Chinese life insurers are taking on more asset risk because of greater equity exposures and surging alternative investments such as debt investment plans, trust schemes and wealth management products, Fitch Ratings has reported.
The rating agency said increased alternative investments make Chinese life insurers' credit profiles more vulnerable to an economic downturn as these types of investments are generally less liquid than sovereign or corporate bonds, and are focused on the infrastructure and real-estate sectors.
Alternative investments accounted for about 5%-17% of surveyed insurers' assets at the end of the first half of 2015.
Higher equity exposures also mean greater vulnerability to unfavourable stock market movements, noted Fitch. But the report – 2016 Outlook: China Life Insurers – added: "The impact of China's stock market correction in the second half of 2015 should be manageable, given their stronger solvency positions following the stock market's rally since mid-2014. Flexibility to reduce policyholders' dividends can also mitigate the impact of poor investment yields."