to its strong financial position, independent of state backing. The firm’s sovereign asset exposure, at 64% of capital, was not considered a risk factor under current criteria.\
Trade tensions have also added pressure on China’s insurance sector. On April 15, the US announced steep tariffs on a range of Chinese exports, including electric vehicles, batteries, and semiconductors. Analysts have flagged potential impacts on claims, investment performance, and premium growth.
General insurance loss ratios, which stood at 68.4% in 2024, are forecast to rise over the next five years, with incurred losses projected to grow 4.8% annually through 2029. Premium growth for general insurance is also slowing, with forecasts of 4.6% in 2025 and 4.4% in 2026, compared to 5.4% last year.
To counter these pressures, regulators have increased the proportion of insurance assets that can be invested in equities. Earlier this year, state-owned insurers were directed to allocate up to 30% of new premium income to A-share investments, reinforcing state-led efforts to stabilise markets.
Insurance exposure to transportation and aviation sectors has also been affected. Beijing halted purchases of US aircraft and aerospace components on April 16 in response to trade disputes. Semiconductor restrictions are expected to affect automotive production, impacting both motor claims and pricing trends.
Rising freight costs and geopolitical tensions are pushing up premiums across marine, aviation, and cargo lines. In response, China’s central bank and state-backed investors have activated liquidity tools to help manage market disruptions.
