Overseas investments increase risks for Chinese insurers

03.11.2015 – 636353_web_R_K_B_by_Sybille und Kurt Mader_pixelio.deThe recent cuts in interest rates in China are likely to encourage the country’s insurers to seek overseas investments. However, such investments will increase the risks, Standard & Poor’s expects. The rating agency believes that the lifting of restrictions on investments will help Chinese insurers to reduce the geographic concentration of their investment portfolios, have greater flexibility to manage investment risks and boost returns.

China’s cooling economy and falling interest rates will likely lead to slower growth in new business for Chinese insurers and increase claim liability reserves on their existing business, the report titled “China Credit Spotlight” notes. Moreover, high competition is likely to reduce underwriting margins and drag down profitability. Consequently, companies are likely to focus more on investment returns.

The liberalization of products and investment guidelines indicates the increasing maturity of China’s insurance sector. Insurers now have more flexibility to adjust the guaranteed rate of return for products and choose more investment options.

“We expect the evolving insurance landscape in China to spur insurers to have full control to decide on their preferred investment and business profile,” said Eunice Tan, Standard & Poor’s credit analyst.

Standard & Poor’s does not expect Chinese insurers to significantly raise their guaranteed returns despite the regulator lifting the ceiling. China’s slowing economy, falling interest rates, and volatility in the domestic equity market will likely dissuade insurers from guaranteeing higher returns. (vwh/mst)

Bild: Skyline Hongkong (Quelle: Sybille und Kurt Mader/

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