Analysis: Strong Profits and Returns Conceal Solvency Issues in China’s Insurance Industry
In 2024, China’s insurance industry experienced a significant upturn in profitability, primarily driven by a resurgence in the stock market in the fourth quarter and revisions to accounting regulations that allowed bond price increases from the previous year to be reflected as earnings. The sector witnessed a substantial improvement in performance, particularly among non-listed life insurers, with the average annualized returns rising to 8.82%, up from 3.85% in 2023. Likewise, general insurers saw their returns increase from 2.43% to 3.87%, while reinsurance companies also showed a slight uptick in their financial performance.
Out of the 60 non-listed life insurers in China, 59 have disclosed their annual data for 2024, with only one company reporting a negative return. Notably, Aegon THTF Life Insurance Co. Ltd., based in Shenzhen, emerged as a top performer with a total return of 17.9%, surpassing its industry counterparts. Moreover, a significant number of companies, around 20 in total, reported returns that exceeded 10%, indicating a robust performance across the sector.
The combined efforts of these non-listed life insurers led to a remarkable turnaround in net profits, totaling 24.7 billion yuan in 2024, which marked a stark contrast to the 10.1 billion yuan loss reported in the previous year. Taikang Life Insurance Co. Ltd. emerged as a front runner in terms of profitability, recording a net profit of 14.6 billion yuan. Similarly, China Post Life Insurance Co. Ltd. showcased a remarkable recovery from a 12 billion yuan loss in 2023 to a significant profit in 2024, signifying a positive trend across the industry.
Within the general insurance sector, 75 unlisted firms collectively reported a 60% increase in net profits compared to the previous year, amounting to 7.7 billion yuan in total. The new global accounting standards played a pivotal role in enhancing the financial positions of these insurance companies by enabling them to recognize unrealized gains and losses as realized, thereby bolstering their financial standing on paper. However, it is crucial to note that while these standards may have resulted in higher reported profits, they do not necessarily translate to actual operational improvements.
The adoption of the new accounting standards has introduced a certain disconnection between the growth in net profits and net assets for approximately 25% of non-listed life insurance companies. Despite reporting thriving profitability, these companies experienced a decline in net assets by the end of 2024, highlighting the complexities of assessing financial performance solely based on reported profits. Analysts caution that while profitability figures may seem promising, they may not accurately reflect an enhancement in insurers’ operational capacities.
Moreover, the implementation of the C-ROSS II regulatory framework posed challenges to insurance companies, especially amidst the current economic conditions characterized by declining interest rates. As a result, the transition period for meeting these regulatory requirements was extended until the end of 2025 to provide companies with additional time to comply and adapt to the evolving landscape. These developments underscore the intricate balance that China’s insurance sector must strike between regulatory compliance and operational realities in a dynamic economic environment.