While the insurance industry in China continues to grow and has a generally positive outlook, it is facing challenges that are reshaping its landscape, namely increasing claims, evolving investment strategies and a tightening regulatory environment.
And although six Chinese insurance companies have made it to the 2024 Fortune Global 500 list of companies, four have experienced a decline in their rankings compared with the previous year. The six companies in total generated approximately US$484 billion in revenue, a remarkable feat given the claim pressure insurers are currently under in China.
During the first half of 2024, the total premium income for insurance companies in China reached 3.55 trillion yuan (US$497 billion), according to National Administration of Financial Regulation (NAFR) data, marking a 4.9% year-on-year increase. However, during the same period, payouts, including claims and benefits, surged to 1.23 trillion yuan, representing a significant 33.1% increase compared with the previous year.
The payouts of life insurance companies, in particular, have increased by a significant 57.4% year-on-year, while property insurance companies are up by 10%.
This trend of growing payouts is particularly severe in the life insurance segment. The increased payouts, according to senior executives from insurance companies, are primarily driven by the maturation of policies sold a decade ago during a period of aggressive growth. The rise in claims is also attributed to the increasing popularity of new medical insurance products, which have lower claim restrictions, leading to further increases in payout obligations.
In the first half of the year, key insurers like China Life, Ping An Life and CPIC Life have each paid out over 30 billion yuan, 20 billion yuan and 10 billion yuan, respectively, in claims.
Property insurance, natural disasters, such as typhoons and heavy rains, in China this year have resulted in a significant increase in claims. In the first half of 2024 alone, direct economic losses from natural disasters amounted to 93.16 billion yuan, according to the Ministry of Emergency Management, marking a 144% increase over the same period last year.
Investment-wise, insurance companies in China are also faced with pressure coming from market performance. In the first quarter of 2024, the total investment return of 76 life insurance firms in China was 0.54%, a year-on-year decrease of 0.35 percentage points, sustaining a decline that has lasted two consecutive years.
This is mainly due to the continued decline in government bond yields, which dropped to 2.12% earlier this month and now stand at about 2.16%. And while most investments are still concentrated on fixed income and fixed income plus (multi-asset investments), there is still allocation to equity, fund of funds, alternative investments, real estate, etc.
Insurance assets invested in bonds, according to NAFR data, reached 12.57 trillion yuan in 2023, taking a 45.41% share, while investment in equity and securities investment funds had a 12.02% share.
In the face of the current downward pressure on interest rates and the increasing credit risk, major insurance companies, according to senior executives from asset management companies of insurers, are favouring ultra-long-term and medium-to-long-term government bonds. This is conducive to extending the duration of fixed-income assets, reducing the volatility of asset portfolios and increasing the adaptability of portfolio asset structure to long-term capital structure.
The expectation of equity investment is more pessimistic, and many institutions are expected to control the proportion of equity investment to less than 30%, or even 20%, in the upcoming 12 to 18 months.
Sector-wise, high-growth areas like digital economy, artificial intelligence, elderly care, biotechnology and advanced manufacturing are expected to play a crucial role in shaping the future investment portfolios of Chinese insurance companies.
