Perpetual bonds have become a new weapon for insurance companies to "replenish blood".
Recently, the first phase of perpetual bonds of CPIC Life Insurance in 2023 was successfully issued, with an issuance scale of 12 billion yuan and an issue interest rate of 35%。This is also another insurance company that has completed the issuance of perpetual bonds after Taikang Life.
For the purpose of the issuance of perpetual bonds, CPIC Life Insurance said that the funds raised in this bond will be used to supplement the issuer's core Tier 2 capital in accordance with applicable laws and regulatory approvals, improve the issuer's solvency, create conditions for the healthy development of the issuer's business, and support the sustainable and steady development of the business.
In addition to Taikang Life Insurance and CPIC Life Insurance, ABC Life Insurance and PICC Health Insurance have also obtained regulatory approval to publicly issue perpetual bonds in the national interbank bond market.
In the view of industry insiders, with the expansion of the scale of insurance companies and the increase in capital demand, perpetual bonds, as a long-term and stable fund**, will receive more attention. In particular, in the context of the risk of asset-liability mismatch and capital adequacy pressure on insurance companies, the issuance of perpetual bonds will become one of the important financing means.
Provide stable capital**.
Perpetual bonds, i.e., capital bonds with no fixed maturity, refer to the issuance of capital supplementary bonds with no fixed term, with write-down or equity conversion clauses, which can absorb losses in both the state of going concern and the state of bankruptcy liquidation, and meet the regulatory requirements of solvency.
In August 2022, the People's Bank of China (PBOC) and the former China Banking and Insurance Regulatory Commission (CBIRC) jointly issued the Notice on Matters Concerning the Issuance of Indefinite Term Capital Bonds by Insurance Companies, allowing eligible insurance companies to issue perpetual bonds to supplement core Tier 2 capital.
The former China Banking and Insurance Regulatory Commission said that promoting the issuance of perpetual bonds by insurance companies is an important measure to further broaden the capital replenishment channels of insurance companies and improve the adequacy of the core solvency of insurance companies, which is conducive to enhancing the ability of insurance companies to prevent and resolve risks and serve the real economy, and is also conducive to further enriching financial market products and optimizing the financial structure.
Since the opening of the floodgates, insurance perpetual bonds have been highly anticipated by the industry and have been successfully implemented this year. On November 10, Taikang Life's perpetual bonds were officially listed. As the first insurance company to be approved to issue perpetual bonds, Taikang Life Insurance has been approved for the issuance of perpetual bonds with an approved amount of 20 billion yuan, an initial issuance of 5 billion yuan, and a coupon rate of 37%。
In addition to Taikang Life Insurance and CPIC Life Insurance, there are more insurance perpetual bonds on the way. On December 1, PICC Health was approved by the State Administration of Financial Supervision and Administration to issue perpetual bonds with a scale of no more than 2.5 billion yuanOn November 28, ABC Life Insurance was also approved to publicly issue perpetual bonds of no more than 2 billion yuan in the national interbank bond market.
Why are perpetual bonds favored by more and more insurance companies?"The reason why insurance companies choose to issue perpetual bonds is because of their stable rate of return and optimized debt structure. Zhu Keli, executive director of the China Information Association and founding president of the National Research Institute of New Economy, said in an interview with the International Financial News that the rate of return on perpetual bonds is relatively stable, enabling insurance companies to attract long-term funds and provide stable funds for the company's long-term development. At the same time, through the issuance of perpetual bonds, insurance companies can optimize the liability structure, reduce the risk of asset-liability mismatch, and improve the company's robustness and anti-risk ability.
Bai Wenxi, chief economist of IPG China, pointed out to reporters that as an important means of replenishing capital, perpetual bonds have lower financing costs than equity financing, which can reduce the financial burden of insurance companies, provide stable capital for insurance companies, and enhance the company's capital strength and anti-risk ability. In addition, the issuance conditions of perpetual bonds are relatively flexible and can be adjusted according to the actual needs of insurance companies.
In Bai Wenxi's view, with the development of the insurance industry and the increase in capital demand, as well as the encouragement of regulatory policies, the status of perpetual bonds in the financing of insurance companies will continue to improve. "However, when issuing perpetual bonds, insurers should also fully consider their own capital needs, financing costs and market environment, and reasonably choose the timing and scale of issuance. ”
Perpetual bonds or capital supplementary bonds.
