Fitch: Risks Emerge from Chinese Insurers’ Offshore Investments

(The following statement was released by the rating agency) HONG KONG/SINGAPORE, April 17 (Fitch) Rapid growth in overseas investment by Chinese insurers could lead to rising risks in a number of areas, including asset-liability duration and currency mismatches, asset concentration risks and execution risks from M&A, says Fitch Ratings. Chinese insurance companies ramped up their overseas investments after the China Insurance Regulatory Commission liberalised offshore investment regulations in October 2012. The rule change was aimed at boosting returns on insurers’ portfolios and it allowed for a greater diversity of overseas investments, including in more products and destination markets. Chinese insurers’ investments are predominantly in long-tenured, illiquid asset classes such as property, infrastructure projects and private equity. Rapid growth in these investments could lead to greater asset-liability duration mismatches if insurers rely mainly on premiums from short-tenured insurance products, such as universal life policies, to fund the offshore investments. Currency risks will also increase alongside growing overseas portfolio assets as insurers mostly carry Chinese yuan-denominated liabilities. More Chinese insurers, including China Life, Ping An, and China Taiping, have issued offshore debt to mitigate some of this currency risk. Asset concentration in certain sectors or regions may make Chinese insurers’ capitalisation more vulnerable to potential impairments. Insurers with limited experience in investing overseas may also face execution risks as they significantly expand their portfolios or engage in M&A. Chinese insurers have thus far largely invested in real estate, including hotels or office buildings, or formed investment vehicles such as China Insurance Investment (CII) to target offshore infrastructure projects. CII was launched in December 2015 by 46 Chinese corporate shareholders comprising 27 insurance companies, 15 insurance asset management companies and four other private companies with initial capital of CNY1.2bn. Private equity investments have mainly targeted the acquisitions of controlling stakes of overseas insurance companies or financial institutions. Insurers are allowed to invest in 45 stipulated national or regional markets and in asset classes, including fixed income, equities, real estate and funds. Offshore and offshore emerging market investments must not exceed 15% and 10% of insurers’ total assets in the previous year, respectively. Real estate investments abroad must be in mature commercial properties with stable incomes in central areas of the main cities of developed countries listed by the regulator. Contacts: Joyce Huang Director Insurance +852 2263 9595 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Justin Patrie Senior Director Fitch Wire +65 6796 7232 Media Relations – Leslie Tan Wai Lun Wan Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Disclosure Statement: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY’S PUBLIC WEBSITE ‘WWW.FITCHRATINGS.COM’. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE ‘CODE OF CONDUCT’ SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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