Under the influence of the second phase of the "C-ROSS-II", the solvency of insurance companies has generally declined, so "replenishing blood" through bond issuance and capital increase has become a mandatory action for some insurance companies in 2023.
According to the statistics of the relevant approvals for the whole year of 2023 on the official website of the State Administration of Financial Regulation, the total scale of bond issuance and capital increase approved by insurance companies in 2023 will exceed 200 billion yuan, involving more than 40 insurance companies.
According to industry insiders, the second phase of the "C-ROSS II" has become stricter on the capital requirements of insurance companies, and some insurance companies have chosen the transitional policy of the "C-ROSS II" phase II and will be officially implemented in 2025, so it is expected that the financing demand of insurance companies will continue to expand in the future.
"More than 200 billion blood supplements."
According to the statistics of the State Administration of Financial Regulation, in 2023, the scale of "blood replenishment" of insurance companies approved by the regulator will be about 211 billion yuan, involving about 44 insurance companies.
Although the approved scale of 211 billion yuan is theoretically the upper limit of the financing amount and is not necessarily the final financing amount of the year, on the whole, the scale of "blood replenishment" of insurance companies is still as much as double that of 2022. According to data from the State Administration of Financial Regulation, in 2022, the insurance industry will replenish capital by 540 through market-oriented methods4.7 billion yuan, of which 20 insurance company shareholders increased their capital by 4126.7 billion yuan, 10 insurance companies issued capital supplementary bonds 1278 billion yuan.
However, from the perspective of the "blood replenishment" method of insurance companies, contrary to the capital increase in 2022 and the issuance of more bonds, the approved scale of bond issuance by insurance companies in 2023 will be significantly higher than the scale of capital increase.
According to the statistics of the first financial reporter, a total of 23 insurance companies have been approved for capital increase plans in 2023, with a capital increase of about 40 billion yuan, of which three insurance companies, Aixin Life, Chinese Life Overseas and Taikang Pension, have been approved twice in one year. In 2023, about 21 insurance companies have been approved for bond issuance plans, with a bond issuance quota of about 171 billion yuan, significantly exceeding the capital increase quota.
From the perspective of insurance companies that have increased capital and issued bonds, most of the large listed insurance companies have chosen to issue bonds to "replenish blood", and the scale often reaches 10 billion yuan, which directly increases the total amount of bonds issued by insurance companies throughout the year. At the same time, there are also large insurance companies such as CPIC Property & Casualty that choose to replenish capital by increasing capital and issuing bonds at the same time in 2023, of which the approved capital increase scale is 47.8 billion yuan, while the scale of bond issuance is 10 billion yuan.
Liu Xinqi, chief analyst of Guotai Junan Non-Bank, analyzed in the research report that insurance companies mainly supplement capital through equity financing and debt financing. Constrained by the pressure of the transformation of the life insurance industry, the growth of the industry has been under pressure in recent years, which is not conducive to the pricing of equity assets and obtaining returns, and it is difficult for insurance companies to supplement their capital through equity financing. In contrast, debt financing has the advantages of fewer constraints, short issuance cycle and low issuance cost, so the demand for debt financing has increased significantly in the context of regulatory liberalization.
From the perspective of the approved bond issuance of insurance companies in 2023, they are mainly capital supplementary bonds, perpetual bonds and subordinated bonds. Among them, with the gradual opening of the varieties of bonds issued by insurance companies, subordinated bonds, one of the main varieties of insurance bonds issued in previous years, will only have an approval of 400 million yuan from Haibao Life Insurance at the end of 2023. The approved scale of capital supplementary bonds and perpetual bonds in 2023 is in the range of 80 billion yuan and 90 billion yuan, among which ABC Life Insurance and CCB Life Insurance will be approved for both capital supplementary bonds and perpetual bonds in 2023.
Guotai Junan said that there are four main types of bonds used by insurance companies for capital replenishment: subordinated term debt of insurance companies, subordinated convertible bonds of insurance companies, capital supplementary bonds of insurance companies and indefinite maturity capital bonds of insurance companies. These four types of bonds can be differentiated to meet the capital replenishment needs of insurance companies.
Specifically, the issuance of subordinated term debt and capital supplementary bonds by insurance companies can supplement subsidiary capital and improve the comprehensive solvency adequacy ratio, among which compared with subordinated term debt, which can only be issued in the form of private placement, capital supplementary bonds can be issued by public offering, and some companies with sufficient core solvency to meet the business development needs of some special insurance types (such as agricultural insurance) will mainly choose to issue capital supplementary bonds.
The issuance of open-ended capital bonds (perpetual bonds) can supplement core Tier 2 capital and improve the core solvency adequacy ratio. At present, for companies with tight core solvency adequacy ratios, especially life insurance companies, they will focus on the issuance of open-ended capital bonds.
