It really does not pay to view the Chinese insurance market as a short-term play.
Unfortunately, the commercial performance of Chinese insurers is always going to be at the whim of the health of the domestic economy – and the fate of the domestic economy is closely tied to government initiatives as well as the global economy.
In periods of uncertainty, occasioned by such things as a new incoming administration in the US that is avowedly anti-Chinese, the domestic economy is liable to suffer – and so it has proved in the early part of the year.
In the first three days of trading for 2025, the benchmark CSI 300 index declined by 4.1% – partly because of weak domestic manufacturing data and partly over fears of a looming trade war and potential sanctions from the US.
In tandem with the stock market decline, China’s currency fell to CNY7.33 to the dollar, marking a low point for the last 15 months.
Meanwhile, hovering in the background is the years-long property crisis that is still gripping the nation, undermining consumer confidence and feeding into prolonged weak domestic consumption.
Viewing these developments in the short term could be a recipe for despair – but viewed in the context of the past 20, 30 or 50 years suggests that the current malaise could be seen as just a bump in the road.
From an insurance perspective, there are two main problems on the demand side of the business. The first is China’s ageing and declining population. The second is the low level of domestic consumption.
On the supply side, matters are potentially more serious. Chinese insurers are not allowed to invest in foreign assets and foreign securities because of capital controls in China.
This means that insurance asset managers are limited to Chinese equities, Chinese onshore derivatives and Chinese financial instruments. The ability of an insurer to price and manage the risk in these products is made very difficult by such constraints.
In order to access global markets, insurers need to be able to access over-the-counter US dollar derivatives in order to manage market risk on these things. Since they don’t have access to them, they cannot.
Viewed from one perspective, not allowing market forces free rein to operate always runs the risk of getting skewed outcomes. But that is the reality of doing business in China and so foreign insurers hoping to do business there can either take it or leave it.
Meanwhile, the nature of insurance is changing globally, driven both by changing demand patterns and technology, principally AI.
One scenario could see Chinese insurance business continue to run along quite different rails to the rest of the world, which might be good for domestic insurers and bad for foreign players.
The other scenario is that the two different models will start to converge, making the internationalisation of Chinese insurance much more probable.
One thing is sure and that is that betting against the Chinese insurance sector in the long term could be very short-sighted indeed. A
Paul McNamara
Editorial director
Asia Insurance Review