Fitch: Chinese Life Insurers Make Riskier Bets As Revenue Jumps

Chinese life insurers - especially the smaller firms - are increasingly diverting their assets to alternative investments, including debt-investment plans, project asset-backed plans, trust schemes, and wealth management products, that promise higher returns for greater risks, Fitch Ratings says in a new report.

Greater asset risks make life insurers more vulnerable to adverse capital-market fluctuations and credit-quality deterioration caused by an economic slowdown. Smaller insurers generally have stronger risk appetite than their larger rivals as they compete for market share by offering attractive returns to policyholders.

Aside from alternative investments, Chinese life insurers are also increasing investments in long-term equities, properties and overseas investments.

The generally long investment horizons in alternative investments, long-term equities and properties may intensify the asset/liability duration mismatch at Chinese life insurers, especially for insurers focusing on short-duration products, such as short-term high cash-value policies. Smaller insurers tend to be more active in selling such policies because they lack strong agency force and can fall back on banks' sales channels.

Policyholders' deposits contributed over 50% of total premiums for some life insurers. Total premium revenues in China's life insurance sector increased 90.6% year-on-year in 1Q16, while deposits from policyholders expanded 213.6% yoy and accounted for 37.5% of total premiums in 1Q16 (2013: 22.9%).