Financial Services Association, December 3 (Reporter Xia Shuyuan) On December 3, the State Financial Supervisory Administration issued an approval for China Life Insurance Co., Ltd. (hereinafter referred to as “China Life Insurance”) to issue capital supplement bonds, agreeing that the company will issue 10-year redeemable capital supplementary bonds in the national interbank bond market, with an issuance scale of no more than 35 billion yuan (inclusive).

According to statistics from the Financial Federation's reporter, since this year, 11 insurance companies, including China Life Insurance, Li An Life Insurance, and Xinhua Insurance, have added capital by issuing capital supplement bonds or perpetual bonds, and the cumulative amount of bonds issued has reached 95.6 billion yuan.

Chen Hui, director of the China Actuarial Science and Technology Laboratory at the Central University of Finance and Economics, said that after the implementation of “Repayment II Phase II”, insurers generally faced greater demand for supplementary capital. In an environment where shareholders were prevented from increasing capital, interest rates were low, and there was a large demand to replace old bonds, insurance companies' enthusiasm for issuing bonds increased.

It is worth noting that there are still quite a few small and medium-sized insurers who find it difficult to issue bonds in the open market due to low ratings, and their ability to finance is greatly limited. Some industry insiders suggest that the industry dynamically adjusts solvency standards to ensure that they are in line with the development stage of the industry.

China Life Insurance was approved to issue capital supplementary bonds of no more than 35 billion yuan to raise funds to supplement subsidiary Tier 1 capital

After a lapse of 5 years, China Life Insurance was once again authorized to issue capital supplement bonds of no more than 35 billion yuan.

On December 3, the State Financial Supervisory Administration issued an approval for China Life Insurance to issue capital supplement bonds, agreeing that the company will issue 10-year redeemable capital supplement bonds on the national interbank bond market, with an issuance scale of no more than 35 billion yuan.

According to a Financial Services Association reporter, as early as November 22, 2023, China Life Insurance stated in an announcement: “The company plans to issue capital supplementary bonds totaling no more than 35 billion yuan at one time or in installments in China, depending on market conditions. The funds raised by these domestic capital supplement bonds will be used to supplement the company's subsidiary Tier 1 capital to support the steady and continuous development of the business.”

Notably, before the renewal of the new bonds was approved, China Life Insurance fully redeemed the 35 billion yuan capital supplement bond issued in 2019 on March 22, 2024.

A private equity fund bond trader told the Financial Federation reporter that behind this, there may be insurance companies based on reducing the cost of issuing bonds. It is not ruled out that these insurance companies plan to replace low-interest newly issued capital supplementary bonds with high-interest capital to supplement bonds with capital.

In his opinion, if they only redeem but do not renew new bonds, this seems contrary to the current general trend of many companies in urgent need of additional capital. Specifically, after the implementation of the second-generation second-phase reimbursement project, most insurance companies' solvency ratios declined and faced varying degrees of pressure to supplement capital.

Looking at China Life Insurance, the capital market has fluctuated in recent years. Some of the company's investment assets have faced certain depreciation losses, and the return on investment has declined, putting some pressure on the company's solvency management.

According to the data, as of June 30, 2024, China Life's core solvency ratio was 151.90%, and the comprehensive solvency adequacy ratio was 205.23%. Compared with the 253.7% core solvency ratio at the end of the fourth quarter of 2021, a decrease of 10.18 percentage points, the comprehensive solvency adequacy ratio of 262.41% decreased by 57.18 percentage points.

The insurance industry issued nearly 100 billion dollars in bonds during the year, and some insurers are still limited in financing due to low ratings

In the diversification strategy of capital replenishment, issuing bonds is currently an important way for insurers to finance.

According to Wind data, since this year, 11 insurance companies, including China Life Insurance, Li An Life Insurance, Xinhua Insurance, Ping An Industrial Insurance, Taibao Life Insurance, Sino-British Life, Taikang Life Insurance, and BOC Samsung Life Insurance, have added capital by issuing capital supplementary bonds or perpetual bonds, with a cumulative debt issuance scale of 95.6 billion yuan.

Among them, Taibao Life Insurance, Taikang Life Insurance, and Sino-British Life issued perpetual bonds with a scale of 8 billion yuan, 9 billion yuan, and 3 billion yuan respectively, while all other insurance institutions issued capital supplement bonds.

In contrast to the increase in the scale of bond issuance, interest rates on capital supplement bonds issued this year all started at the beginning of “2,” the highest issuance interest rate was 2.9%, and the minimum issuance interest rate was 2.15%, down from the previous year.

Among them, the coupon interest rate for issuing the “24 Taibao Life Insurance Perpetual Bond 01” is 2.38%. This interest rate is in stark contrast to the 3.5% coupon interest rate for the 12 billion yuan bonds issued by Taibao Life Insurance at the end of 2023.

The “24 Lian Life Capital Supplemental Bond 03” was issued at a coupon interest rate of 2.59%. According to reports, Lian Life issued a total of 3 capital supplement bonds this year, totaling 3 billion yuan. The coupon interest rates for the 3 bonds were 2.75%, 2.78%, and 2.59%, respectively, showing a downward trend.

Regarding the reason for the overall decline in the face profit of insurers issuing bonds, Professor Guo Zhenhua, head of the insurance department at Shanghai University of Foreign Economics and Trade, told the Financial Federation reporter that the coupon interest rate for insurer bonds is priced based on market interest rates. As market interest rates decline, interest rates on insurer bonds will also fall, and the downward trend mainly follows the changing trend of risk-free interest rates in the market. However, interest rates on bond issuance are trending downward, which also means that insurance companies' financing costs are also decreasing.

It is worth noting that although insurance companies are licensed institutions, and the bond default rate is not high, it is not easy for low- and middle-rated insurers to reach the top of the ratings, which has also greatly increased the difficulty of financing.

An industry insider said, “Currently, insurance companies that can issue bonds in the open market have relatively good qualifications. There are also quite a few companies that are difficult to issue bonds in the open market because of their low ratings, and can only finance through private channels. It is hoped that the industry will be able to dynamically adjust solvency standards in the future to ensure that they are in line with the stage of industry development.”