China's insurance industry's total assets increase by 13.3% to RMB23.3trn

Written by Adam Cadle

05/07/2021

China’s insurance industry’s total assets increased by 13.3% in 2020 to RMB23.3trn (US$3.5trn), up from 12.2% in 2019, despite slower premium growth during the pandemic, Cerulli has said.

The growth was largely driven by sound investment returns, with annual investment income recorded at RMB957.1bn last year, up by 40.8% year on year.

The outlook for the insurance industry is positive, following the implementation of liberalisation measures in the last two years, such as the full removal of the foreign ownership cap and raising of limits on foreign shareholdings in insurance asset management companies. In July 2020, the China Banking and Insurance Regulatory Commission (CBIRC) relaxed the upper thresholds on insurers’ equity investments. Under the new rules, insurers’ maximum equity allocations can range from 10% to 45% of the total assets recorded at the end of the previous quarter, depending on their solvency, asset-liability management capabilities, and other risk measures.

The new rules are likely to boost equity holdings for qualified large insurers, although Cerulli said that the short-term impact could be limited by insurers’ prudent investment styles and trade-off considerations of the high-risk charge on equities under the China Risk-Oriented Solvency System (C-ROSS).

While equities do generate alpha, Cerulli said insurers also use multi-assets and alternatives for portfolio diversification.

"Multi-asset is a growth area for managers, with demand coming from smaller and mid-sized insurers, and cross-border demand from large players. As for alternatives, Chinese insurers favour non-standard debt assets, treasury bond futures, private equity, and real estate to enhance yields and match against long-term liabilities. Recently, insurers subscribed heavily to the first batch of infrastructure real estate investment trusts (REITs) to source for liquid alternatives, purchasing a total of RMB3.3bn. This made insurers the largest group of beneficiaries, with a marketshare of 34.6%."

Similar to other markets, affiliated managers dominate insurance outsourcing in China. According to a survey of insurers by the Insurance Asset Management Association of China (IAMAC), 73% of portfolio assets was managed by affiliated asset arms, followed by insourcing at 23% and outsourcing to managers with no insurance background at 3%. Although small, Cerulli noted that the last category of outsourced assets can still present lucrative revenue opportunities for fund houses to tap on, as it translates into RMB519.8bn in mandates and other sources of investments as at the end of last year.

In fact, China’s insurance market continues to pose the most growth potential for outsourcing across the region. According to Cerulli’s survey last year, 92.3% of managers surveyed believe that non-affiliated opportunities will increase in China over the next three years.

“Managers who understand the short- and long-term demands of insurers, have built strong relationships with them, understand the implications of the various insurance rules, and possess resources or capabilities to complement insurers’ existing strategies will be able to stand out from the competition,” Cerulli senior analyst Ye Kangting said.

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