Bond issuance has always been an important channel for insurance companies to "replenish blood". In addition to perpetual bonds, insurers also replenish their capital by issuing capital supplementary bonds.
On November 22, Chinese Life announced that it intends to issue a total of no more than 35 billion yuan of capital supplementary bonds in China at one time or in installments to supplement the company's affiliated tier 1 capital and support the sustainable and steady development of the business. Not long ago, Xinhua Insurance issued a total of 10 billion yuan of capital supplementary bonds in the national inter-bank bond market on November 2 to supplement the company's capital, enhance solvency, and create conditions for the company's benign operation.
According to the reporter's incomplete statistics, since the beginning of this year, more than 10 insurance companies have supplemented their capital through bond issuance, with a total scale of more than 70 billion yuan. If the issuance of bonds by Chinese Life goes smoothly, the scale of bond issuance by insurance companies may exceed 100 billion yuan during the year, far exceeding the cumulative bond issuance of 224 in the insurance industry in 2022The scale of 500 million yuan.
Behind the fact that insurance companies have issued bonds to "replenish blood" is the urgent need to improve solvency. In 2022, the C-ROSS Phase II Project (the "Solvency Supervision Rules for Insurance Companies" was officially implemented, mainly revising and improving the three-pillar framework of prudential supervision of the insurance industry. As a result, the solvency adequacy ratio of insurance companies has declined, and the demand for capital replenishment has become more and more intense.
According to data from the State Administration of Financial Supervision and Administration, as of the end of 2021, the average comprehensive solvency adequacy ratio of the insurance industry was 2321% and an average core solvency adequacy ratio of 2197%, which is at a high level. By the end of 2022, these figures had dropped to 196% and 128, respectively4%。As of the end of September 2023, they have dropped to 194% and 126%, respectively.
The reporter learned that capital supplementary bonds and perpetual bonds are both exogenous capital replenishment methods for insurance companies. The difference is that the capital supplementary debt is used to supplement the subsidiary capital, which can improve the comprehensive solvency adequacy ratio;Perpetual bonds are used to supplement core Tier 2 capital, which can improve the core solvency adequacy ratio.
So, after the perpetual bond "breaks the ice", how will insurance companies choose between issuing capital supplementary bonds and perpetual bonds?Zhu Keli believes that when choosing to issue capital supplementary bonds or perpetual bonds, insurance companies need to comprehensively consider various factors such as capital status, liability structure, and strategic planning. Generally speaking, capital supplementary bonds are mainly used to quickly replenish capital in the short term to meet regulatory requirements or respond to unexpected risk events, and have the characteristics of short issuance cycle and rapid capital arrival, which are suitable for short-term capital pressurePerpetual bonds, on the other hand, are more suitable for long-term liability management and capital planning, with a long duration and a stable rate of return, which can meet the long-term debt needs of insurers and provide stable funding**.
Bai Wenxi also said that this depends on the needs of insurance companies and market conditions. Specifically, if insurers have a large demand for capital replenishment and relatively low financing costs, they will tend to choose to issue perpetual bondsIf the insurer has a small need for capital replenishment, or if the financing cost is high, it may choose to issue capital supplementary bonds. At the same time, insurers also need to consider regulatory policies and other factors to make appropriate choices.
It is worth noting that insurance perpetual bonds are still a new product, and the market lacks understanding of them, and there is a risk of non-redemption and write-down, so investors may be relatively cautious in the early stage. Therefore, insurers need to consider how to improve the attractiveness of perpetual bonds while issuing them.
In this regard, Bai Wenxi pointed out that on the one hand, insurance companies can improve the company's credit rating and information disclosure transparency, so that investors can fully understand the company's operating conditions, risk control capabilities, etc., and increase investment confidenceOn the other hand, it can actively communicate with investors, flexibly set conditions such as issuance scale and interest rate adjustment mechanism, increase investors' interest in perpetual bonds, and make full use of the tax advantages of perpetual bonds to create more value for investors.
With the development of the market, insurers can also pay attention to innovative products of perpetual bonds, such as green perpetual bonds and convertible bonds, to meet the diversified needs of investors. Bai Wenxi added.