In August 2022, the People's Bank of China and the former China Banking and Insurance Regulatory Commission jointly issued the Notice on Matters Related to the Issuance of Indefinite Term Capital Bonds by Insurance Companies, marking the official "opening of the floodgates" of insurance perpetual bonds. At the end of 2023, insurance companies' perpetual bond financing plans are intensive. Yicai statistics found that in November and December alone, there were 6 insurance companies with a total of 477The application for the raising of perpetual bonds of 700 million yuan was approved.
According to the data of Dongfang**, the financing enthusiasm of perpetual bonds in the primary market has dropped in December, and the main amount of insurance perpetual bonds has been contributed, and 9 new financial perpetual bonds were issued in December last year, with a total financing of 35.8 billion yuan, of which 30.8 billion yuan were newly developed in insurance perpetual bonds.
It is expected that the financing demand of insurance companies will continue to expand in the future.
In the bond issuance announcements of insurance companies, the reason for bond issuance is basically "to supplement the company's capital and improve the company's solvency".
Behind this, it shows the impact of the second phase of the "second generation". At the end of 2021, the former China Banking and Insurance Regulatory Commission (CBIRC) issued the "Solvency Supervision Rules for Insurance Companies ( ) referred to as the "C-ROSS II II Rules" in the industry), which will be officially implemented in the first quarter of 2022.
According to the analysis of the non-bank team of Huachuang ** in the research report, due to the strengthening of the capital identification standards in the second phase of the "second generation", the classification of actual capital, and the addition of minimum capital requirements for counterparties, major assets and real estate concentration risks, etc., the core solvency adequacy ratio and comprehensive solvency of the life insurance industry are expected to decline generally, and the risk resilience and dividend space of insurance companies will also be under pressure, and supplementary capital is needed.
Zhu Nanjun, a professor at the School of Economics at Peking University and deputy director of the China Insurance and Social Security Research Center at Peking University, wrote that the second phase of the "C-ROSS II" rules have played a positive role in consolidating capital quality and optimizing capital risk measurement. However, at the same time, it has also brought greater adjustments to the capital management of insurance companies, especially in the environment of low interest rates and volatile investment, the insurance industry has shown the characteristics of counter-cyclical operation, and with the tightening of solvency regulatory policies, the contradictions in capital management of insurance companies have become more prominent.
Under the second phase of the "C-ROSS-II", the comprehensive solvency adequacy ratio and core solvency adequacy ratio of insurance companies will decline significantly in 2022 and 2023. Although the above two indicators of insurance companies at the end of the third quarter of 2023 have basically rebounded to the level at the end of 2022 due to various "blood replenishment" actions, the core solvency adequacy ratio of 126% and 194The composite solvency adequacy ratio of 0% was compared to 219 at the end of 20217% and 2321% is still a significant decline.
*: According to the statistics of the State Administration of Financial Regulation, the first financial reporter will conduct statistics.
It is worth mentioning that the above two industry data are still far from the regulatory "red line" of 120% and 60% as a whole, but due to factors such as the impact of business structure and the demand for scale expansion, some insurance companies have a rapid consumption of solvency, so they need to "take precautions" and "replenish blood" in a timely manner.
After the "blood replenishment" year in 2023, will the financing needs of insurance companies continue?
In this regard, Guotai Junan expects that considering that 2022 and 2024 will be the transition period for the implementation of the second phase of the "C-ROSS II", a large number of insurance companies will apply to adopt the transition period policy, and choose to put some regulatory rules in place step by step, and fully implement them by 2025 at the latest. With the end of the transition period, it is expected that a large number of insurers will choose to alleviate capital pressure through bond financing. "Insurers are facing short-term capital pressure under the dual pressure of tighter capital regulations and industry transformation, but most companies still have strong liquidity and solvency. Guotai Junan said.
Zhu Nanjun suggested that from the perspective of improving the counter-cyclical regulatory policy system, appropriate adjustments should be made to some of the rules of the second phase of the "C-ROSS II", such as appropriately raising the upper limit of the proportion included in the future surplus of core capital insurance policies, and encouraging growth companies to carry out long-term business development; continue to increase efforts to effectively optimize the risk factors of equity assets such as equity and **; Appropriately relax the limit that subsidiary capital shall not exceed 100% of core capital. "After the second phase of the 'C-ROSS-S) II rules add the classification of future earnings of policies, part of the future earnings of policies will be included in the subsidiary capital, which may cause crowding out of the scale of capital supplementary bond issuance. Zhu Nanjun said. At the same time, he also suggested that more support should be given to the approval of the issuance of capital supplementary bonds and perpetual bonds.