Chinese insurers turn to high-risk investments for higher revenues, Fitch

Fitch says Chinese life insurers are making riskier bets in alternative investments for higher returns

Insurance News

By Mina Martin

Chinese insurers are making riskier bets for promises of higher returns, as Chinese insurers − especially the smaller firms − are increasingly diverting their assets to alternative investments, including debt-investment plans, project asset-backed plans, trust schemes, and wealth management products, says Fitch Agency in a new report.

In its report, entitled China Life Insurance Market Dashboard 1H16, Fitch stated that greater asset risks make life insurers more vulnerable to adverse capital-market fluctuations and credit quality deterioration caused by an economic slowdown.

Smaller insurers generally have stronger risk appetite their larger counterparts as they compete for market share by offering attractive return to policyholders, explained Fitch.

Chinese life insurers are also increasing their investments in long-term equities, properties, and overseas investments.

“The generally long investment horizons in alternative investments, long-term equities and properties may intensify the asset/liability duration mismatch at Chinese life insurers, especially for insurers focusing on short-duration products, such as short-term high cash-value policies,” Fitch said.

“Smaller insurers tend to be more active in selling such policies because they lack strong agency force and can fall back on banks' sales channels.” 

Policyholders’ deposits account for over 50 per cent of the total premiums for some life insurers. Total premium revenues in China’s life insurance sector surged 90.6 per cent year-on-year in 1Q16, while deposits from policyholders expanded 213.6 per cent yoy, accounting for 37.5 per cent of total premiums in 1Q16 – compared to 22.9 per cent in 2013.

For Fitch’s full report, see China Life Insurance Market Dashboard 1H16.

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