What’s new: Taikang Life Insurance Co. Ltd. has become the first insurer in China approved to replenish capital through the sale of perpetual bonds, just as many peers are seeking to bolster their finances to comply with a stricter regulatory scheme.
Taikang Life has been cleared to raise up to 20 billion yuan ($2.8 billion) through perpetual bond issuance, the national administration of financial regulation announced Wednesday.
Capital injection from the bond proceeds can increase the insurer’s core and comprehensive solvency ratios, which stood at 103% and 205% respectively at the end of June. Both figures are higher than the minimum regulatory requirements, but much lower than before the stricter scheme — phase two of the China Risk-Oriented Solvency System (C-ROSS II) — took effect in 2022.
The background: Like Taikang Life, many other insurance firms’ solvency levels have also been weakened by C-ROSS II, an update to a 2016 regulatory framework aimed at curbing risk in the insurance sector. The update requires insurers to raise more capital if they want to maintain their solvency ratios.
The approval for Taikang Life to issue perpetual bonds, which came one year after regulators allowed insurers to do so, could pave the way for other insurers under capital pressure to use the tool.
Multiple large insurance firms have applied for perpetual bond issuance, which would total hundreds of billions of yuan, sources with knowledge of the matter told Caixin.
Perpetual bonds are a type of debt with no fixed maturity and that pays interest to investors indefinitely if needed.
Read more In Depth: The Slow-Burning Insurance Crisis Unfolding in the Shadows
Contact reporter Zhang Yukun (yukunzhang@caixin.com) and editors Bertrand Teo (bertrandteo@caixin.com) and Lin Jinbing (jinbinglin@caixin.com)
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