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Best’s Special Report: Declining Investment Yields Pose Challenges to Meet Cost of Capital for China Insurers

Chinese insurers have been raising funds from the domestic debt capital market in the form of capital supplementary bonds (CSBs) in recent years, highlighted by a 240% increase in issuances in 2023. However, according to a new AM Best report, as CSBs are not recognised as core capital under the C-ROSS Phase II solvency regime, the core solvency ratio, particularly among China’s life insurers, has experienced material downward pressure.

The Best’s Special Report, “Declining Investment Yields Pose Challenges to Meet Cost of Capital for China Insurers,” notes that many insurers applied for a three-year transition period, which will end at year-end 2024. In late 2023, the regulator announced the relaxation of some C-ROSS requirements, while some insurers raised capital through issuing perpetual bonds, which contribute towards the calculation of core solvency ratio. These measures helped stabilise the insurance industry’s solvency levels in 2023.

According to the report, although insurers in China have benefited from low debt financing costs in the country, prolonged negative spreads with declining investment yields pose challenges, especially for life insurers. Going forward, insurers may face greater difficulty finding appropriate investment opportunities for asset-liability matching, while further divergence of the negative spread may diminish insurers’ desire to issue CSBs to source capital.

“Insurance perpetual bonds remain relatively new to onshore investors; however, the market for these bonds is expected to mature over the long term, supported by improving investor confidence and market depth,” said James Chan, director, analytics, AM Best. “We consider this credit-positive as it enriches insurers’ capital structure and enhances financial flexibility.”

Despite an uptick in debt issuance the past few years, financial leverage remains low for AM Best-rated companies. Notwithstanding, excessive financial leverage is considered credit-negative as debt servicing obligations weaken liquidity, especially if capital market conditions turn unfavourable.

To access the full copy of this report, please visit

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit

Copyright © 2024 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.


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