How to Fill the Multi-Hundred Billion Yuan Gap in Troubled Insurance Companies? What Needs to be Done Beyond Financial Injection? (AI Translation)

【周刊提前读】问题险企数千亿窟窿怎么补？输血之外还要做什么？

In an era where the guaranteed returns of bank wealth management and fund products have been dismantled, wealth management insurance products with relatively rigid guaranteed returns still possess significant appeal in the financial market. This has led to financial consumers often being indifferent to whether the insurance companies they invest in have underlying issues. Against a backdrop of a growing queue of problematic insurers, an increasing amount of risk assets awaiting resolution, and escalating pressure from interest rate spreads, the moral hazards associated with this trend are accumulating.

Recently, the restructuring of Yi'an Property Insurance, formerly part of the "Tomorrow Group," was selected as the first insurance company reorganization case among the "Top Ten Cases Advancing the Rule of Law in the New Era 2023," co-hosted by the Supreme People's Court and China Central Radio and Television. However, Yi'an Property Insurance was established in 2016, just a year before the legal issues faced by the actual controller of Tomorrow Holding Group (referred to as "Tomorrow Group"), and did not become a major financing tool for the group. Before its restructuring, its insolvency amounted to merely RMB 120 million—a scale and associated risk and difficulty level that is minuscule compared to other problematic insurance companies dealing with tens or even hundreds of billions of RMB; how to choose the timing for handling these larger entities, how to mitigate risks, how to establish exit mechanisms, and even whether it is reasonable to break from guaranteed policy payments are currently significant challenges for regulators.

Due to the fact that insurance companies, particularly life insurance firms, typically manage funds with longer durations, they generally do not encounter liquidity issues (except for those companies that sell a large volume of single-premium short-term policies on the liabilities side), allowing them to maintain seemingly stable cash flows. The crux of the issue for troubled firms lies in their inability to sustain their asset side.