Cofco Capital Holdings (002423.SZ) announced on June 11 that its wholly-owned subsidiary, China Taiping Insurance UK, plans to issue perpetual bonds with no fixed term on the interbank bond market with a total amount of no more than 3 billion yuan, with a face value of 100 yuan and a term consistent with the continuous operation period of China Taiping Insurance UK, using phased adjusted coupon rates and no fixed maturity date.

It is reported that the funds raised from this bond issuance by China Taiping Insurance UK will be used to supplement its core Tier 2 capital, improve the company's solvency to support sustained business development. As of the end of the first quarter of 2024, the core and comprehensive solvency adequacy ratios of China Taiping Insurance UK were 161.62% and 260.7%, respectively. Although this data is still higher than the minimum regulatory requirements, it has decreased compared to before the implementation of the second phase of the 'solvency generation' rules.

It is worth noting that China Taiping Insurance UK's profits have fluctuated significantly since 2023. In 2023, China Taiping Insurance UK achieved insurance business revenue of 16.171 billion yuan, a year-on-year increase of 42.68%, but the company's net income dropped sharply from 925 million yuan in 2022 to 29 million yuan, a year-on-year decrease of 96.86%, although revenue increased. In the first quarter of this year, China Taiping Insurance UK achieved insurance business revenue of 5.182 billion yuan, a year-on-year increase of 22.39%; net income increased significantly to 621 million yuan from -420 million yuan in the same period last year. An official from China Chengxin International pointed out that: 'In the future, considering the increasingly fierce competition in the life insurance industry and the increased market uncertainty, attention still needs to be paid to the stability of China Taiping Insurance UK's profitability and changes in solvency.'

To 'replenish blood' for its solvency, China Taiping Insurance UK plans to issue perpetual bonds with a scale of no more than 3 billion yuan.

On June 11, Cofco Capital Holdings held a board meeting and approved the 'Proposal on China Taiping Insurance UK's Issuance of Capital Bonds with No Fixed Term'. The proposal shows that China Taiping Insurance UK plans to issue perpetual capital bonds with no fixed term on the interbank bond market in 2024, with a total amount of no more than 3 billion yuan (including).

It is understood that the face value of the bonds to be issued by China Taiping Insurance UK this time is 100 yuan, and a phased adjusted coupon rate will be used. A coupon rate adjustment period of about 5 years will be adopted, in which interest will be paid at the same agreed coupon rate. The face value interest rate at the time of issuance will be determined through book entry and centralized distribution, and the specific issuance scale will be determined by China Taiping Insurance UK before the issuance based on the funding needs and market conditions.

The bonds to be issued above are perpetual capital bonds, with the same duration as the continuous operation period of China Taiping Insurance UK and no fixed maturity date before China Taiping Insurance UK exercises its redemption right.

The so-called 'perpetual capital bonds' refer to perpetual bonds. Chen Hui, director of the Chinese Actuarial Science and Technology Laboratory at the Central University of Finance and Economics, told the Financial Association News Agency that under the new regulations of the second phase of the 'solvency generation', the core solvency adequacy ratios of insurance companies, especially life insurance companies, have generally declined, and the need and urgency for capital supplementation have increased accordingly.

Chen Hui introduced that insurance companies have limited ways to supplement core capital from external sources, mainly relying on shareholders' capital increase or IPO to supplement equity capital, and although capital replenishment bonds are currently a normalized capital replenishment tool in the industry, they can only be included in supplementary capital and cannot supplement core capital.

Compared with capital replenishment bonds, perpetual bonds can not only supplement core Tier 2 capital, but also leverage core policy surplus, bringing about leverage-style increase in core capital. When the limit of supplementary capital is triggered, it can also lever the future surplus increment of supplementary Level policy to double the leverage effect on the actual capital.

It is reported that the funds raised by China Taiping Insurance UK from the bond issuance this time will be used to supplement core Tier 2 capital, improve the company's solvency to support sustained business development.

As of the first quarter of 2024, the core and comprehensive solvency adequacy ratios of China Taiping Insurance UK were 161.62% and 260.7%, respectively. Although this data is still higher than the minimum regulatory requirements, it has decreased compared to before the implementation of the second phase of the 'solvency generation' rules.

It is worth noting that in the solvency report for the first quarter of 2024, China Taiping Insurance UK predicted that the core and comprehensive solvency adequacy ratios of the company in the second quarter of 2024 would drop to 149.92% and 245.33%, respectively.

Industry insiders said: 'In the future, with the continuous development of business and the increasing uncertainty of the capital market, China Taiping Insurance UK may face certain pressure to supplement capital.' It can be seen that the issuance of perpetual capital bonds by China Taiping Insurance UK is to cope with the above pressures.

China Taiping Insurance UK's net income in 2023 dropped sharply by 96.86% year on year and its future profit stability is still to be seen.

As the first Sino-foreign joint venture insurance company established after China's accession to the WTO, China Taiping Insurance UK was jointly established by Cofco Capital Holdings and the British leading insurer Friends Provident International on January 1, 2003. Its registered capital is 2.95 billion yuan and its business covers 16 provinces and municipalities directly under the central government.

Looking at the publicly available operational performance, during 2010-2023, China Ping An Life Insurance Company only experienced a small negative growth in insurance business income in 2011 and 2013.

In line with the development of the industry, when the insurance industry entered a transformation period in 2017 and 2018, the growth rate of China Ping An Life Insurance Company's insurance business income and net income slowed significantly. Its net income even had a negative growth in 2017.

Looking at the past five years, China Ping An Life Insurance Company has had stable development. During the pandemic period from 2019 to 2021, its net income maintained double-digit growth, and in 2021, its insurance business income broke through the RMB 10 billion mark, joining the industry's "10 billion club".

However, in the past two years, some of China Ping An Life Insurance Company's performance data has declined. In 2022-2023, it achieved insurance business income of RMB 11.334 billion and RMB 16.171 billion, respectively, with a year-on-year growth of 5.41% and 42.68%, respectively. However, in terms of net income, China Ping An Life Insurance Company's net income in 2023 plummeted from RMB 925 million in 2022 to RMB 29 million, a year-on-year decrease of 96.86%.

Industry insiders analyzed that in 2023, although China Ping An Life Insurance Company's insurance business income rapidly increased, its total profit in 2023 decreased significantly year-on-year due to the combined impact of increased reserve and decreased investment income. In addition, due to the decrease in tax-free income, its tax expense in 2023 was RMB 28 million, a significant increase from the -RMB 76 million in 2022, which also affected its profit.

Zhongchengxin International stated that "in 2023, under a complex external environment, China Ping An Life Insurance Company has demonstrated operational resilience and realized fast development in insurance underwriting business. However, with the increase of expenses and insurance liability reserve, coupled with fluctuations in equity market, investment income decreased year on year and the company's net income suffered a sharp year-on-year decline."

In the first quarter of 2024, China Ping An Life Insurance Company achieved insurance business income of RMB 5.182 billion, a year-on-year increase of 22.39% from RMB 4.234 billion in the first quarter of 2023; its net income increased significantly from -RMB 420 million in the first quarter of 2023 to RMB 621 million, with significant fluctuations.