(Yicai) Sept. 13 -- The insurance industry is being brought into China’s capital replenishment framework for state-owned financial institutions on a large scale for the first time, industry insiders said, following the announcement that the Ministry of Finance will inject CNY70 billion (USD10.4 billion) into five state-owned insurers.

The Ministry of Finance will soon issue CNY300 billion (USD44.7 billion) in special treasury bonds to support eight central government-owned financial enterprises to replenish their core Tier-1 capital, Xinhua News Agency reported on Sept. 6. The same day, five insurance groups, namely People’s Insurance Company of China, China Re Group, China Life Insurance Group, China Taiping Insurance Group and China Export & Credit Insurance, said that they will receive a total of CNY70 billion in additional capital from the ministry.

Chinese insurers have received state capital support in the past, several industry insiders said. For example, the Ministry of Finance pumped CNY2.5 billion (USD372,500) into China Taiping in 2023. However, this appears to be the first time that the ministry has injected capital into multiple central government-owned insurance groups as part of a single coordinated move.

Insurance companies typically raise additional capital to strengthen their capital base and improve solvency. However, current data suggest that insurers are not facing significant solvency pressure.

The industry’s overall solvency adequacy ratio and core solvency adequacy ratio stood at 180.6 percent and 133.5 percent, respectively, in the first half, well above the regulatory thresholds of 100 percent and 50 percent, according to data from the National Financial Regulatory Administration.

The solvency ratios of the insurance groups receiving the capital injections, as well as their affiliated listed companies, were also significantly higher than the regulatory “red line” as of June 30.

The latest capital injections into state-owned insurers are precautionary rather than rescue measures, said Ge Yuxiang, chief analyst of non-bank financials at Zhongtai Securities. In the medium to long term, the injections will ease concerns over insurers’ ability to increase their equity investments, while strengthening their capital base and market influence of major state-owned commercial insurers.

Guosheng Securities said the primary purpose of the capital injections is to strengthen insurers’ capital bases, improve solvency and create greater room for long-term investment. The move is intended to build capital buffers and reduce potential capital constraints, rather than serve as a “bailout” following the emergence of financial risks, the Shenzhen-based brokerage said.

Once the capital injections are completed, the solvency adequacy ratios of PICC, Beijing-based China Re and Hong Kong-headquartered China Taiping are expected to rise by 6.1 percentage points, 3.9 percentage points and 5 percentage points, respectively, according to estimates by Soochow Securities.

Guosheng Securities said the impact of capital injections on the stock and bond markets is generally positive, while their impact on government bonds is likely to be limited. Financial bonds, however, are expected to benefit more.

Editor: Kim Taylor