Salad Days for China Insurers

Acquisitions like Waldorf are just the start. The hunt for overseas assets will go on.

Chinese insurers have huge growth prospects: Fewer than 20 percent of people in the world's most populous nation hold a policy 1 . They also have a growing problem -- interest rates keep dropping and equity market volatility is eating into returns.

That explains why companies such as Anbang Insurance Group have been venturing overseas to buy assets like New York's Waldorf Astoria hotel. The hunt will continue as insurers seek higher-yielding offshore investments to balance declining returns and burgeoning liabilities at home.

Rising Liabilities

Claim expenses are rising at China's two biggest insurers as they sell more policies

Source: Company filings

The latest evidence came on Thursday when China Life Insurance, the industry's second-biggest company, announced a 57 percent drop in first-quarter profit from a year earlier to 5.25 billion yuan ($811 million).  The main culprit was investment income, which fell 34.6 percent amid a selloff in Chinese stocks that reduced the company's spread (the difference between what the company earns and pays out to policy holders.)

Ping An Insurance Group, China's biggest by assets, is grappling with the same issue. Its investment income dropped 36.4 percent in the first three months, which the insurer attributed to stock-market movements in a quarterly update released on April 26.

Policy sales are doing just fine. China Life's premium income jumped 31.4 percent and Ping An's life insurance business posted a 28.3 percent increase in recorded written premiums. The trouble is that claim expenses are also rising, by 56.3 percent at China Life and 17 percent at Ping An in the first quarter. As the asset side of the equation has ballooned, so have liabilities.

Growth Issues

The assets of China's 11 listed insurers have more than doubled in five years to 11 trillion yuan

Source: Bloomberg

Therein lies the dilemma for Chinese insurers. Lower interest rates have reduced how much they get paid from government bonds and time deposits, the kinds of safe investments the firms need to ensure cash is quickly available when payouts are due. They have to make up for those lower yields in equities and other investments.

Mismatch From Hell

As Chinese insurers have increased their policy sales, yields on government bonds have been dropping

Source: Bloomberg

The stock market has been tough. The CSI 300 index, composed of shares traded in Shenzhen and Shanghai, is down about 15 percent this year. As a result, some insurers have been behaving almost like private-equity firms. Besides its 2015 purchase of the famed Waldorf, Anbang also agreed in March to pay $6.5 billion for Strategic Hotels.

``Chinese insurers need high-yielding investments with steady return, which is why they have been looking at landmark commercial buildings in big cities across the world," said Richard Collis, Asia Pacific managing director for risk consulting and software at consulting firm Willis Towers Watson, which specializes in insurance.

Insurers' appetite is limited by China Insurance Regulatory Commission rules that cap the amount they can invest abroad at 15 percent of capital. Still, with policy sales growing as fast as they are, plenty more money will become available for foreign purchases. 

If the central bank continues to reduce rates and stock market volatility remains high, insurers will have no choice but to look outside China. Their march abroad may have barely begun.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. Estimate of consulting firm Willis Towers Watson 

To contact the author of this story:
Christopher Langner in Singapore at

To contact the editor responsible for this story:
Matthew Brooker at

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