In Depth: Higher Profits, Returns Mask Solvency Problems in China’s Insurance Sector

China's insurance companies experienced a highly profitable year in 2024. This surge in profitability can be attributed to a revival in the stock market during the fourth quarter and changes to accounting rules, which allowed a surge in bond prices from the previous year to be reflected as gains in earnings reports [para. 1]. Non-listed life insurance companies saw their average annualized returns increase significantly to 8.82% from 3.85% in 2023, while general insurers' returns grew from 2.43% to 3.87%. Reinsurance companies also saw a slight improvement [para. 2].

Among China's 60 non-listed life insurers, 59 have shared their annual data for 2024, with only one reporting a negative return. Shenzhen-based Aegon THTF Life Insurance Co. Ltd. led the pack with a 17.9% total return. Additionally, 20 companies reported returns exceeding 10% [para. 3]. The non-listed life insurers collectively turned a net profit of 24.7 billion yuan, reversing a 10.1 billion yuan loss in 2023 [para. 4]. Taikang Life Insurance Co. Ltd. achieved the highest profitability, with a net profit of 14.6 billion yuan, while China Post Life Insurance Co. Ltd. also reported a significant recovery from a 12 billion yuan loss in 2023 to an impressive profit [para. 5].

In the general insurance sector, 75 unlisted firms achieved a combined net profit increase of 60% from the previous year, totaling 7.7 billion yuan [para. 6]. The reclassification of bonds under new global accounting rules allowed insurance companies to treat unrealized gains and losses as realized, boosting their financial positions on paper [para. 7]. However, even though this approach resulted in higher reported profits, it doesn't necessarily indicate improvement in actual operating conditions [para. 7][para. 9].

The new standards caused some disconnect between net profit growth and net assets, with about 25% of non-listed life insurance companies reporting a decline in net assets by the end of 2024 despite thriving profitability [para. 14]. Analysts warn that while the data reflects profitability, it may not genuinely represent an enhancement in insurers' operational capabilities [para. 11][para. 14].

Many companies issued bonds to meet capital requirements under the updated regulatory framework, C-ROSS II, and the data shows a total of 117.5 billion yuan raised through bond issues [para. 19]. China Life Insurance Co. Ltd. and Ping An Life Insurance Co. contributed to this with significant issuances, among others [para. 21]. Due to the challenging capital requirements, small to mid-sized insurers often looked to shareholder capital injections [para. 22].

The C-ROSS II rules emphasize capital resilience and risk management but have proven challenging under current economic conditions, as interest rate declines have adversely affected the sector. Consequently, the transition period for meeting these requirements was extended until the end of 2025 to allow companies more time to comply and adapt [para. 28]. These developments underscore the complexities confronting China's insurance sector in balancing regulation with operational realities in a shifting economic landscape [para. 28][para. 33].