Hard-hit Chinese life insurers cautious on asset allocation

Three significant challenges — a new regulatory environment, decreased sales performance, and an investment market downturn — will continue to weigh on Chinese life insurance companies in 2023. On asset allocation, caution is key.
Hard-hit Chinese life insurers cautious on asset allocation

Chinese life insurance companies are expected to play defence on their asset allocation in 2023, with new regulations and poor business performance continuing to weigh on their balance sheets.

Domestic government bonds will be the main component of their investments in the new year. They will also continue to reduce exposure to long-term equity, while taking a cautious approach to alternative investments, industry experts told AsianInvestor.

“In case of the new regulation, insurers, especially those with a tighter solvency margin, need to consider or reassess their asset allocation,” said Terrence Wong, senior director for insurance, Asia Pacific at Fitch Ratings.

Terrence Wong, 
Fitch Ratings

A new solvency system called China Risk-Oriented Solvency System (C-ROSS) phase 2 came into effect in January 2022, which increases the risk charge on all types of risky assets, and implements a “look-through” approach to calculate the risk of an investment based on the underlying assets while discouraging the use of complex structured instruments.

To reduce the capital charge of their investments and to increase asset duration, Chinese life insurance companies will continue to steadily increase their exposure to government-related bonds, Wong said. The mismatch of their asset and liability duration is about eight to nine years, he noted.

On the other hand, the insurers’ investments in long-term equity, including both public and private shares they own in companies, are expected to continue to decrease under the new regime, Wong added.

A long-term equity investment refers to a substantial share investment into a company that enables life insurers to have a board member at, or certain influence in, the company.

In China, life insurance companies often have shares in other financial institutions or businesses via long-term equity investments. This offers them stable income and a better yield via the appreciation of stock value, for example.

However, under the new C-ROSS regime, such investments are subject to higher capital charges.

As a result, some Chinese life insurers have disposed of some of those investments, while others have said they would not further increase their shares, Wong said.

In 2022, Chinese life insurance companies’ exposure to alternative assets also decreased slightly.

“Most of them…are saying that they will continue to look into opportunities in this area. But at this point in time, it's not easy [for them] to find a good project that can be justified between the risk and the return,” he said.

With the “look-through” approach under the new regime, insurers tend to be more cautious on each alternative investment opportunity to ensure that the underlying assets are more transparent. Non-transparent alternative assets are subject to much higher capital charges, he said.

Alternatively, they can choose to just hold cash positions temporarily, he added.


The year 2022 was tough for Chinese life insurance companies. Besides the new capital-charge-raising solvency regime, large-scale lockdowns and Covid restrictions in China severely disrupted life insurance business growth, while the financial market downturn only added to the deficit of their balance sheets.

“Last year, the business sentiment and people’s confidence in the markets and the economy was gloomy. Buying insurance products is not a priority for people when they prefer to put their money in the bank or pay off their housing mortgages in advance,” a senior executive from a major Chinese life insurance company told AsianInvestor.

“The sales performance just plunged significantly, for almost every Chinese life insurer.”

ALSO READ: Big Chinese life insurers follow different bond strategies

According to Fitch’s Wong, unlike Japanese life insurers with deep pockets from their strong insurance business gains, investment income tends to be a large component of the Chinese life insurance market.

As a result, a market downturn where both equities and bonds are in the red tends to affect Chinese life insurance companies more than business performance.

“Going forward for this year, the picture could be different, because the pandemic measures have been eliminated and I think overall we are expecting to have better business sentiment. Probably new business growth might pick up again,” Wong said.

“Because of the low base last year, this year might pick up a little bit more just from an underwriting perspective.”


For Chinese life insurance companies, the overseas investment cap set by regulators is 15% of their total assets under management (AUM).

In reality, their overseas exposure is generally below 5%.

In 2023, within their limited capacity, Chinese life insurers are expected to continue to increase their overseas investments for diversification benefits and return enhancements, according to a chief investment officer survey released by JP Morgan Asset Management and Insurance Asset Management Association of China (IAMAC) in September 2022.

ALSO READ: Chinese insurers prioritise ESG-compliant investments over the next two years: survey

Carol Wong, 
Ping An of China
Asset Management (HK)

Carol Wong, managing director and head of institutional business development at Ping An of China Asset Management (HK), the overseas asset management arm of Ping An Group, said that the firm believes overseas opportunities lie in US long-term investment-grade bonds and alternative investments.

“Having weathered the extraordinary challenges of the past few years, we believe overseas portfolio diversification in the target sectors will continue to deliver attractive risk-adjusted returns,” she told AsianInvestor.

For alternative investments, the firm believes low-beta multi-strategy hedge funds would perform relatively well in 2023.

“We expect a tumultuous year of economic recovery. The market will still experience high volatility. Maintaining a diversified, market-neutral hedge fund strategy allows us to focus more on pursuing stable risk-adjusted returns,” she said. 

AsianInvestor will be hosting its Insurance Investment Briefing in Singapore on March 8 and in Hong Kong on March 10. To find out more on the Singapore event, click here, and for the Hong Kong event, click here.


¬ Haymarket Media Limited. All rights reserved.